from NO MORE THAN 8 SLIDES Series of boilinggaap.org a brief illustration of IAS 24 revised in November 2009

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“NO MORE THAN 8 SLIDES” Series
IAS 24 revised – Related
Party Disclosures
(November 2009)

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IAS 24 Revised – Related Party Disclosures
Briefly
► In November 2009, IASB issued a revised version of IAS 24 – Related Party Disclosures (“IAS 24-
R”);
► IAS 24-R aims to ensure financial reporting on the possibility that the financial position of an
entity and its economic performance could have been affected by the existence of related parties
and transactions, balances, and commitments with such parties;
► The main changes are:
► inclusion of “commitments” with related parties among transaction to be disclosed;
► disclosure is now required not only for separate financial statements but also for
consolidated and individual financial statements (*);
► the definition of “related party” has been amended and simplified;
► a simplified disclosure dedicated to “government-related entities”
► IAS 24-R will be effective from period beginning on or after January 1, 2011; retrospective
application is required.
(*) In some jurisdictions such disclosure for consolidated financial statement has already been required by
Market Regulator regulations (e.g., in Italy by CONSOB DEM. 6064293 del 28/7/2006)
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3. “NO MORE THAN 8 SLIDES” Series – http://www.boilinggaap.org
IAS 24 Revised – Related Party Disclosures
Commitments with related parties
► IAS 24-R in the disclosure on transactions with related parties includes also the
"commitments" with those parties (para. 18) ;
► IAS 24-R (par. 21.(i)), in its examples of transactions with related parties,
includes:
► “commitments to do something if a particular event occurs or does not occur in
the future, including executory contracts (recognised and unrecognised) (*).
(*) IAS 37 Provisions, Contingent Liabilities and Contingent Assets defines executory contracts as
contracts under which neither party has performed any of its obligations or both parties have partially
performed their obligations to an equal extent.
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4. “NO MORE THAN 8 SLIDES” Series – http://www.boilinggaap.org
IAS 24 Revised – Related Party Disclosures
Existence of the “related party relationship”
“If an entity has had related party transactions during the periods covered by
the financial statements, it shall disclose the nature of the related party
relationship as well as information about those transactions and outstanding
balances, including commitments, necessary for users to understand the
potential effect of the relationship on the financial statements”.
It entails that
It entails that
The disclosure is required even if the related party relation is not alive at the
financial statement date.
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5. “NO MORE THAN 8 SLIDES” Series – http://www.boilinggaap.org
IAS 24 Revised – Related Party Disclosures
Key changes in definition of related party
► Case: entity “A” controls entity “B” (subsidiary) and has a significant influence over entity “C”
(associate):
►both A and its subsidiary B are related parties of C (currently in IAS 24); and
►both A and its associate C are related parties of B (change in IAS 24R).
► Case: a person has a significant influence over two entities (associates):
►the two associates are not related due to insufficient influence (change in IAS 24R, currently IAS
24 has addressed the case of an entity invests in two associates).
► Case: a key manager of entity “A” controls or jointly controls entity “B”:
►entity B is related party of entity A (currently in IAS 24); and
►from the standpoint of entity B, entity A is treated as its related party (change in IAS 24R).
► Case: a person controls or jointly controls entity “A” (“reporting entity”), and a closed member of that
person’s has a joint control or significant influence over entity “B”:
►entity B is related party of entity A (currently in IAS 24); e
►from the standpoint of entity B, entity A is treated as related party (change in IAS 24R).
► Case: a person or a third party has a joint control or a significant influence over entities A and B:
►the two entities are reciprocally related parties (change in IAS 24R).
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6. “NO MORE THAN 8 SLIDES” Series – http://www.boilinggaap.org
IAS 24 Revised – Related Party Disclosures
Related party – Person (par. 9 (a))
A person is a related party of the reporting entity if:
Person or a close member of
that person’s family (1)
•has a control, or
•has a control, or •Is a KEY MANAGER (2) of the
•Is a KEY MANAGER (2) of the
•joint control, or
•joint control, or RE or of a parent of the RE
RE or of a parent of the RE
•has significant influence over
•has significant influence over
the RE
the RE
Reporting Entity (RE)
Reporting Entity (RE)
(1) Close members of the family of a person include: i) that person’s children and spouse or domestic partner; ii) children of
that person’s spouse or domestic partner; and iii) dependants of that person or that person’s spouse or domestic
partner.
(2) Key management personnel are those persons having authority and responsibility for planning, directing and controlling
the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity
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IAS 24 Revised – Related Party Disclosures
Related party – Entity (par. 9 (b)) (1/2)
The following entities are related party of the Reporting Entity
Members of the same
Members of the same
Group of RE
Group of RE
Par. 9 (b) (i)
Par. 9 (b) (i)
Associate or Joint Venture of
Associate or Joint Venture of
RE or of a member of a group
RE or of a member of a group
of which RE is a member
of which RE is a member
Par. 9 (b) (ii)
Par. 9 (b) (ii)
Reporting Entity (RE)
Reporting Entity (RE)
Pension fund for the
Pension fund for the
employees of either the RE or
employees of either the RE or
an entity related to the RE
an entity related to the RE
Par. 9 (b) (v)
Par. 9 (b) (v)
Entities correlated to a person
Entities correlated to a person
that is in turn correlated to RE
that is in turn correlated to RE
Par. 9 (b) (vi) e (vii)
Par. 9 (b) (vi) e (vii)
Related party
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8. “NO MORE THAN 8 SLIDES” Series – http://www.boilinggaap.org
IAS 24 Revised – Related Party Disclosures
Related party – Entity (par. 9 (b)) (2/2)
The following entities are related party of the entity:
Par. 9 (b) (iii) e (iv) Third party
Third party
Par. 9 (b) (iii) e (iv)
Reporting Entity (RE)
Reporting Entity (RE) Joint Venture or associate of
Joint Venture or associate of
RE is a Joint Venture of
RE is a Joint Venture of the Third party
the Third party
the Third party
the Third party
Par. 9 (b) (iv)
Par. 9 (b) (iv) Third party
Third party
Reporting Entity (RE)
Reporting Entity (RE) Joint Venture of the Third
Joint Venture of the Third
RE is an associateof the
RE is an associateof the party
party
Third party
Third party
Related party
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9. “NO MORE THAN 8 SLIDES” Series – http://www.boilinggaap.org
IAS 24 Revised – Related Party Disclosures
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