Audit Lowe Down – Related parties – what should I consider in identifying them?
Related parties – what should I consider in identifying them?
Related party disclosures is an area that is receiving more scrutiny from stakeholders in both the for-profit and the not-for-profit space.
Disclosure of transactions that have occurred with related parties are important since the terms and conditions are often different from those with unrelated parties, in some instances the transactions may have occurred for much lower or even nil consideration.
Often one of the biggest challenges for compiling the disclosures is working out who is a related party of an entity.
The definition of related parties in AASB 124 Related Party Disclosures is detailed, however we have summarised the definition into various elements below.
a. Think about entities who might be related to the reporting entity i.e.:
i. through control or significant influence,
ii. by the existence of material transactions or
iii. dependence on technical information or personnel provided by them.
b. Think about people who might be related to the reporting entity, i.e.:
i. Key management personnel, including all directors.
ii. Close family members of key management personnel (e.g. spouse, child).
c. Think about entities that the people identified in b. might control or significant influence, i.e.:
i. Family businesses
ii. Businesses which a close family member controls (i.e. senior partner in a legal or accounting firm).
Once you have identified a complete list of who is potentially a related party, analysis can then be performed to confirm they meet the criteria in AASB 124 and then identify any transactions with these parties.
Remember that transactions should be included whether or not a price was charged or whether the transaction was formally documented or not.
Please do not hesitate to contact your Lowe Lippmann Relationship Partner if you wish to discuss any of these matters further.
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