Objective
IAS 24 requires disclosure of related party relationships, transactions, and outstanding balances to ensure that financial statements reflect the possibility of conflicts of interest or influence that could affect the reported amounts.
Related party transactions can affect the financial position and performance, even if they occur at non-market terms.
🧾 1. Scope
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Applies to all entities preparing IFRS financial statements.
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Disclosures required for related parties, whether or not transactions occurred during the period.
💡 2. Key Definitions
| Term | Meaning |
|---|---|
| Related Party | A person or entity that is related to the reporting entity: |
| – Key management personnel | Persons having authority and responsibility for planning, directing, and controlling the entity (e.g., CEO, CFO, directors). |
| – Close family members | Family members who may influence or be influenced by key management (spouse, children, dependents). |
| – Entities under common control | Subsidiaries, associates, joint ventures, or entities under significant influence by key management or close family. |
⚙️ 3. Related Party Transactions
Examples include:
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Purchases or sales of goods/services
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Transfers of assets or liabilities
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Leasing arrangements
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Provision of guarantees
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Management or director fees
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Loans to/from related parties
Note: Transactions may not be at arm’s length, so disclosure is critical.
🔄 4. Disclosure Requirements
IAS 24 requires disclosure of:
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Relationships with related parties
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Identify the nature of the relationship (subsidiary, associate, key management)
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Transactions with related parties
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Amounts of transactions
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Terms and conditions (if not standard)
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Outstanding balances
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Receivables and payables with related parties
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Provisions for doubtful debts
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Key management personnel compensation
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Short-term benefits, post-employment benefits, other long-term benefits, termination benefits, share-based payments
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🧩 5. Examples
Example 1 – Transactions with Subsidiary
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Parent company sells goods to subsidiary: $200,000
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Purchase price terms: normal market terms
Disclosure:
“The parent sold goods to its subsidiary for $200,000 during the year. Terms and conditions were similar to those for third-party transactions.”
Example 2 – Loan to Key Management
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CEO borrows $50,000 at below-market interest rate
Disclosure:
“The entity granted a loan of $50,000 to the CEO at an interest rate below market terms. Interest charged was 2% p.a. The balance outstanding at year-end was $50,000.”
Example 3 – Key Management Personnel Compensation
| Type | Amount ($) |
|---|---|
| Short-term benefits | 500,000 |
| Post-employment benefits | 50,000 |
| Share-based payments | 100,000 |
| Termination benefits | 20,000 |
| Total | 670,000 |
Must be disclosed separately in financial statements.
⚖️ 6. Parent-Subsidiary Exemption
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If consolidated financial statements are prepared, certain disclosures for fully controlled subsidiaries may not be required.
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Still, key management personnel transactions and balances must be disclosed.
🧾 7. Practical Notes
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Disclosure is required even if no transactions occurred (to show that related parties exist).
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Key management personnel = all directors and officers, not only top management.
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Close family members’ transactions must also be disclosed.
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Transparency helps users assess risks of non-arm’s-length transactions.
📋 8. Summary Table
| Item | Requirement | Example |
|---|---|---|
| Related Party Definition | Key management, family, subsidiaries, associates | CEO, spouse, associate company |
| Transactions | Purchases, sales, loans, guarantees | Loan to CEO $50,000 |
| Balances | Outstanding receivables/payables | $200,000 owed by subsidiary |
| Compensation | Detailed by type | Short-term $500,000, post-employment $50,000 |
| Disclosures | Nature, amount, terms | Disclose below-market loan terms |
🎯 9. Key Points
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IAS 24 ensures full transparency of related-party influence.
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Covers all related parties, including individuals and entities.
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Requires disclosure of relationships, transactions, balances, and key management compensation.
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Critical for assessing conflict of interest and financial risk.