FACT SHEET September 2011 IAS 24 Related Party Disclosures (This fact sheet is based on the standard as at 1 January 2011.) Important note: This fact sheet is based on the requirements of the International Financial Reporting Standards (IFRSs). In some jurisdictions, the IFRSs are adopted in their entirety, in other jurisdictions the individual IFRSs are amended. In some jurisdictions the requirements of a particular IFRS may not have been adopted. Consequently, users of the fact sheet in various jurisdictions should ascertain for themselves the relevance of the fact sheet to their particular jurisdiction. The application date included below is the effective date of the most recent changes made to the standard. IASB application date (non-jurisdiction specific) IAS 24 is applicable for annual reporting periods commencing on or after 1 January 2011. Objective The objective of IAS 24 Related Party Disclosures 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, including commitments, with such parties. SCOPE IAS 24 shall be applied in: a. identifying related party relationships and transactions b. identifying outstanding balances, including commitments, between an entity and its related parties c. identifying circumstances in which disclosure of the items in a and b above is required, and d. determining the disclosures to be made about those items. Related party transactions and outstanding balances with other entities in a group are disclosed in an entity s financial statements. Prescribed accounting treatment Since IAS 24 is purely a disclosure standard, there are no recognition or measurement criteria. Disclosures Refer Appendix 1 for a checklist to assist with IAS 24 disclosure requirements to assist in the objective of the standard.
Important definitions Close members of the family of an individual Compensation Control Government Government-related entity Joint control Key management personnel Related party family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity, including: a) the individual s domestic partner and children b) children of the individual s domestic partner c) dependents of the individual or the individual s domestic partner. all employee benefits (as defined in IAS 19) including employee benefits to which IFRS 2 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 e) share-based payment. The power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Government, government agencies and similar bodies whether local, national or international. An entity that is controlled, jointly controlled or significantly influenced by a government. The contractually agreed sharing of control over an economic activity. 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. A person or entity that is related to the entity that is preparing its financial statements (in this Standard referred to as the reporting entity ). a) A person or a close member of that person s family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. b) An entity is related to a reporting entity if any of the following conditions applies: (i) 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). (ii) 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). (iii) Both entities are joint ventures of the same third party. 2
Related party transaction Significant influence (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) 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. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity). a transfer of resources, services or obligations between related parties, regardless of whether a price is charged. 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. Australian specific requirements The Australian equivalent standard is AASB 124 which is applicable for annual reporting periods beginning on or after 1 January 2011. Additional objective: The objective of paragraphs Aus29.1 to Aus29.9.3 of AASB 124 is to require disclosing entities to disclose additional information relating to individual key management personnel. Australian definitions: Director Disclosing entity a) a person who is director under the Corporations Act and b) in the case of entities governed by bodies not called a board of directors, a person who, regardless of the name that is given to the position, is appointed to the position of member of the governing body, council, commission or authority. As defined in the Corporations Act. Remuneration Compensation as defined in AASB 124. Australian disclosure requirements See Appendix 2 for specific Australian disclosure requirements. 3
Appendix 1 Disclosure checklist This checklist can be used to review your financial statements you should complete the column about whether the requirement is included and provide an explanation for No answers to ensure the completeness of disclosures. IAS 24: Related Parties Applicable for financial statement periods beginning on or after 1 January 2011. IAS 24.13 IAS 24.13 IAS 24.17 IAS 24.18 IAS 24.19 IAS 24.24 Has the entity disclosed all relationships between parents and subsidiaries irrespective of whether there have been transactions between those related parties during the year? Has the entity disclosed the name of the parent and, if different, the ultimate controlling party. In the case where neither the parent nor ultimate controlling party produce financial statements available for public use, the name of the next most senior parent that does must be disclosed. Has the entity disclosed 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. If there have been transactions between related parties, has the entity disclosed the nature of the related party relationship and sufficient information about the transactions and outstanding balances, including commitments, to ensure an understanding of the potential effect of the relationship on the financial statements. Has the entity disclosed at minimum: a. the amount of the transactions; b. the amount of outstanding balances, including commitments, and terms and conditions (i.e. secured or unsecured and the nature of consideration to be provided in settlement) and details of guarantees given or received; c. provisions for doubtful debts related to the amount of outstanding balances; and d. the expense recognised during the period relating to bad or doubtful debts due from related parties. Has the entity separately disclosed all the information required by paragraph 18 at the following levels: 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. Has the entity disclosed items of a similar nature 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? 4
