IAS 24 Related Party Disclosures requires disclosures about transactions and outstanding balances with an entity’s related parties. This standard applies to applies to annual periods beginning on or after 1 January 2011.
It is important to disclose related parties and transactions as the financial performance and position of an entity can be affected because of the related party influence.
Definitions of related parties or entities (by IAS and FRS)
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
- 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 defined 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 above
- A person identified above 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).
- 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
Examples of transactions to be disclosed
- Purchases or sales of goods
- Donations of money or other assets
- Supply of services
- Provision of loans and guarantees
Information to be disclosed
- The names of the parties involved in the transaction
- A description of the relationship between the parties
- A description of the transaction and the amounts involved
- Any amounts due from or to the related parties at the year-end, or provisions for bad or doubtful debts with related parties
- The terms and conditions of the transaction and details of any guarantees given or received
- Any other elements of the transactions necessary for an understanding of the financial statements, such as particulars of relationships that led to the transactions, or other information. It may be useful to note that the transactions were on normal commercial terms or on terms that were beneficial to the entity.
Below is an extract from Capita’s Annual Report for 2015
During the year, the Group rendered administrative services to Smart DCC Ltd, a wholly owned subsidiary which is not consolidated. The Group received £29.5m (2014: £25.8m) of revenue for these services. The services are procured by Smart DCC on an arm’s length basis under the DCC licence. The services are subject to review by Ofgem to ensure that all costs are economically and efficiently incurred by Smart DCC.
Capita Pension and Life Assurance Scheme is a related party of the Group. Transactions with the Scheme are disclosed in note 32 – Employee benefits on page 151.
The following companies are substantial shareholders in the Company and therefore a related party of the Company (in each case, for the purposes of the Listing Rules of the UK Listing Authority).
The number of shares held on 18 February 2016 was as below:
- Invesco Asset Management 53,674,295 (8.08%)
- Veritas Asset Management LLP 41,859,611 (6.30%)
- BlackRock Inc 37,899,583 (5.70%)
- Woodford Investment Management LLP 36,810,693 (5.54%)
The Full Report can be found by here: https://goo.gl/gyKPv0