Related Party Disclosures - Amendments to IAS 24

Date recorded:

Objective and Scope

The Board agreed that:

  • The exemption proposed in the Exposure Draft (ED) should not be extended to entities controlled by an entity that is not a State.
  • The exemption from disclosure proposed in the ED should not be extended to other related party relationships.
  • It would not reconsider fundamentally the definition of a related party. Such a re-consideration was beyond the scope of this project.
  • It would not permit an entity to avoid disclosure on the basis that, notwithstanding its 'best endeavours', it had been unable to obtain the necessary information on related party relationships.
  • It would not provide any materiality guidance in IAS 24.
  • It would not provide any exemption from IAS 24 disclosure for subsidiaries whose parents prepare consolidated financial statements that are available for public use.


State-controlled entities

The Board redeliberated the fundamental issue raised in the ED, in particular, how to determine whether an entity related to the State should be exempted from IAS 24's disclosure requirement. The staff had proposed an approach that was different in certain respects from that proposed in the ED. However, it was apparent very quickly that Board members were not in favour of the staff recommendations and were in favour of an approach very similar to that proposed in the ED.

The Board concentrated on the following paragraphs from the ED:

17A. A reporting entity is exempt from the disclosure requirements of paragraph 17 in relation to an entity if:

  • (a) the entity is a related party only because the reporting entity is controlled or significantly influenced by a state and the other entity is controlled or significantly influenced by that state; and
  • (b) there are no indicators that the reporting entity influenced, or was influenced by, that entity.
17B. Indicators that the influence referred to in paragraph 17A(b) exists are when the related parties:
  • (a) transact business at non-market rates (otherwise than by way of regulation);
  • (b) share resources; or
  • (c) engage in economically significant transactions with each other.

The staff noted that comment letters had identified a confusion in paragraph 17A as to whether 'influence' was 'significant influence' as used in IAS 28 Investments in Associates or something else (presumably a lesser degree).

Board members noted that, read in context, ED paragraphs 17A-17E demonstrate that 'influence' in IAS 24 need not be 'significant influence' as that term is used in IAS 28.

After an extended discussion, the Board agreed (one opposed) that:

  • If the State controls or exercises significant influence over the reporting entity (that is, the State actively participates in the policies and affairs of the associate) and the counterparty [17A(a)], the exemption would not apply;
  • If there are indications that there are 'influenced transactions' [17A(b)], the exemption would not apply.
  • When related parties transact business at non-market rates (otherwise than by way of regulation) [17B(a)], the trigger in 17A(b) is deemed to be met by definition and the exemption would not apply. The Board agreed to clarify in paragraph 17E that once it is determined that the exemption does not apply, all disclosures required by IAS 24 are required (that is, the disclosures are not limited to 'influenced transactions'). The Board agreed that, with respect to paragraph 17A(a), if the State does not exercise significant influence (that is, it could but does not participate in determining the operating and investing policies of the associate) and there are no 'influenced transactions', the proposed exemption would apply and no IAS 24 disclosures would be required. The Board acknowledged that its approach would create disclosure 'penalties' for off-market transactions. However, it also noted that it did not intend by its vote to scope in government incentives, including low-interest loans and regional development programmes, offered by a State acting as the State. The Board agreed that the indicators in 17B(b) and (c) were equal in weight and that the staff should investigate combining those indicators with those in 17C. The staff will bring this issue to a subsequent meeting. The Board will continue redeliberations at a subsequent meeting.

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