1. IFRS FOR SMEs: Related Party Disclosures
17/11/2016
Cpa Opanga
Credibility . Professionalism . AccountAbility

2. Related Party Disclosures
The IFRS for SMEs 2
Section 33
Related Party Disclosures 2

3. Learning objectives
On completion of this session you should be able to:
Identify related parties
Explain minimum disclosure requirements for:
Related party relationships; and
Transactions and balances with related parties

4. So why the concern about related parties?
Section 33

5. Agenda Introduction and Scope Identification of related parties
Transactions of related parties
Disclosure 5

6. Section 33 – scope 6
FS include disclosures necessary to draw attention to the possibility that an entity’s financial position and performance have been affected by the existence of related parties and by transactions and outstanding balances with such parties.
Assess the substance of the relationship and not merely its legal form. 6

7. Section 33 – related parties defined7
(a) A person or a close member of that person’s family that
( i ) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity;
(ii) has control over the reporting entity; or
(iii) has joint control or significant influence over the reporting entity or has significant voting power in it. 7

8. Section 33 – related parties defined continued Administration Director
J is owned and managed by the X family—Mr and Mrs X and their 2 children (Ms Y and Ms Z).
X family
Mrs X
Operations Director
Mr X
Administration Director
Ms Y
Financial Director
Ms Z
Sales
Director
25%
25%
25%
25%
Entity J

9. Section 33 – related parties defined continued
X, X, Y & Z are related parties to J (33.2(a)(iii))
If Y (the dominant party) acts for the family, Y would be in control of J (33.2(a)(ii))
If X, X, Y & Z contractually agree sharing control over J; X, X, Y & Z are related to J (33.2(a)(iii))
X, X, Y & Z are related parties to J (33.2(a)(i))

10. Section 33 – related parties defined continued10
(b) An entity if any of the following conditions applies:
(I ) the entity & the reporting entity are members of the same group (parent, subsidiary & fellow subsidiary are related to the others).
(ii) either entity is an associate or joint venture of the other entity (or of a member of a group of which the other entity is a member).
(iii) both entities are joint ventures of a third entity. 10

11. Section 33 – related parties defined continued11
Cont’d:
(iv) either 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 plan. 11

12. Section 33 – related parties defined continued
Entity X
Entity A
Entity B
Are A and B related parties?

13. Section 33 – related parties defined continued Significant influence
X’s influence over B
Control
Joint control
Significant influence
X’s influence over A
Yes – 33.2(b)(i)
Yes – 33.2(b)(ii)
Yes – 33.2(b)(iii)
Yes – 33.2(b)(iv)
Not necessarily
related

14. Section 33 – related parties defined continued14
b. Cont’d
(vi) the entity is controlled or jointly controlled by a person identified in (a).
(vii) a person identified in (a)(i) has significant voting power in the entity.
(viii) a person identified in (a)(ii) has significant influence over the entity or significant voting power in it. 14

15. Section 33 – related parties defined continued15
b. Cont’d:
(ix) a person or a close member of that person’s family has both significant influence over the entity or significant voting power in it and joint control over the reporting entity.
(x) a member of the key management personnel of the entity or of a parent of the entity, or a close member of that member’s family, has control or joint control over the reporting entity or has significant voting power in it. 15

16. Section 33 – related parties defined continued
Family X
Entity A
Entity B
Are A and B related parties?

17. Section 33 – related parties defined continued
Family X’s influence over Entity B
Control JC
SPV
KMP SI
Family X’s influence over Entity A
Yes – 33.2(b)(vi)
Yes – 33.2(b)(viii)
Yes – 33.2(b)(x)
Yes – 33.2(b)(ix)
Not related
Yes – 33.2(b)(vii and x)
Not related

18. Section 33 – not necessarily related party18
2 entities simply because of common director
2 venturers simply because they share joint control
Simply by virtue of their normal dealings with an entity: providers of finance; trade unions; public utilities; and government departments and agencies.
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. 18

19. Section 33 – relationship disclosures19
Disclose related party relationship only if an entity has related party transactions
Exception—disclose parent-subsidiary relationship irrespective of whether there are related party transactions
including name of its parent and ultimate controlling party
if neither parent nor ultimate controlling party produces FS available for public use then also disclose name of the next most senior parent that does do so 19

20. Section 33 – relationship disclosures20
Disclose key management personnel compensation in total
this disclosure is in addition to disclosures about related party transactions (see following slides) 20

21. Section 33 – related party transactions21
A RPT is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.
If an entity has a RPT it discloses information about the transactions, outstanding balances and commitments necessary for an understanding of the potential effect of the relationship on the financial statements.
Do not state RPT made on terms equivalent to arm’s length transactions unless can be substantiated. 21

22. Section 33 – RPT disclosures22
RPT disclosures include (at minimum):
the amount of the transactions
the amount of outstanding balances and:
their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement, and
details of any guarantees given or received.
provisions for uncollectible RP receivables.
expense recognised for RP bad/doubtful debts. 22

23. Section 33 – aggregation 23
Disclose items of a similar nature in the aggregate except when separate disclosure is necessary for an understanding of the effects of RPTs on the financial statements
Disclose separately for each of
entities with control, joint control or significant influence over the entity
entities over which the entity has control, joint control or significant influence
key management personnel of the entity or its parent (in the aggregate)
other related parties 23

24. Section 33 – exemption from RPT discl.24
Exemption applies to transaction disclosures only (i.e the nature of the relationship must be disclosed).
a state (a national, regional or local government) that has control, joint control or significant influence over the reporting entity, and
another entity that is a related party because the same state has control, joint control or significant influence over both the reporting entity and the other entity. 24

25. Conclusion
Discussion
Questions?