Related Party Transactions

PwC

Related Party Transactions Sujeewa Mudalige TRANSFORM Changing business by changing behaviour

Overview of session 1. Introduction 2. Recognition 3. Disclosure 4. New developments

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PwC

Related Party Disclosures Introduction TRANSFORM Changing business by changing behaviour

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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Related Party Disclosures Recognition TRANSFORM Changing business by changing behaviour

Determining related parties

Control

Determining Related Parties

    

Parents Subsidiaries Fellow subsidiaries Joint ventures Other entities controlled by owners or key management

Significant influence Key management personnel TRANSFORM

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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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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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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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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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PwC

Related Party Disclosures Measurement TRANSFORM Changing business by changing behaviour

Measuring transactions Cost Arm’s length

Cost plus

Methods

Resale price

TRANSFORM

Free of charge

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PwC

Related Party Disclosures Disclosure TRANSFORM Changing business by changing behaviour

Disclosures  Nature of the relationships  Types of transaction  Volume and value of the transaction  Pricing policies  Balances at year end

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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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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 TRANSFORM

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