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PwC T RANSFORM Changing business by changing behaviour Related Party Transactions Sujeewa Mudalige
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2 PwC T RANSFORM Overview of session 1. Introduction 2. Recognition 3. Disclosure 4. New developments
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PwC T RANSFORM Changing business by changing behaviour Related Party Disclosures Introduction
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4 PwC T RANSFORM Scope of IAS 24 / LKAS 24 Parties are related if one party can control or exercise significant influence over the other IAS 24 covers those parties which are related and details a number of exclusions Disclosure is required for: –Upwards and downwards control relationships –Details of the transactions
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PwC T RANSFORM Changing business by changing behaviour Related Party Disclosures Recognition
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6 PwC T RANSFORM Determining related parties Determining Related Parties Control Significant influence Parents Subsidiaries Fellow subsidiaries Joint ventures Other entities controlled by owners or key management Key management personnel
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7 PwC T RANSFORM Examples of related party transactions Sales and purchases of good and services Balances arising as a result at the Balance Sheet date Loans, commitments and contingencies Transactions with directors Bank loans and collateral Agency arrangements Share capital transactions
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8 PwC T RANSFORM Exclusions 7Providers of finance 7Trade Unions 7Public utilities 7Government departments and agencies 7Single suppliers / customers / franchises / distributors unless a specific relationship exists 7Entities with a director in common unless that director has the ability to direct or significantly influence
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9 PwC T RANSFORM Exemptions Stand alone financial statements of a parent if consolidated statements are available Financial statements of a wholly owned subsidiary if parent incorporated in the same country and providing financial statements Intra-group transactions that have been eliminated on consolidation State controlled entities
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10 PwC T RANSFORM Related parties for only part of the year Company A acquires 25% of Company B, regular supplier, on 1/9/20XX for which it equity accounts. During the year ended 31/12/20XX Company B makes sales to A of 2,000. The total sales till 1/9/20XX were 1,100. The companies are related from 1/9/20XX and 900 should be disclosed as a related party transaction.
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PwC T RANSFORM Changing business by changing behaviour Related Party Disclosures Measurement
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12 PwC T RANSFORM Measuring transactions Arm’s length Cost Cost plus Resale priceFree of charge Methods
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PwC T RANSFORM Changing business by changing behaviour Related Party Disclosures Disclosure
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14 PwC T RANSFORM Disclosures Nature of the relationships Types of transaction Volume and value of the transaction Pricing policies Balances at year end
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15 PwC T RANSFORM Improvements project (1) Related party definition clarified to include –Parties with joint control over entity –Joint ventures –Post-employment benefit plan Significant influence definition - conformed to IAS / LKAS 28 Wholly owned subsidiary – exemption no longer limited to parent in same country State-controlled entities no longer exempt
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16 PwC T RANSFORM Improvements project (2) No longer sufficient to disclose proportions of transactions / balances –must disclose full amounts Additional disclosures by category of related party : –Terms and conditions (security / consideration) –Guarantees given / received –Provisions for doubtful debts (incl P/L expense) –Settlement of liabilities on behalf of entity Pricing policies / management compensation cost not required
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