IFRS FOR SMEs: Related Party Disclosures 17/11/2016 Cpa Opanga bopanga@yahoo.com 0727-404 289 Credibility . Professionalism . AccountAbility

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

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

So why the concern about related parties? Section 33

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

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

Section 33 – related parties defined 7 (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

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

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))

Section 33 – related parties defined continued 10 (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

Section 33 – related parties defined continued 11 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

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

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

Section 33 – related parties defined continued 14 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

Section 33 – related parties defined continued 15 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

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

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

Section 33 – not necessarily related party 18 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

Section 33 – relationship disclosures 19 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

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

Section 33 – related party transactions 21 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

Section 33 – RPT disclosures 22 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

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

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

Conclusion Discussion Questions?