Appendix A (AASBPS2_12-17_COMPdec21_01-22)

The following factors are relevant to assessing the materiality of key management personnel related party transactions of not-for-profit public sector entities:

(a) the potential effect of the relationship on the financial statements – not the materiality of the transaction to the key management personnel; and

(b) whether the transaction occurred as part of a public service provider relationship with a taxpayer on terms no different to that of a transaction with the general public (such as the collection of taxes or the use of public facilities) or as part of an ordinary operational transaction (such as the purchase of property, plant and equipment or the hiring of employees) on normal commercial terms and conditions. Both these types of transactions are not presumed to be material by nature of the transaction alone (that is, qualitatively material because the transaction is with a related party). However, such transactions could be qualitatively material where the key management personnel can exert undue influence over the outcomes or quantitatively material where the effect on the financial statements could influence the economic decisions that primary users make on the basis of the financial statements.

AASB 124 (paragraph 27) notes that in establishing the level of significance of a transaction in relation to government-related entities, other relevant factors to consider include whether the transaction is:

(a) significant in terms of size;

(b) outside normal day-to-day business operations, such as the purchase and sale of businesses;

(c) disclosed to regulatory or supervisory authorities;

(d) reported to senior management; or

(e) subject to shareholder approval (in this context, ministerial approval).

The key assessment is whether knowledge of the relationship and the terms and conditions could influence a user’s understanding of the impact on the financial statements. Where the impact on the financial statements is not material, the transaction is not required to be disclosed. For example, the materiality assessment applied to a transaction with a key management personnel related party that has been through an entity’s procurement processes which require several independent quotes to be obtained is unlikely to differ to that which would apply to the same transaction undertaken with an unrelated party, where the key management personnel has no influence over the transaction. Similarly, an entity may determine that disclosure of the employment of key management personnel close family members, where recruited in the same manner and subject to the same terms and conditions as those offered to other public service employees performing similar roles, to be material only where disclosure of the employment of employees who are unrelated to the entity, made under the same conditions, is material.