Section 27: Related Party Disclosures (AASB 1061_04-26)

This section requires an entity to include in its financial statements the disclosures necessary to draw attention to the possibility that its financial position and profit or loss have been affected by the existence of related parties and transactions and outstanding balances with such parties. 

A related party is a person or an entity that is related to the reporting entity, as set out in this section. In considering each possible related party relationship, an entity shall assess the substance of the relationship and not merely the legal form.

A person or a close member of that person’s family is related to a reporting entity if that person: 

(a) has control or joint control over the reporting entity; 

(b) has significant influence over the reporting entity; or 

(c) 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: 

(a) 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); 

(b) 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); 

(c) both entities are joint ventures of the same third entity; 

(d) one entity is a joint venture of a third entity and the other entity is an associate of the third entity; 

(e) the entity is controlled or jointly controlled by a person identified in paragraph 27.3; 

(f) a person identified in paragraph 27.3(a) 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); or 

(g) 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.

An entity and the reporting entity are also related to each other if a notable relationship exists between the entities or the entities are notable relationship entities of the same third entity. 

In the context of this Standard, the following are not related parties: 

(a) two entities simply because they have a director or other member of key management personnel in common; 

(b) two joint venturers simply because they share joint control of a joint venture; 

(c) any of the following simply by virtue of their normal dealings with an entity (even though they may affect the freedom of action of an entity or participate in its decision-making process): 

(i) providers of finance; 

(ii) trade unions; 

(iii) public utilities; or 

(iv) government departments and agencies; and 

(d) 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.

Relationships between a parent and its subsidiaries shall be disclosed regardless of whether there have been transactions between them. An entity shall disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces financial statements available for public use, the name of the next most senior parent that does so (if any) shall also be disclosed.

A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether: 

(a) a price is charged; or 

(b) it occurs on terms equivalent to those prevailing in arm’s length transactions.

If an entity has related party transactions, it shall, subject to the exemptions in paragraph 27.12, disclose information about: 

(a) the nature of the related party relationship; and 

(b) the transactions, outstanding balances and commitments; 

necessary for an understanding of the potential effects of the relationship on the financial statements.

At a minimum, the disclosures made in accordance with paragraph 27.9(b) shall include: 

(a) the amount of the transactions; 

(b) the amount of outstanding balances and: 

(i) their terms and conditions, including whether they are secured and the nature of the consideration to be provided in settlement; and 

(ii) details of any guarantees given or received; 

(c) provisions for uncollectible receivables related to the amount of outstanding balances; and 

(d) the expense recorded during the period in respect of bad or doubtful debts due from related parties.

An entity shall make disclosures required by paragraphs 27.9 and 27.10 separately for each of the following categories: 

(a) entities with control, joint control or significant influence over the entity; 

(b) entities over which the entity has control, joint control or significant influence; 

(c) key management personnel of the entity or its parent; and 

(d) other related parties.

The disclosures in paragraphs 27.9 and 27.10 need not be made for: 

(a) compensation paid to the entity’s key management personnel; and 

(b) donations received by the entity from a related party, unless evidence indicates the donations could influence the entity’s activities or use of resources. An example of such evidence is a donation received on the condition that the entity must purchase goods or services from a specified supplier.

In applying paragraph 27.11, an entity that presents investments in notable relationship entities discloses the information required by paragraphs 27.9 and 27.10 for these investments separately from the disclosures for other related parties.

Examples of transactions that are disclosed if they are with a related party are: 

(a) purchases, sales or other transfers of goods (finished or unfinished), property and other assets; 

(b) rendering or receiving services; 

(c) lease rental receipts and payments; 

(d) transfers under finance arrangements (including loans and equity contributions in cash or in kind); 

(e) provision of guarantees or collateral; 

(f) commitments to do something if a particular event occurs or does not occur in the future; and 

(g) settlement of liabilities on behalf of the entity or by the entity on behalf of that related party.

An entity shall not state that related party transactions were made on terms equivalent to those that prevail in arm’s length transactions unless such terms can be substantiated.

An entity may disclose 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 entity’s financial statements.