Disclosure Related party transactions

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Disclosure Related party transactions provides a summary of IFRS reporting requirements regarding IAS 24 Related party transactions and a possible disclosure schedule. However, as this publication is a reference tool, no disclosures have been removed based on materiality. Instead, illustrative disclosures for as many common scenarios as possible have been included. Please note that the amounts disclosed in this publication are purely for illustrative purposes and may not be consistent throughout the example disclosure related party transactions.

Presentation

All of the related party information required by IAS 24 that is relevant to the Reporting entity Plc has been presented, or referred to, in one note. This is considered to be a convenient and desirable method of presentation, but there is no requirement to present the information in this manner. Compliance with the standard could also be achieved by disclosing the information in relevant notes throughout the financial statements.

Materiality

The disclosures required by IAS 24 apply to the financial statements when the information is material. According to IAS 1 Presentation of Financial Statements, materiality depends on the size and nature of an item. It may be necessary to treat an item or a group of items as material because of their nature, even if they would not be judged material on the basis of the amounts involved. This may apply when transactions occur between an entity and parties who have a fiduciary responsibility in relation to that entity, such as those transactions between the entity and its key management personnel. [IAS1.7]

Key management personnel compensation

While the disclosures under paragraph 17 of IAS 24 are subject to materiality, this must be determined based on both quantitative and qualitative factors. In general, it will not be appropriate to omit the aggregate compensation disclosures based on materiality. Whether it will be possible to satisfy the disclosure by reference to another document, such as a remuneration report, will depend on local regulation. IAS 24 itself does not specifically permit such cross-referencing.

Related party definition

The definition of a related party includes the following persons and entities:

1. A person (or a close member of that person’s family) is related to the reporting entity if the person:
   1. has control or joint control over the reporting entity
   2. has significant influence over the reporting entity, or
   3. is a member of the key management personnel of the reporting entity, or of a parent of the reporting entity.
2. The reporting entity (A) is related to another entity (B) if:
   1. A and B are members of the same group (that is, all entities within a group are related to each other)
   2. A is an associate or joint venture of B. In this case, A is related to all members of the group that B belongs to
   3. A and B are joint ventures of the same third party, C
   4. A is a joint venture of C and B is an associate of C (or vice versa)
   5. B is a post-employment benefit plan for the benefit of employees of A or an entity related to A. If A is itself a post-employment benefit plan, any sponsoring employers are also related to A
   6. B is controlled or jointly controlled by a person identified in (a) above
   7. a person who has control or joint control over A has significant influence over B or is a member of the key management personnel of B, or
   8. B (or any member of the group of which B is a part) provides key management personnel services to A or A’s parent. [IAS24.9 IAS24.IE4-IE26]

In this definition, an associate includes subsidiaries of the associate, and a joint venture includes subsidiaries of the joint venture. [IAS24.12]

Post-employment benefit plans

Post-employment benefit plans for the benefit of employees of the entity, or of any entity that is a related party of the entity, are related parties under the definition in paragraph 9 of IAS 24. This means that contributions made to such plans by the entity or any other entity in the consolidated group must be disclosed as a related party transaction, regardless of whether the plans are defined contribution or defined benefit plans. [IAS24.9(b)(v), IAS 19.151]

Transactions with related parties

Related party transactions are transfers of resources, services or obligations between the reporting entity and a related party, regardless of whether a price is charged. They include commitments to do something if a particular event occurs (or does not occur) in the future and executory contracts (recognised or unrecognised). As per IAS 37, executory contracts are contracts under which neither party has performed any of its obligations, or both parties have partially performed their obligations to an equal extent. [IAS24.9, IAS24.21, IAS37.3]

Comparatives

IAS 24 is silent on comparatives. Under IAS 1, comparative information must be provided for all amounts reported in the financial statements, except where a standard provides otherwise, which is not the case with IAS 24. As the notes are part of the financial statements (see paragraph 10 of IAS 1), comparative information should be included for all amounts that provide further analysis of the line items in the financial statements.

IAS 1 further states that comparative information should also be provided for narrative and descriptive information where it is relevant to an understanding of the current period’s financial statements. In the case of related party disclosures, comparative information is likely to be relevant for all narrative and descriptive information.

The comparative information should disclose transactions with parties that were related at the time the transaction took place, but need not include information about transactions with parties that were unrelated at that time. [IAS1.38]

Other potential disclosures

Issue not disclosed	Relevant disclosures or references
Commitments to related parties, including committed future purchases or sales [IAS 24.18(b)]	Disclose amount of commitments as at the end of the reporting period, including terms and conditions.
Key management personnel (KMP) services are provided by a separate management entity [IAS 24.18, IAS 24.18A]	Disclose fee paid to the management entity for the KMP services and any other transactions with that entity.
The entity applies the exemption for government-related entities [IAS 24.25-27]	Provide the information required by paragraphs 25 – 27 of IAS 24.
An investment entity is exempt from consolidating certain subsidiaries and measures them at fair value through profit or loss instead	Disclose any transactions and outstanding balances with those subsidiaries, as they are not eliminated on consolidation.

Example Disclosure Related party transactions

20 Related party transactions

20(a) Parent entities

The group is controlled by the following entities: [IAS 1.138(c)]

Name	Type	Domiciliation	Ownership %
			2020	2019
ABCompany (Neverland) Plc	Immediate parent entity	NeverNeverland	60.0%	63.7%
ABCompany AG	Ultimate parent entity and controlling party	Elsewhereland	60.0%	63.7%
	ABCompany AG holds 100% of the issued ordinary shares of ABCompany (Neverland) Plc.

[IAS 24.13, IAS 1.138(c)]

20(b) Subsidiaries

Interests in subsidiaries are set out in note 16(a).