IAS 24.25 A reporting entity is exempt from the disclosure requirements of paragraph 18 in relation to related party transactions and outstanding balances, including commitments, with: a. a government that has control, joint control or significant influence over the reporting entity; and b. another entity that is a related party because the same government has control, joint control or significant influence over both the reporting entity and the other entity. IAS 24.26 If a reporting entity applies the exemption in paragraph 25, it shall disclose the following about the transactions and related outstanding balances referred to in paragraph 25: a. the name of the government and the nature of its relationship with the reporting entity (i.e. control, joint control or significant influence); b. the following information in sufficient detail to enable users of the entity s financial statements to understand the effect of related party transactions on its financial statements: (i) the nature and amount of each individually significant transaction; and (ii) for other transactions that are collectively, but not individually, significant, a qualitative or quantitative indication of their extent. Appendix 2 AUSTRALIAN SPECIFIC DISCLOSURES Note: Disclosing entities which are companies should refer to the Corporations Act 2001 for disclosure requirements in addition to those included below. Disclosing entities which are NOT companies only The disclosures in paragraph Aus 29 are in addition to those included above. Aus 29.2 Has the entity provided the following details about each key management person: a. the name of the person; b. the position held; and c. where the period of responsibility is less than the reporting period, the date or dates identifying the period of responsibility. Aus 29.3 If any of the following changes occur in the period after the end of the reporting period but prior to the financial statement being authorised for issue, has the name, position and date for each person involved been disclosed for: a. each change in the chief executive officer and directors of the entity; and b. the retirement of any key management person (other than a director or chief executive officer). 5
Compensation Aus 29.4 Have KMP remuneration disclosures been further dissected to include the following: a. short-term employee benefits, into at least: cash salary, fees and short-term compensated absences; short-term cash profit-sharing and other bonuses; non-monetary benefits; and other short-term employee benefits; b. post-employment benefits, into at least: pension and superannuation benefits; and other post-employment benefits; c. other long-term employee benefits, separately identifying amounts attributable to long-term incentive plans; d. termination benefits; and e. share-based payment, into at least: equity-settled share-based payment transactions shares and units options and rights cash-settled share-based payment transactions; and all other forms of share-based payment compensation (including hybrids). 6
Principles of Compensation Aus 29.5 Has the entity disclosed the following details about the compensation of each key management person: a. discussion of the board policy for determining the nature and amount of compensation of KMP; b. a discussion of the relationship between the policy and the entity s performance; c. if an element of the compensation of a key management person is dependent on the satisfaction of a performance conditions provide: a detailed summary of the performance condition; an explanation of why the performance condition was chosen; a summary of the methods used in assessing whether the performance condition is satisfied and an explanation of why those methods were chosen; and if the performance condition involves a comparison with factors external to the entity: a summary of the factors to be used in making the comparison and if the factor relates to the performance of another entity/ies the identity of that entity/ies d. for each grant of a cash bonus, performance-related bonus or sharebased payment compensation benefit, whether part of a specific contract for services or not, the terms and conditions of each grant affecting compensation in this or future reporting periods, including: the grant date, nature of the compensation granted, the service and performance criteria used to determine the amount of compensation and if there has been any alteration of the terms or conditions of the grant since the grant date (provide details where applicable); e. for each contract for services between the KMP and the entity (or any of its subsidiaries), such further explanations as are necessary in addition to those prescribed in subparagraphs (c) and (d) to provide an understanding of how the amount of compensation in the current reporting period was determined and how the terms of the contract affect compensation in future periods; f. if an element of the compensation consists of securities of a body and that element is not dependent on the satisfaction of a performance condition an explanation of why this is the case; g. an explanation of the proportions of the elements of the KMP s compensation that are related to performance and those that are not; and h. if the person is employed by the entity under a contract the duration of the contract, the periods of notice required to terminate the contract and the termination payments provided for under the contract. 7
Modification of Terms of Share-Based Payment Transactions Aus 29.6 Where the terms of share-based payment transactions (including options or rights) granted as compensation to a KMP have been altered or modified by the issuing entity during the reporting period, has the entity disclosed the following details for each such person: a. the date of each alteration of the terms; b. the market price of the underlying equity instrument at the date of alteration; c. the terms of the grant immediately prior to alteration, including the number and class of the underlying equity instruments, exercise price, time remaining until expiry and each other condition in the terms affecting the vesting or exercise of the option or other right; d. the new terms; and e. the difference between the total of the fair value of the options or other rights affected by the alteration immediately before the alteration and the total of the fair value of those options or other rights immediately after the alteration. Equity Instruments Different classes