FINANCIAL REPORTING
Financial Reporting News
Financial Reporting News
If an entity has related party transactions, it shall disclose the nature of the related party relationship as well as information about the transactions, outstanding balances and commitments necessary for an understanding of the potential effect of the relationship on the financial statements.
At a minimum, disclosures shall include:
(a) The amount of the transactions.
(b) The amount of outstanding balances and:
(i) their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and
(ii) details of any guarantees given or received.
(c) Provisions for uncollectible receivables related to the amount of outstanding balances.
(d) The expense recognised during the period in respect of bad or doubtful debts due from related parties.
These disclosures also include key management personnel compensation.
An entity shall disclose key management personnel compensation in total, however if key management personnel and directors are the same, directors’ remuneration (or equivalent) is exempt from disclosure unless the entity is subject to a legal or regulatory requirement to disclose.
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly including any director of the entity. Compensation includes all employee benefits including those in the form of share-based payments. Employee benefits include all forms of consideration paid, payable or provided by the entity, or on behalf of the entity in exchange for services rendered to the entity. It also includes consideration paid on behalf of a parent of the entity in respect of goods or services provided to the entity.
IAS 24 Related Party Disclosures
Related party transactions are the transfer of resources, services or obligations between related parties regardless of whether a price is charged. Where there are transactions between a parent and subsidiary, the entity must disclose the name of its parent and if different the ultimate controlling party.
If there have been transactions between related parties, it is necessary to disclose within the financial statements the nature of the related party relationship as well as information about the transactions and outstanding balances. These disclosures are made separately for each category of related parties and include:
- The amount of the transactions
- The amount of outstanding balances, including terms and conditions and guarantees
- Provisions for doubtful debts related to the amount of open balances
- The expense during the period for bad or doubtful debts due from related parties
The identification and documentation of related parties per International Standard on Auditing ISA (Ireland) 550 are included within the article on page 42. “The Importance of Auditing Related Party Transactions”.
We now take a look at the financial reporting requirements of related party disclosures from an IFRS viewpoint of IAS 24 and the financial reporting requirements of FRS 102 and S1.A FRS 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland.
FRS 102 – Related Party Disclosure
Section 33 of FRS 102 requires an entity to include in its financial statements the disclosures necessary to draw attention to the possibility that its financial position and profit or loss have been affected by the existence of related parties and by transactions and outstanding balances with such parties.
Transactions entered into between two or more members of a group do not require disclosure provided that any subsidiary which is a party to the transaction is wholly owned by such a member.
This appendix sets out the disclosure requirements for small entities, based on the requirements of Companies Act 2014. Sections 1AD.38 to 1AD.51 deal specifically with related party transactions. It is recommended to review these sections to make the necessary disclosures in the financial statements.