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| Financial Reporting Standard 124 |
Related Party Disclosures
Objective
| 1. | The objective of this Standard is to ensure that an entity's financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances with such parties. | Scope
| 2. | This Standard shall be applied in:
| | | | (a) | identifying related party relationships and transactions;
| | (b) | identifying outstanding balances between an entity and its related parties;
| | (c) | identifying the circumstances in which disclosure of the items in (a) and (b) is required; and
| | (d) | determining the disclosures to be made about those items.
| | | 3. | This Standard requires disclosure of related party transactions and outstanding balances in the separate financial statements of a parent, venturer or investor presented in accordance with FRS 127 Consolidated and Separate Financial Statements.
| | 4. | Related party transactions and outstanding balances with other entities in a group are disclosed in an entity's financial statements. Intragroup related party transactions and outstanding balances are eliminated in the preparation of consolidated financial statements of the group. | Purpose of Related Party Disclosures
| 5. | Related party relationships are a normal feature of commerce and business. For example, entities frequently carry on parts of their activities through subsidiaries, joint ventures and associates. In these circumstances, the entity's ability to affect the financial and operating policies of the investee is through the presence of control, joint control or significant influence. | | 6. | A related party relationship could have an effect on the profit or loss and financial position of an entity. Related parties may enter into transactions that unrelated parties would not. For example, an entity that sells goods to its parent at cost might not sell on those terms to another customer. Also, transactions between related parties may not be made at the same amounts as between unrelated parties. | | 7. | The profit or loss and financial position of an entity may be affected by a related party relationship even if related party transactions do not occur. The mere existence of the relationship may be sufficient to affect the transactions of the entity with other parties. For example, a subsidiary may terminate relations with a trading partner on acquisition by the parent of a fellow subsidiary engaged in the same activity as the former trading partner. Alternatively, one party may refrain from acting because of the significant influence of another—for example, a subsidiary may be instructed by its parent not to engage in research and development. | | 8. | For these reasons, knowledge of related party transactions, outstanding balances and relationships may affect assessments of an entity's operations by users of financial statements, including assessments of the risks and opportunities facing the entity. | Definitions
| 9. | The following terms are used in this Standard with the meanings specified:
Related party A party is related to an entity if:
| | | | (a) | directly, or indirectly through one or more intermediaries, the party:
| | | | (i) | controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);
| | (ii) | has an interest in the entity that gives it significant influence over the entity; or
| | (iii) | has joint control over the entity;
| | | (b) | the party is an associate (as defined in FRS 128 Investments in Associates) of the entity;
| | (c) | the party is a joint venture in which the entity is a venturer (see FRS 131 Interests in Joint Ventures);
| | (d) | the party is a member of the key management personnel of the entity or its parent;
| | (e) | the party is a close member of the family of any individual referred to in (a) or (d);
| | (f) | the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or
| | (g) | the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is a related party of the entity.
| | | | A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged.
|  | Compensation includes all employee benefits (as defined in FRS 1192004 Employee Benefits), including employee benefits to which FRS 2 Share-based Payment applies. Employee benefits are all forms of consideration paid, payable or provided by the entity, or on behalf of the entity, in exchange for services rendered to the entity. It also includes such consideration paid on behalf of a parent of the entity in respect of the entity. Compensation includes:
| | | | (a) | short-term employee benefits, such as wages, salaries and social security contributions, paid annual leave and paid sick leave, profit-sharing and bonuses (if payable within twelve months of the end of the period) and non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees;
| | (b) | post-employment benefits such as pensions, other retirement benefits, post-employment life insurance and post-employment medical care;
| | (c) | other long-term employee benefits, including long-service leave or sabbatical leave, jubilee or other long-service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred compensation;
| | (d) | termination benefits; and
| | (e) | share-based payment.
| | | | Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Joint control is the contractually agreed sharing of control over an economic activity.
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.
Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control over those policies. Significant influence may be gained by share ownership, statute or agreement.
| | 10. | In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely the legal form. | | 11. | In the context of this Standard, the following are not necessarily related parties: | | | | (a) | two entities simply because they have a director or other member of key management personnel in common, notwithstanding (d) and (f) in the definition of 'related party'.
| | (b) | two venturers simply because they share joint control over a joint venture.
| | (c) | | (i) | providers of finance, | | (ii) | trade unions, | | (iii) | public utilities, and | | (iv) | government departments and agencies,
| | | | simply by virtue of their normal dealings with an entity (even though they may affect the freedom of action of an entity or participate in its decision-making process); and
| | (d) | a customer, supplier, franchisor, distributor or general agent with whom an entity transacts a significant volume of business, merely by virtue of the resulting economic dependence. | | Disclosure
| 12. | Relationships between parents and subsidiaries shall be disclosed irrespective of whether there have been transactions between those related parties. An entity shall disclose the name of the entity's parent and, if different, the ultimate controlling party. If neither the entity's parent nor the ultimate controlling party produces financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed.
| | 13. | To enable users of financial statements to form a view about the effects of related party relationships on an entity, it is appropriate to disclose the related party relationship when control exists, irrespective of whether there have been transactions between the related parties. | | 14. | The identification of related party relationships between parents and subsidiaries is in addition to the disclosure requirements in FRS 127, FRS 128 and FRS 131, which require an appropriate listing and description of significant investments in subsidiaries, associates and jointly controlled entities. | | 15. | When neither the entity's parent nor the ultimate controlling party produces financial statements available for public use, the entity discloses the name of the next most senior parent that does so. The next most senior parent is the first parent in the group above the immediate parent that produces consolidated financial statements available for public use. | | 16. | An entity shall disclose key management personnel compensation in total and for each of the following categories:
| | | | (a) | short-term employee benefits;
| | (b) | post-employment benefits;
| | (c) | other long-term benefits;
| | (d) | termination benefits; and
| | (e) | share-based payment.
| | | 17. | If there have been transactions between related parties, an entity shall disclose the nature of the related party relationship as well as information about the transactions and outstanding balances necessary for an understanding of the potential effect of the relationship on the financial statements. These disclosure requirements are in addition to the requirements in paragraph 16 to disclose key management personnel compensation. At a minimum, disclosures shall include:
| | | | (a) | the amount of the transactions;
| | (b) | the amount of outstanding balances and:
| | | | (i) | their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and
| | (ii) | details of any guarantees given or received;
| | | (c) | provisions for doubtful debts related to the amount of outstanding balances; and
| | (d) | the expense recognised during the period in respect of bad or doubtful debts due from related parties.
| | | 18. | The disclosures required by paragraph 17 shall be made separately for each of the following categories:
| | | | (a) | the parent;
| | (b) | entities with joint control or significant influence over the entity;
| | (c) | subsidiaries;
| | (d) | associates;
| | (e) | joint ventures in which the entity is a venturer;
| | (f) | key management personnel of the entity or its parent; and
| | (g) | other related parties.
| | | 19. | The classification of amounts payable to, and receivable from, related parties in the different categories as required in paragraph 18 is an extension of the disclosure requirement in FRS 101 Presentation of Financial Statements for information to be presented either on the balance sheet or in the notes. The categories are extended to provide a more comprehensive analysis of related party balances and apply to related party transactions.
| | 20. | The following are examples of transactions that are disclosed if they are with a related party:
| | | | (a) | purchases or sales of goods (finished or unfinished);
| | (b) | purchases or sales of property and other assets;
| | (c) | rendering or receiving of services;
| | (d) | leases;
| | (e) | transfers of research and development;
| | (f) | transfers under licence agreements;
| | (g) | transfers under finance arrangements (including loans and equity contributions in cash or in kind); | | (h) | provision of guarantees or collateral; and
| | (i) | settlement of liabilities on behalf of the entity or by the entity on behalf of another party. | | | 21. | Disclosures that related party transactions were made on terms equivalent to those that prevail in arm's length transactions are made only if such terms can be substantiated.
| | 22. | Items of a similar nature may be disclosed in aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity.
| Transitional Provision
Effective Date
| 23. | An entity shall apply this Standard for annual periods beginning on or after 1 October 2006. Earlier application is encouraged. If an entity applies this Standard for a period beginning before 1 October 2006, it shall disclose that fact.
| | 23A. | An entity shall apply the amendments in paragraph 20 for annual periods beginning on or after 1 January 2007. If an entity applies the amendments to FRS 119 Employee Benefits–Actuarial Gains and Losses, Group Plans and Disclosures for an earlier period, these amendments shall me applied for that earlier period.
| Withdrawal of FRS 1242004
| 24. | This Standard supersedes FRS 1242004 Related Party Disclosures. | |
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