Financial Reporting Standard 124 Related Party Disclosures (FRS 124) replaces FRS 124₂₀₀₄ Related Party Disclosures and should be applied for annual periods beginning on or after 1 October 2006. Earlier application is encouraged.

The International Accounting Standards Board developed the revised IAS 24 as part of its project on Improvements to International Accounting Standards. The project was undertaken in the light of queries and criticisms raised in relation to the Standards by securities regulators, professional accountants and other interested parties. The objectives of the project were to reduce or eliminate alternatives, redundancies and conflicts within the Standards, to deal with some convergence issues and to make other improvements.

For IAS 24 the IASB's main objective was to provide additional guidance and clarity in the scope of the Standard, the definitions and the disclosures for related parties. The wording of the Standard's objective was amended to clarify that the entity's financial statements should contain the disclosures necessary to draw attention to the possibility that the financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances with them. The IASB did not reconsider the fundamental approach to related party disclosures contained in IAS 24.

The main changes from FRS 124₂₀₀₄ are described below.

The Standard requires disclosure of the compensation of key management personnel.

State-controlled entities are within the scope of Financial Reporting Standards, ie those that are profit-oriented are no longer exempted from disclosing transactions with other state-controlled entities.

Discussions on the pricing of transactions and related disclosures between related parties have been removed because the Standard does not apply to the measurement of related party transactions.

The definition of 'related party' has been expanded by adding:

IAS 24 (revised) has expanded the definition of related party by adding post-employment benefit plans for the benefit of employees of an entity, or an entity that is a related party to that entity. There is no change in FRS 124 as FRS 124₂₀₀₄ has included employee benefit plans of an entity, or an entity that is related party to that entity in the scope of related party relationships.

The Standard adds a definition of 'close members of the family of an individual' and clarifies that non-executive directors are key management personnel. [Reason: FRS 124₂₀₀₄ has included such definition.]

IAS 24 (revised), unlike the previous version of IAS 24, has included the definition of "close members of the family of an individual". There is no change in FRS 124 as FRS 124₂₀₀₄ has included the definition of "close members of the family".

The Standard clarifies that two venturers are not related parties simply because they share joint control over a joint venture.

The Standard further clarifies the disclosure requirements about:

The Standard clarifies that an entity discloses that the terms of related party transactions are equivalent to those that prevail in arm's length transactions only if such terms can be substantiated.

Other new disclosures required include the following:

IAS 24 (revised) now requires disclosure of the amounts of transactions and outstanding balances with respect to related parties as well as the expense recognised during the period in respect of bad or doubtful debts due from related party. There is no change in FRS 124 as both disclosures are required under FRS 124₂₀₀₄.