IAS 24 requires entities to disclose information about their relationships with related parties, which are individuals or entities that have the ability to influence the financial and operating policies of the entity. Here are some examples of related party disclosures and how they should be accounted for under IAS 24:
Example 1: Company A is a subsidiary of Company B, which is a publicly traded company. Company A should disclose its relationship with Company B as a related party and provide information about the nature of the relationship, the amount of transactions with Company B, and any outstanding balances with Company B. This information should be included in Company A’s financial statements.
Example 2: Company C is a privately held company, and its controlling shareholder owns a separate company that provides consulting services to Company C. The shareholder charges a fee for these services. Company C should disclose its relationship with the shareholder as a related party and provide information about the nature of the relationship, the amount of transactions with the shareholder, and any outstanding balances with the shareholder. The fee charged by the shareholder for the consulting services should be disclosed in the financial statements.
Example 3: Company D has a director who also serves as a director of a supplier that provides goods to Company D. The supplier gives the director a discount on the goods it supplies to Company D. Company D should disclose its relationship with the director and the supplier as related parties and provide information about the nature of the relationship, the amount of transactions with the supplier, and any outstanding balances with the supplier. The discount given to the director by the supplier should be disclosed in the financial statements.
Example 4: Company E has a loan agreement with a bank, and the loan agreement includes a provision that requires Company E to maintain a minimum level of net worth. The owner of Company E also owns a separate company that provides consulting services to Company E, and the consulting services have been recognized as an expense in Company E’s financial statements. Company E should disclose its relationship with the owner’s separate company as a related party and provide information about the nature of the relationship, the amount of transactions with the separate company, and any outstanding balances with the separate company. Company E should also disclose the loan agreement with the bank and the minimum net worth requirement, as this could be an indication of the influence of the related party over Company E’s financial and operating policies.