to be separately identified. Aus 29.7 Have all disclosures required by Aus 25.7.1 to Aus 25.7.5 been separated into class identifying each class by: a. the name of the issuing entity; b. the class of equity instrument; and c. if the instrument is an option or right, the class and number of equity instruments for which it may be exercised. Options and rights provided as compensation Aus 29.7.1 Has the entity disclosed options and rights over equity instruments provided as compensation to each KMP as follows: a. the number of options and rights that have been granted or vested during the reporting period. b. the terms and conditions of each grant made during the reporting period, including: the fair value per option or right at grant date; the exercise price per share or unit; the amount, if any, paid or payable by the recipient; the expiry date; the date or dates when the options or rights may be exercised; and a summary of the service and performance criteria that must be met before the beneficial interest vests in the person. 8
Equity instruments provided on exercise of options and rights granted as compensation Aus 29.7.2 Has the entity provided the following details about equity instruments resulting from the exercise of options and rights which were granted to KMP s as compensation: a. the number of equity instruments, and if different the number of options or rights exercised; and b. the amount paid and unpaid per instrument. Options and rights holdings Aus 29.7.3 In respect of options and rights held (whether directly, indirectly or beneficially) by each KMP, including their related parties, has the entity disclosed the number: a. held at the start of the reporting period; b. granted during the reporting period as compensation; c. exercised during the reporting period; d. resulting from any other change during the reporting period; e. held at the end of the reporting period; f. vested at the end of the reporting period; g. vested and exercisable at the end of the reporting period; and h. vested and unexercisable at the reporting date. Equity holdings and transactions Aus 29.7.4 Aus 29.7.5 Has the entity disclosed information about the number of equity instruments, other than options and rights held (directly, indirectly or beneficially) by each KMP, including their related parties: a. held at the start of the reporting period; b. granted during the reporting period as compensation; c. received during the reporting period on exercise of options or rights; d. resulting from any other change during the reporting period; e. held at the end of the reporting period; and f. if any such are included in the number disclosed under subparagraph (e) above, held nominally at the reporting date. Where transactions involving equity instruments (other than share-based payment compensation), have occurred between a KMP, including their related parties and the issuing entity during the reporting period, has the entity disclosed the nature of each different type of transaction where the terms or conditions were more favourable than those adopted if dealing at arm s length with an unrelated person? Note that the details of the terms and conditions shall be disclosed. 9
Loans Aus 29.8 Aus 29.8.1 Has the entity disclosed the following details about the: aggregate of loans to KMP s and related parties, and by name KMP s whose loans exceeded $100,000 (this does not include loans which in substance are options) at any time during the year: a. the amount outstanding at the start of the reporting period; b. the amount of interest paid and payable in respect of the reporting period to the disclosing entity and any of its subsidiaries, c. the difference between the amount disclosed in b. above and the interest which would have been charged in an arm s length transaction; d. each write-down and each allowance for doubtful receivables recognised by the disclosing entity and any of its subsidiaries; e. the amount outstanding at the end of the reporting period; f. for each key management person only, the highest amount of indebtedness during the reporting period; g. for key management personnel only, the number of persons included in the group aggregate at the reporting date; and h. a summary of the terms and conditions of the loans. Other Transactions and Balances Aus 29.9 Aus 29.9.1 Has the entity described in respect of transactions during the reporting period between the entity and any of its subsidiaries and KMP, including their related parties, the following information: a. each type of transaction of different nature; b. the terms and conditions of each type of transaction or, where there are different categories of terms and conditions within each type, the terms and conditions of each category of transaction; and c. for each type or category of transaction the names of the persons involved and the aggregate amount recognised. Has the entity disclosed the following information about each of the transactions relating to Aus 29.9: a. the total of amounts recognised as revenue, separately identifying where applicable the total amounts recognised as interest and dividends; b. the total of amounts recognised as expense, separately identifying where applicable the total amounts recognised as: interest write-downs of receivables and allowances made for doubtful receivables; and c. any further disclosures necessary to provide an understanding of the effects of the transactions on the financial statements. 10
Aus 29.9.2 Aus 29.9.3 Has the entity disclosed about assets and liabilities at the reporting date recognised in relation to transactions between the entity, its subsidiaries, KMP s and related parties the following information: a. the total of all assets, classified into current and non-current and, where applicable, any allowance for doubtful receivables at the end of the reporting period; and b. the total of all liabilities, classified into current and non-current. Has the entity excluded transactions with and amounts receivable from or payable to a KMP, including their related parties when: a. they occur within a normal employee, customer or supplier relationship on terms and conditions available on an arm s length transaction with an unrelated person; b. information about them does not have the potential to affect adversely decisions about the allocation of scarce resources by financial statement users, or the discharge of accountability by the KMP; and c. they are trivial or domestic in nature. 11
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