20(c) Key management personnel compensation

[IAS 24.17]

Amounts in CU’000	2020	2019
Short-term employee benefits	2,333	2,103
Post-employment benefits	180	161
Long-term benefits	39	33
Termination benefits	115	–
Share-based payments	705	548
	3,372	2,845

Detailed remuneration disclosures are provided in the remuneration report on pages [x] to [y].

In addition to the above, the group is committed to pay the CEO and the CFO up to CU250,000 in the event of a change in control of the group. [IAS24.18(b)]

20(d) Transactions with other related parties

[IAS24.18]

The following transactions occurred with related parties:

Amounts in CU’000	2020	2019
Sales and purchases of goods and services
– Sale of goods to associates [IAS24.19(d)]	125	–
– Purchase of management services from parent [IAS24.19(a)]	450	370
– Purchases of electronic equipment from other related parties [IAS24.19(g)]	182	78
– Purchases of various goods and services from entities controlled by key management personnel (i) [IAS24.19(f)]	764	576
Dividend revenue
– Other related parties [IAS24.19(g)]	150	300
Superannuation contributions
– Contributions^* to superannuation funds on behalf of employees [IAS24.19(g)]	3,719	3,287
Other transactions
Dividends paid to Neverland parent entity [IAS24.19(a)]	13,690	6,963
Final call on partly paid ordinary shares paid by Neverland parent entity (note 9(a)) [IAS24.19(a)]	840	–
Subscriptions for new ordinary shares by Neverland parent entity (note 9(a)) [IAS24.19(a)]	4,626	–
Subscription for new ordinary shares by key management personnel as a result of the rights issue (note 9(a)) [IAS24.19(f)]	118	–

^* See note 8(h) for information about the Reporting entity Plc shares held by the group’s defined benefit plan and property owned by the plan that is occupied by the group.

(i) Purchases from entities controlled by key management personnel

[IAS24.18]

The group acquired the following goods and services from entities that are controlled by members of the group’s key management personnel:

• construction of a warehouse building
• rental of an office building, and
• legal services.

20(e) Outstanding balances arising from sales/purchases of goods and services

[IAS24.18(b)]

The following balances are outstanding at the end of the reporting period in relation to transactions with related parties:

Amounts in CU’000	2020	2019
Current payables (purchases of goods and services)
– ABCompany (Neverland) Plc (parent entity) [IAS24.19(a)]	58	73
– Entities controlled by key management personnel [IAS24.19(f)]	196	91
– Other related parties [IAS24.19(g)]	265	94

20(f) Loans to/from related parties

The movements in loans to/from the different classes of related parties were as follows:

Amounts in CU’000	2020	2019
Loans to key management personnel [IAS24.19(f)]
Beginning of the year [IAS24.18(b)]	606	502
Loans advanced [IAS24.18(a)]	220	150
Loan repayments received [IAS24.18(a)]	-109	-46
Interest charged [IAS24.18(a)]	57	41
Interest received [IAS24.18(a)]	-57	-41
Loss allowance (see note 12(c))	-3	-2
End of the year [IAS24.18(b)]	714	604
Loans to other related parties [IAS24.19(g)]
Beginning of the year [IAS24.18(b)]	700	600
Loans advanced [IAS24.18(a)]	1,000	600
Loan repayments received [IAS24.18(a)]	-400	-500
Interest charged [IAS24.18(a)]	81	62
Interest received [IAS24.18(a)]	-81	-62
Loss allowance (see note 12(c))	-4	-2
End of the year [IAS24.18(b)]	1,296	698
Loans from ABCompany (Neverland) Plc (parent entity) [IAS24.19(a)]
Beginning of the year [IAS24.18(b)]	4,000
Loans advanced [IAS24.18(a)]	7,150	4,100
Loan repayments received [IAS24.18(a)]	-2,050	-100
Interest charged [IAS24.18(a)]	185	104
Interest paid [IAS24.18(a)]	-185	-104
End of the year [IAS24.18(b)]	9,100	4,000
Loans from associates [IAS24.19(d)]
Beginning of the year [IAS24.18(b)]	–	–
Loans advanced [IAS24.18(a)]	6,285	800
Loan repayments received [IAS24.18(a)]	-200	-800
Interest charged [IAS24.18(a)]	245	84
Interest paid [IAS24.18(a)]	-245	-84
End of the year [IAS24.18(b)]	6,085	–

A small loss allowance of CU2,000 was recognised in relation to loans to related parties during the year, and the loss allowance on loans to key management personnel was increased by CU1,000, see note 12(c) for further information. No loss allowance was recognised in expense in 2019. [IAS 24.18(c),(d)]

20(g) Terms and conditions

IAS24.18(b)(i)

Transactions relating to dividends, calls on partly paid ordinary shares and subscriptions for new ordinary shares were on the same terms and conditions that applied to other shareholders.

The loans to key management personnel are generally for periods of 10 years, repayable in quarterly instalments at interest rates of 5% per annum.

They are secured by first mortgages over the individuals’ residences. One unsecured loan of CU60,000 was made to a director of the Reporting entity Plc for a period of two years with an interest rate of 8% per annum. This loan is repayable in full on 30 March 2021.

Goods were sold to associates during the year based on the price lists in force and terms that would be available to third parties. Management services were bought from the immediate parent entity on a cost-plus basis, allowing a margin ranging from 15% to 30% (2019 – 10% to 24%). All other transactions were made on normal commercial terms and conditions and at market rates.

The loans to other related parties are repayable between two to four years from the reporting date, the loans from the associates mature in three years, and the loans from the parent entity are repayable in instalments from 2025. The average interest rate on the other loans during the year was 9.5% (2019 – 9.75%).

Outstanding balances other than loans to key management personnel are unsecured and are repayable in cash. [IAS24.18(b)(i)]

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