RELATED PARTY DISCLOSURES PAS - 24

Pas 24 prescribes the guidelines in identifying related party relationships, transactions, outstanding
balances and commitments, and the necessary disclosures for these items.

 Related party relationship is a common feature of business.

 Related party disclosures are necessary to indicate the possibility that an entity’s financial
position and performance might have been affected by the existence of such relationship.

Introduction:

The mere existence of a related party relationship is sufficient to affect an entity’s financial position and
performance even in the absence of related party transactions.

For these reasons, users of financial statements need information on related party relationships,
transactions, outstanding balances and commitments to help them better assess the risks and
opportunities surrounding the entity.

Related Parties

Parties are related if one party has the ability to affect the financial and operating decisions of the other
party through control, significant influence or joint control.

Control, significant influence and joint control refer to the degree of one party's ability to affect the
relevant decisions of another. These are defined and discussed in the other sections of this book.

Examples of Related Parties:

1. Parent and its subsidiary.

2. Fellow subsidiaries with a common parent.
3. Investor and its associate; and the associate's subsidiary.
4. Venturer and the joint venture; and the joint venture's subsidiary.
5. A joint venture and an associate of a common investor.
6. Key management personnel of the reporting entity or of the reporting entity's parent.
7. A person who has control, significant influence or joint control over the reporting entity.
8. Close family member of the person referred to in (6) and (7).
9. Post-employment benefit plan of the employees of either
10. the reporting entity or an entity related to the reporting entity

Related Parties:

 Key management personnel - are "those persons having authority and responsibility for
planning, directing and controlling the activities of the entity, directly or indirectly, including any
director (whether executive or otherwise) of that entity.” (PAS 24.9).
 Close family member is one who may be expected to influence, or be influenced by, the person
in his/her dealings with the reporting entity. It includes the person's spouse, their children and
their dependents.

Not Related Parties:

The following are not related parties:

A. Two entities simply because they have one director or key management personnel in common.
B. Two joint venturers simply because they are co-venturers in a joint venture.
C. Financers, trade unions, public utilities, and government agencies that do not control, jointly
control or significantly influence the reporting entity, simply by virtue of their normal dealings
with the entity, even though they. may place some restrictions on the entity or participate it its
decision-makings.
D. A customer, supplier, or other business that the entity does significant transactions with, simply
because of economic dependence.

Not Related Parties:

The following are not related parties:

A. Two entities simply because they have one director or key management personnel in common.
B. Iwo joint venturers simply because they are co-venturers in a joint venture.
C. Financers, trade unions, public utilities, and government agencies that do not control, jointly control
or significantly influence the reporting entity, simply by virtue of their normal dealings with the
entity, even though they. may place some restrictions on the entity or participate it its decision-
makings.
D. A customer, supplier, or other business that the entity does significant transactions with, simply
because of economic dependence.

Disclosure:

 Relationships between parents and subsidiaries A parent-subsidiary relationship is disclosed

even if there have been no transactions between them during the period.
 A subsidiary discloses the name of its parent, and if different, the name of the ultimate parent. If
neither of these two prepares consolidated financial statements for public use, the subsidiary
discloses the name of the next most senior parent that does so.

Key Management Personnel Compensation:

An entity discloses the total key management personnel compensation broken down as follows:

 short-term employee benefits;

 post-employment benefits;
 other long-term benefits;
 termination benefits; and
 share-based payment.

Related party transactions:

A related party transaction is "a transfer of resources, services or obligations between a reporting entity
and a related party, regardless of whether a price is charged."(PAS 24.9)

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

a. purchases or sales of goods, services or other assets

 b. leases
c. transfers of research and development
d. transfers under license agreements
e. loans and other financing arrangements, including equity contributions
f. provision of guarantees or collateral
g. commitments
h. settlement of liabilities by or on behalf of either party
i. Participant by a parent or subsidiary in a defined benefit plan wherein risks are shared.

