4Related Party IAS 24 - KIMEP - Final

7/30/2019 4Related Party IAS 24 - KIMEP - Final

1/27

IFRS LecturesIAS 24 Related Parties


2/27

Learning Objectives

Purpose of IAS 24

Scope of IAS 24 Key terms of IAS 24

Non-related party relationships

Types of transactions with related parties that should be

disclosed

Disclosures required under IAS 24


3/27

Purpose of IAS 24

To ensure that financial statements draw readers attention to the

possibility that companys financial position and profit or loss may

have been affected by the existence of related parties and bytransactions and outstanding balances with such parties

Related parties may enter into transactions that unrelated parties

.

Transactions between related parties may not be made at the same

amounts as between unrelated parties.

IAS 24 focuses on identifying related parties and outstanding

balances

IAS 24 does not address measurement of related party transactions


4/27

Purpose of IAS 24(Continued)

The profit or loss and financial position of an entity may be

affected by a related party relationship, even if related

party transactions do not occur.

The mere existence of the relationship may be sufficient

to affect the transactions of the entit with other arties.

Knowledge of related party transactions, outstanding

balances, and relationships may affect assessment of the

operations by users of the financial statements, including

assessments of risks and opportunities facing the entity.


5/27

Scope of IAS 24

The Standard shall be applied in:

Identifying related party relationships and transactions

Identifying outstanding balances between an entity and its related

parties

above is required

Determining the disclosures to be made about those items


6/27

Key terms of IAS 24

A party is related to an entity if at least one of the following is true:

(a) Directly, or indirectly through one or more intermediaries, theparty:

Controls, is controlled by, or is under common control with, the entity(e.g., parents, subsidiaries, and fellow subsidiaries)

Has an interest in the entit that ives it si nificant influence over the

entity Has joint control over the entity

(b) The party is an associate of the entity

(c) The party is a joint venture in which the entity is a venturer


7/27

Key terms of IAS 24 (continued)

A party is related to an entity if at least one of the following is true:

(d) The party is a member of the key management personnel of the

entity or its parent

(e) The party is a close member of the family of any individual

referred to in (a) or (d)

(f) The party is an entity that is controlled, jointly controlled, or

significantly influenced by, or for which significant voting power in

such entity resides with, directly or indirectly, any individual referred

to in (d) or (e); or

(g) The party is a post-employment benefit plan for the benefit of

employees of the entity or of any related party of the entity


8/27


Key Management Personnel

Those persons having authority and responsibility forplanning, directing, and controlling the activities of the

entity, directly or indirectly, including any director (whether

executive or otherwise of that entit .


9/27


Close Family Members of an Individual

Those family members who may be expected toinfluence, or be influenced by, that individual in their

dealings with the entity. These members include the

' ,

the individual's domestic partner, and dependents of the

individual or of his or her domestic partner.


10/27


Control

The power to govern the financial and operating policies of an entity

so as to obtain benefits from its activities.

Joint Control

The contractuall a reed-u on sharin of control over an economic

activity.

Significant influence

The power to participate in the financial and operating policy

decisions of an entity, without having control over those policies. Itmay be gained by share ownership, statute, or agreement.


11/27

Non-related party relationships

Two entities just because they have a common director

Two venturers that share joint control over a joint venture

The entity and its providers of finance

The trade unions with which it deals

Public utilities and government departments and agencies

Its major customers, suppliers, and other parties with

which it transacts a large enough volume of business to

create economic dependence


12/27

Related Parties Exercise

s t e report ng ent ty, an t ere are transact ons etween ent t es

& A, H & S and S & A, pick the statement(s) that is/are true?

A. Transactions between entities H & A should be disclosed in Hs

financial statements

B. Transactions between entities H & S should be disclosed in Hs


C. Transactions between entities S & A should be disclosed in Hs



13/27

Related Parties Exercise

,

& A, H & S and S & A, pick the statement(s) that is/are true?

