Related party relationships are a normal feature of business.
A related party relationship could have an effect on the profit or loss and financial position.
The term 'related party' refers to an entity (including an individual) that is not considered to be independent of another entity.
Related parties may enter into transactions that unrelated parties would not and transactions between related parties may not be made at the same amounts as between unrelated parties.
For this reason, disclosure of related parties and transactions with related parties is considered essential to assist users of financial statements to understand and assess the impact of related party transactions on the entity – including assessment of risk and opportunities.
IAS 24 identifies related parties as follows:
A related party is a person or entity that is related to the entity that is preparing its financial statements.
- A person or a close member of that person’s family is related to a reporting entity if that person:
- Has control or joint control over the reporting entity;
- Has significant influence over the reporting entity; or
- Is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
- An entity is related to a reporting entity if any of the following conditions applies:
- The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);
- One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member);
- Both entities are joint ventures of the same third party;
- One entity is a joint venture of a third entity and the other entity is an associate of the third entity;
- 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 itself such a plan, the sponsoring employers are also related to the reporting entity;
- The entity is controlled or jointly controlled by a person identified in (a);
- A person identified in (a)(i) has significant influence over the entity or is a member of the key management;
- The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.