The following are disclosed when there are related party transactions during the periods covered by
the financial statements:

a. nature of the related party relationship

b. nature, terms and amount of the transaction and outstanding balances
c. doubtful debts recognized on the outstanding balances.
 Related party transactions and their outstanding balances are disclosed in an entity's separate
or individual financial statements. These, however, are eliminated in the group's consolidated
financial statements.
 Disclosures that related party transactions were on arm's length basis are not made unless this
can be substantiated.

Government related entities

A government-related entity is “an entity that is controlled, jointly' controlled or significantly influenced
by a government."(PAS 24.9)

A government-related entity discloses the following if there have been related party transactions with
the government:

a) name of the government and the nature of the relationship

b) nature and amount of each individually significant transaction
c) other transactions that are collectively significant but are individually insignificant

Accounting and Reporting by Retirement Benefit Plans (PAS – 26)

PAS 26 applies to the preparation of financial statements of retirement benefit plans (also called
'pension schemes', 'superannuation schemes' or 'retirement benefit schemes').

PAS 26 views a retirement benefit plan as a reporting entity separate from the employers of the
participants in the plan.

Accordingly, the retirement benefit plan may have its own financial statements.

PAS 26 deals with the accounting and reporting by the plan to all participants as a group, rather than
individually regarding their retirement benefit rights.

PAS 26
PAS 19
Applied by an employee in (among others) Applied by, for example, a trustee, when preparing the
determining the cost of providing retirement financial statements of a retirement benefit plan. PAS 26
benefits. complements PAS 19.

 PAS 26 applies to all retirement benefit plans whether formal or informal, contributory or non-
contributory, funded (managed by a trustee) or unfunded (managed by the employer), and
defined contribution plan or defined benefit plan.
 Some plans may have characteristics of both a defined contribution plan and a defined benefit
plan. Such hybrid plans are considered defined benefit plans under PAS 26.
 PAS 26 does not apply to government social security type arrangements and employee benefits
other than retirement benefits.
 Funding is “the transfer of assets to an entity (the fund) separate from the employer’s entity to
meet future obligations for the payment of retirement benefits.” PAS 26.8

Defined contribution plans

 Under a defined contribution plan, the employer's obligation is usually discharged by making the
agreed contributions.
 The benefits to be received by employees are dependent on the contributions and investment
income of the fund.
 The participants therefore are interested in information about actual contributions and the
plan's investment performance.

To address the foregoing needs the financial statements of a defined contribution plan shall contain
the following:

 a statement of net assets available for benefits;

 a statement of changes in net assets available for benefits; and
 accompanying notes to the financial statements
 Net assets available for benefits are “the assets of a plan less liabilities other than the actuarial
present value of promised retirement benefits.”(PAS 26)

Defined benefit plans:

 Under a defined benefit plan, the benefits to be received by employees are definite amounts
which can be determined by reference to the plan formula. The employer's obligation is not
discharged simply by making contributions to a fund, but rather by actually paying the promised
benefits when they become due. The payment of benefits therefore is dependent on the
availability of earmarked funds and the employer's ability to make good any deficiency in those
funds.
 Accordingly, the plan participants are not only interested in information on the earmarked funds
(net assets available for benefits) but also on the obligation (actuarial present value of promised
retirement benefits) for which those funds were set aside. thus, the financial statements of a
defined benefit plan requires e reporting of the actuarial present value of promised retirement
 benefits either within those financial statements or by reference to an accompanying separate
actuarial report.

The financial statements of a defined benefit plan contain either:

1. a statement that shows:

 the net assets available for benefits;
 the actuarial present value of promised retirement benefits, distinguishing between vested
benefits and non-vested benefits; and
 the resulting excess or deficit (PAS 26.17) or

The financial statements of a defined benefit plan contain either:

2. A statement of net assets available for benefits including either:

a. a note disclosing the actuarial present value of promised retirement. benefits,'

distinguishing between vested benefits and non-vested benefits; or

b. a reference to this information in an accompanying actuarial report.(PAS 26.17)

A statement of changes in net assets available for benefits and accompanying notes are
provided in both (1) and (2) above.

