Relate Parties

Question 1

What are related parties?

Answer 1

A party (an individual or an entity) is related to another entity if it:
Directly or indirectly through one or more intermediaries
- controls, is controlled by, or is under common control with the entity
- has significant influence over the entity ie. Associate
- has joint control over the entity, ie. Joint Venture company

is a member of the key management personnel of the entity or its parent
is a close family member of anyone with control, joint control or significant influence over the entity or of any members of key management personnel

Question 2

Are they related parties if having 20-50% control / ownership?

Answer 2

Yes

Question 3

Joint Venture A and B joint venture to create C

Answer 3

A is a related party of C
B is a related party of C
But A is not a related party of B (they are joint venturers)

Question 4

What is a related party transaction?

Answer 4

A related party transaction is the transfer of resources, services or obligations between related parties, regardless of whether a price is charged.
Transactions between related parties are a normal feature of business.

But a related party relationship can affect the performance and financial position of an entity as shown by its financial statements

Question 5

What are the disclosure requirements of related party transactions?

Answer 5

The entity is required to disclose:
the nature of the relationship

the nature of the transaction

the amount of the transaction

any outstanding balance

any provision for doubtful debts

Question 6

Normally Section A
What needs to be disclosed?

Answer 6

This would be the points needed to cover the question in exam: Disclose this transaction ….
Ed is MD of A Ltd
Ed has a loan the is still outstanding
The full loan amount is 20,000
Outstanding balance is 10,000