Download Chapter 19 Lecture Notes

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ACCT4104 Advanced Financial Accounting
Dr. Winnie S.C. Leung
CHAPTER 19 – RELATED PARTY DISCLOSURES
LEARNING OBJECTIVES
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Explain the objective of IAS 24
Identify an entity’s related parties
Describe and apply the disclosures required by IAS 24
Related Party Relationships
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IAS 24 Related Party Disclosures is primarily a disclosure standard.
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A related party is a person or entity that is related to the entity that is preparing its financial statements.
Key terms:
- Close family members
- Control, joint control or significant influence
- Key management personnel
Objective
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‘. . . to ensure that an entity’s financial statements contain the disclosures necessary to an understanding
of the potential effect of transactions and outstanding balances and commitments with related parties.’
(IAS 24.1)
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Major issues to be considered:
- Identifying related parties
- Identifying related party arrangements
- Deciding on the type and extent of the disclosure (IAS 24.2)
Identifying Related Parties
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Under IAS 24.9, close family members are those who may be expected to influence or be influenced
by that person in their dealings with the entity. A person's children, spouse or domestic partner, children
of the spouse or domestic partner, and dependents of the person or of their spouse or domestic partner,
are always to be considered close family members of a person, regardless of whether they are expected
to influence or be influenced by that person.
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Under IAS 24.9, key management personnel of the entity or the entity's parent are related parties. Key
management personnel are people who have authority and responsibility for planning, directing and
controlling an entity's activities either directly or indirectly. This includes directors whether they are
executive or otherwise.
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Dr. Winnie S.C. Leung
ACCT4104 Advanced Financial Accounting
TABLE 19.1 Definition of a related party — IAS 24 (paragraph 9a, b)
Part a — A person or a close member of the person's family is related to a reporting entity if that
person:
(i) has control or joint control of the reporting entity
(ii) has significant influence over the reporting entity
(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting
entity
Part b — An entity is related to a reporting entity if any of the following conditions apply:
(i) The entity and the reporting entity are members of the same group
(ii) The entity is an associate or joint venture of the entity (or an associate or joint venture of a member of
a group of which the other entity is a member)
(iii) Both entities are joint ventures of the same third party
(iv) An entity is a joint venture of a third entity and the other entity is an associate of the third entity
(v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity
or an entity related to the reporting entity. If the reporting entity is such a plan, the sponsoring
employers are also related to the reporting entity
(vi) The entity is controlled or jointly controlled by a person identified in part (a)
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key
management personnel of the entity or of a parent of the entity
Source: IAS 24, paragraph 9.
IAS 24.9(a)(i)
IAS 24.9(a)(ii)
IAS 24.9(a)(iiii)
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Dr. Winnie S.C. Leung
ACCT4104 Advanced Financial Accounting
IAS 24.9(b)(i)
IAS 24.9(b)(ii)
IAS 24.9(b)(ii)
IAS 24.9(b)(iii)
IAS 24.9(b)(iv)
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Dr. Winnie S.C. Leung
ACCT4104 Advanced Financial Accounting
IAS 24.9(b)(v)
IAS 24.9(b)(vi)
KMP
IAS 24.9(b)(vii)
Relationships That Are Not Related Parties
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Although the existence of related parties relationships are not uncommon in normal business life, there
are many transactions and events between parties that do not necessarily give rise to a related party
relationship as envisaged under IAS 24.11. For example,
- entities are not related parties simply because they have a director or a member of key management
personnel in common, or because they share joint control in a joint venture.
- parties an entity engages with for a significant volume of its business are not related parties to the
entity simply as a result of the economic dependence that may arise.
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ACCT4104 Advanced Financial Accounting
Dr. Winnie S.C. Leung
Disclosure
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The minimum disclosures are detailed under IAS 24.18 and are summarised below.
- the amount of the transactions
- the amount of the outstanding balances and commitments
- their terms and conditions and whether they are secured, and the nature of the settlement
consideration to be provided
- details of any guarantees provided or received
- provisions for doubtful debts related to outstanding balances
- the expense recognised during the period in respect of bad or doubtful debts due from related parties.
A major focus of the disclosure requirements of IAS 24 is directed towards revealing the remuneration
arrangements made for key management personnel. These disclosures, contained in IAS 24.17, are
required in total and for each of a range of categories and are shown below:
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short-term employee benefits
post-employment benefits
other long-term benefits
termination benefits
share-based payment.
~~ End of Chapter 19 ~~