related party transactions
DESCRIPTION
Related Party Transactions. Sujeewa Mudalige. Overview of session. 1. Introduction. 2. Recognition. 3. Disclosure. 4. New developments. Related Party Disclosures. Introduction. Scope of IAS 24 / LKAS 24. - PowerPoint PPT PresentationTRANSCRIPT
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TRANSFORM
Changing business by changing
behaviour
Related Party Transactions
Sujeewa Mudalige
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2 TRANSFORM
Overview of session
1. Introduction
2. Recognition
3. Disclosure
4. New developments
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TRANSFORM
Changing business by changing
behaviour
Related Party Disclosures
Introduction
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4 TRANSFORM
Scope of IAS 24 / LKAS 24
• Parties are related if one party can control or exercise significant influence over the other
• IAS 24 covers those parties which are related and details a number of exclusions
• Disclosure is required for:
– Upwards and downwards control relationships
– Details of the transactions
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TRANSFORM
Changing business by changing
behaviour
Related Party Disclosures
Recognition
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6 TRANSFORM
Determining related parties
Determining Related Parties
Control
Significant influence
Parents Subsidiaries Fellow subsidiaries Joint ventures Other entities controlled by owners or
key management
Key management personnel
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7 TRANSFORM
Examples of related party transactions
Sales and purchases of good and services
Balances arising as a result at the Balance Sheet date
Loans, commitments and contingencies
Transactions with directors
Bank loans and collateral
Agency arrangements
Share capital transactions
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8 TRANSFORM
Exclusions
Providers of finance
Trade Unions
Public utilities
Government departments and agencies
Single suppliers / customers / franchises / distributors unless a specific relationship exists
Entities with a director in common unless that director has the ability to direct or significantly influence
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9 TRANSFORM
Exemptions
Stand alone financial statements of a parent if consolidated statements are available
Financial statements of a wholly owned subsidiary if parent incorporated in the same country and providing financial statements
Intra-group transactions that have been eliminated on consolidation
State controlled entities
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10 TRANSFORM
Related parties for only part of the year
Company A acquires 25% of Company B, regular supplier, on 1/9/20XX for which it
equity accounts.
During the year ended 31/12/20XX Company B makes sales to A of 2,000. The total sales till 1/9/20XX were 1,100.
The companies are related from 1/9/20XX and 900 should be disclosed as a related
party transaction.
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TRANSFORM
Changing business by changing
behaviour
Related Party Disclosures
Measurement
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12 TRANSFORM
Measuring transactions
Arm’s length
Cost
Cost plus
Resale price Free of charge
Methods
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TRANSFORM
Changing business by changing
behaviour
Related Party Disclosures
Disclosure
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14 TRANSFORM
Disclosures
Nature of the relationships
Types of transaction
Volume and value of the transaction
Pricing policies
Balances at year end
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15 TRANSFORM
Improvements project (1)
• Related party definition clarified to include
– Parties with joint control over entity
– Joint ventures
– Post-employment benefit plan
• Significant influence definition - conformed to IAS / LKAS 28
• Wholly owned subsidiary – exemption no longer limited to parent in same country
• State-controlled entities no longer exempt
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16 TRANSFORM
Improvements project (2)
• No longer sufficient to disclose proportions of transactions / balances
– must disclose full amounts
• Additional disclosures by category of related party :
– Terms and conditions (security / consideration)
– Guarantees given / received
– Provisions for doubtful debts (incl P/L expense)
– Settlement of liabilities on behalf of entity
• Pricing policies / management compensation cost not required