 Vested benefits are “benefits, the rights to which, under the conditions of a retirement
benefit plan, are not conditional on continued employment." (PAS 26.

Actuarial present value of promised retirement benefits:

Actuarial present value of promised retirement benefits - is "the present value of the expected
payments by a retirement benefit plan to existing and past employees, attributable to the service
already rendered. “

The present value of the retirement benefits may be calculated using either current salary levels or
projected salary levels at the retirement dates.

Actuarial valuations are frequently prepared every three years. If an actuarial valuation has not been
made prepared at the date of the financial statements, the latest actuarial valuations is used as the
basis. The valuation date is disclosed.

Valuation of plan assets :

Plan assets are measured at fair value or market value. Securities with fixed redemption values that
have been acquired to match the obligations of the plan may be measured at their final redemption
values. If an estimate of fair value is not possible, the reason for this is disclosed.

Disclosure:

Aside from a statement of net assets available for benefits and a statement of changes in net assets
available for benefits, the financial statements of either a defined contribution plan or a defined benefit
plan shall also provide information on the following:

a) summary of significant accounting policies

 b) description of the plan and the effect of any changes in the plan during the period
c) details of any single investment exceeding 5% of net assets or 5% of any category of investment
d) details of any investment in the employer
e) contributions of employer and employee, if applicable
f) analysis of benefits paid or payable according to, for example, retirement, death and disability
benefits, and lump sum payments
g) funding policies and, for defined contribution plans, investment policies
h) investment income on the plan assets
i) administrative, tax, and other expenses j. transfers from or to other plans
j) transfers from or to other plans
k) for defined benefit plans, the actuarial present value of promised retirement benefits, including
information on significant' actuarial assumptions, the. methods used, the number of plan
participants, a description of the promised benefits, and the names of the employers and the
employee groups covered. These may be presented either within the financial statements or in a
separate report.

Separate Financial Statements (PAS – 27)

PAS 27 prescribes the accounting and disclosure requirements for investments in subsidiaries, associates
and joint ventures when an entity prepares separate financial statements.

PAS 27 does not mandate which entities should produce separate financial statements. PAS 27 is applied
when an entity chooses, or is required by law, to present separate financial statements that comply with
PFRSs.

Separate Financial Statements:

Separate financial statements are those presented in addition to:

 consolidated financial statements; or

 the financial statements of an entity with an investment in associate or joint venture
that is accounted for using equity method in accordance with PAS 28 Investments in
Associates and joint Ventures.
 The financial statements of an entity that does not have an investment in subsidiary,
associate or joint ventures are not separate financial statements.
 Entities exempted from preparing consolidated financial statements present separate
financial statements as their only financial statements.
 Consolidated financial statements are “the financial statements of a group in which the assets,
liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are
presented as those of a single economic entity." (PAS 27.4)

Preparation of Separate Financial Statement

Separate financial statements are prepared in accordance with all applicable PFRSs, except those
investments in subsidiaries, associates or joint ventures are accounted for either:

a. at cost,

b. in accordance with PFRS 9 Financial Instruments, or

c. using the equity method under PAS 28 Investments in Associates and Joint Ventures

 The entity applies the same' accounting for each investment category (i.e., subsidiaries,
associates, and joint ventures).
 If the investments are measured at fair value through profit or loss in non-separate financial
statements, that same measurement is also used in the separate financial statements.
 Investments classified for as held for sale are accounted for in accordance with PFRS 5 Non-
current Assets Held for Sale and Discontinued Operations.

Dividends:

Dividends from a subsidiary, associate or joint venture are recognized in profit or loss when the entity's
right to receive the dividends is established, except when the investment is accounted for using the
equity method, in which case the dividends are recognized as deduction to the carrying amount of the
investment.