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Related Party Transactions

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.

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Related Party Transactions

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  1. Related Party Transactions Sujeewa Mudalige

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

  3. Related Party Disclosures Introduction

  4. 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

  5. Related Party Disclosures Recognition

  6. Determining related parties • Parents • Subsidiaries • Fellow subsidiaries • Joint ventures • Other entities controlled by owners or key management Determining Related Parties Control Significant influence Key management personnel

  7. 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

  8. 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

  9. 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

  10. 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.

  11. Related Party Disclosures Measurement

  12. Measuring transactions Cost Arm’s length Cost plus Methods Resale price Free of charge

  13. Related Party Disclosures Disclosure

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

  15. 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

  16. 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

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