A. Transactions between entities H & A should be disclosed in Hs

financial statements TRUE

B. Transactions between entities H & S should be disclosed in Hs

financial statements TRUE

C. Transactions between entities S & A should be disclosed in Hs

financial statements - TRUE


14/27

Related Parties Disclosures

Disclosure of controlling relationships To enable users of financial statements to form a view about the effects of

related party relationships on an entity, it is appropriate to disclose the relatedparty relationship when control exists, irrespective of whether there have beentransactions between the related parties

Disclosure of related party transactions A related party transaction is defined as a transfer of resources, services or

obligations between related parties, regardless of whether a price is charged

key management personnel compensation

purchases or sales of goods (finished or unfinished)

purchases or sales of property and other assets

rendering or receiving of services

leases

transfers of research and development

transfers under licence agreements

transfers under finance arrangements (including loans and equitycontributions in cash or in kind)

provisions of guarantees or collateral

settlement of liabilities on behalf of the entity or by the entity on behalf ofanother party


15/27

Related Parties Disclosures (contd)

In determining whether related party transactions need to be disclosed in

financial statements, the general concept of materiality should be applied

Materiality is dealt with in IAS 1 - Presentation of Financial Statements

Permits aggregation of items of a similar nature, except when separatedisclosure is necessary for an understanding of the effects of the related

party transactions in the financial statements of the entity

At a minimum, the disclosures shall include:

the amount of outstanding balances

their terms and conditions, including whether they are secured, and

the nature of the consideration to be provided in settlement

details of any guarantees given or received

provisions for doubtful debts related to the amount of outstandingbalances

the expense recognised during the period in respect of bad or doubtful

debts due from related parties


16/27

Transaction Disclosures (continued)

The categories of related parties for which separate

disclosures are required are:

The parent

Entities with joint control or significant influence over the entity

Subsidiaries Associates

Joint ventures in which the entity is a venturer

Key management personnel of the entity or its parent

Other related parties.


17/27

Key Management Compensation

Compensation payable to key management must be

disclosed in total and analysed into: Short-term employee benefits

Post-employment benefits

Other lon -term benefits

Termination benefits Share-based payments


18/27

State Controlled Entities

Entities that are controlled or significantly influenced by

the state may not always be aware that transactions have

been conducted with fellow subsidiaries or associates. Asa result, these entities may have difficulties in obtaining

information to be disclosed by IAS 24.


19/27

Question 1

A related party transaction is a transfer of resources,

services, or obligations between related parties,

regardless of whether a price is charged.

Is the statement above true or false?


20/27

Question 2

The objective of IAS 24 is to ensure that an entity's

financial statements contain the disclosures necessary to

draw attention to the possibility that its financial positionand profit or loss may have been affected by the

existence of related parties and by transactions and

.

Is the statement above true or false?


21/27

Question 3

Under IAS 24, an entity must disclose all of the following except whichitem?

The pricing policies between the reporting entity and the other entitiesthat are part of the same group must be disclosed.

The reporting entity must disclose the name of its parent and, if, .

If neither the parent nor the ultimate controlling party producesfinancial statements for public use, the name of the next-most-seniorparent must be disclosed.

Relationships between a parent company and its subsidiaries must be

disclosed irrespective of whether there have been transactionsbetween them during the reporting period.


22/27

Question 4

According to IAS 24, two companies with a common

director are related parties.

TRUE FALSE


23/27

Question 5

Which of the following is not a category of related parties forwhich separate disclosures are required?

Employees that are not a part of key management personnel

Subsidiary

Parent

Key management personnel


24/27

Question 6

If Mr. Smith owns 100 percent of an entity while a closefamily member of Mr. Smith is a member of the keymanagement personnel of another entity, are these twoentities related parties?

Yes No


25/27

Question 7

How should key management personnel compensation bedisclosed?

A. In total

B. For each of the followin cate ories: short-term benefits ost-

employment benefits, share-based payment, termination benefits,and other long term benefits.

C.A and B

D. No disclosure is required


26/27

Questions?


27/27

END

Documents

4Related Party IAS 24 - KIMEP - Final