CONCEPTUAL FRAMEWORK

&
ACCOUNTING STANDARDS
2020 Edition

Lecture Aid
By: Zeus Vernon B. Millan

1
PAS 24 Related Party Disclosures

Learning Objectives
• Enumerate examples of related parties.
• Describe the disclosure requirements for related parties.

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Objective and Scope

• PAS 24 prescribes the necessary disclosures regarding related party

relationships and transactions, outstanding balances and
commitments between an entity and its related parties.

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Standards (by: Zeus Vernon B. Millan)
Core principle

• The financial position and profit or loss of an entity may be affected

by a related party relationship even if related party transactions do
not occur. The mere existence of the relationship may be
sufficient to affect the transactions of the entity with other parties.
• Necessary disclosures, therefore, should be provided to draw users’
attention to the possible effects of such relationships and
transactions on the financial statements presented.

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Standards (by: Zeus Vernon B. Millan)
Related parties

• A related party is “a person or entity that is related to the

reporting entity that is preparing its financial statements.” (PAS 24)

• Examples of related parties:

1. Investor and investee relationship where control, joint control or
significant influence exists.
2. Key management personnel
3. Close family member
4. Post-employment benefit plan

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Standards (by: Zeus Vernon B. Millan)
Definition of terms

• Control – an investor controls an investee when the investor is

exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power
over the investee..
• Significant influence is the power to participate in the financial and
operating policy decisions of an entity, but is not control over those
policies. Significant influence may be gained by share ownership,
statute or agreement.
• Joint control is the contractually agreed sharing of control over an
economic activity.

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Standards (by: Zeus Vernon B. Millan)
 Definition of terms - continuation
• 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.

• Close members of the family of an individual

a. the individual’s domestic partner and children;
b. children of the individual’s domestic partner; and
c. dependents of the individual or the individual’s domestic partner.

• 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.
 

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Standards (by: Zeus Vernon B. Millan)
Unrelated parties
• The following are not related parties:
1. Two entities simply because they have a director in common.
2. Two venturers simply because they share joint control over a joint
venture.
3. Providers of finance, trade unions, public utilities, and departments
and agencies of a government that does not control, jointly control
or significantly influence the reporting entity, simply by virtue of
their normal dealings with an entity.
4. A customer, supplier, franchisor, distributor or general agent with
whom an entity transacts a significant volume of business, simply by
virtue of the resulting economic dependence.

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Standards (by: Zeus Vernon B. Millan)
Disclosure

1. Parent-subsidiary relationship regardless of whether there have been

transactions between them.
2. Key management personnel compensation broken down into the
following categories SPOTS and loans to key management personnel.
3. Related party transactions – nature of transaction and outstanding
balances

• Disclosures that related party transactions were made on terms equivalent

to those that prevail in arm’s length transactions are made only if such
terms can be substantiated.

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 APPLICATION OF CONCEPTS
 

PROBLEM 2: FOR CLASSROOM DISCUSSION

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OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

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 END
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