Related-party disclosures
Chapter 22
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
22-1
Learning objectives
• Understand what a related party is
• Be aware of some of the categories of
related parties
• Understand what is meant by a related-party
transaction
• Be aware of some of the risks and opportunities
that accrue as a result of transactions with
related parties
(Continues)
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PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
22-2
Learning objectives (cont.)
• Understand the rationale behind disclosing
information about related-party transactions
• Understand some of the various disclosure
requirements included within the Companies
Act 1993, NZ IAS 24 ‘Related Party Disclosures’
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PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
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Related-party relationship defined
• Related parties
–
–
If one party has the ability to significantly influence or
control the activities of another; or
if both parties are under the common control of another
party
• Related parties include:
–
–
organisations that are controlling or controlled by the
entity, or are significantly influencing or significantly
influenced by the entity; and
individuals such as key management personnel or close
family members
(Continues)
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Slides prepared by Grant Samkin and Annika Schneider
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Related-party relationship
defined (cont.)
• Related-party transaction (NZ IAS 24)
–
The transfer of resources, services or obligations
between related parties, regardless of whether a
price is charged
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
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NZ IAS 24 ‘Related Party
Disclosures’
• Related-party transactions:
–
–
–
–
cannot be presumed to be at arm’s length
could occur at prices not reflecting fair values
can expose an entity to unique risks or opportunities
could have a material effect on entity’s performance,
financial position, financing and investing activities
• Knowledge of related-party transactions,
outstanding balances and relationships can affect
assessments of the entity by financial report users
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
(Continues)
22-6
NZ IAS 24 ‘Related Party
Disclosures’ (cont.)
• In extreme cases, related-party transactions
could be undertaken to defraud other parties
• They could also be undertaken to minimise total
taxation payable by a group of related entities
• Corporate scandals have been driving forces
for related-party regulation
• Materiality is to be considered in deciding whether
to disclose related-party transactions
(Continues)
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
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NZ IAS 24 ‘Related Party
Disclosures’ (cont.)
• Control
–
–
The power to govern an entity’s financial and operating
policies to obtain benefits from its activities
The power does not have to be exercised
• Significant influence
–
–
The power to participate in (but not control) an entity’s
financial and operating policy decisions
The most common relationship in this regard is that
between investor and associate
(Continues)
Copyright  2006 McGraw-Hill Australia Pty Ltd
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Slides prepared by Grant Samkin and Annika Schneider
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NZ IAS 24 ‘Related Party
Disclosures’ (cont.)
• Key management personnel are:
–
persons having authority and responsibility for an
entity’s planning, directing and controlling activities,
including any director of the entity
• Close family members of such personnel
are related parties, i.e. domestic partner,
children and dependants
(Continues)
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
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NZ IAS 24 ‘Related Party
Disclosures’ (cont.)
• Relationships between parents and subsidiaries
to be disclosed regardless of any transactions,
including such information as:
–
–
name of parent and ultimate controlling entity
if the parent is incorporated overseas, which entities
are incorporated overseas and the name of the ultimate
controlling entity incorporated in New Zealand
(Continues)
Copyright  2006 McGraw-Hill Australia Pty Ltd
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Slides prepared by Grant Samkin and Annika Schneider
22-10
NZ IAS 24 ‘Related Party
Disclosures’ (cont.)
• Disclosures regarding key management personnel
–
Compensation in total and for each of the following
categories:





short-term employment benefits (e.g. wages, salaries,
paid annual leave and sick leave)
post-employment benefits (e.g. pensions and other
retirement benefits)
other long-term benefits (e.g. long-service leave and
long-term disability benefits)
termination benefits
share-based payment
(Continues)
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
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NZ IAS 24 ‘Related Party
Disclosures’ (cont.)
• Disclosure of names of directors and date of
appointment and resignation where appropriate
• Disclosure of names of directors defined as
a person appointed:
–
–
–
to the position of director
to the position of alternate director
to governing body, council etc.
(Continues)
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
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NZ IAS 24 ‘Related Party
Disclosures’ (cont.)
• Related-party transactions in general
–
–
Nature of related-party relationship
Information about transactions and outstanding balances:




amount of transactions
amount and terms of outstanding balances
provisions for doubtful debts related to outstanding balances
bad and doubtful debts expense due from related parties
(Continues)
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
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NZ IAS 24 ‘Related Party
Disclosures’ (cont.)
• Disclosures made separately for:
–
–
–
–
–
–
–
parent
entities with joint control or significant influence
subsidiaries
associates
joint ventures
key management personnel
other related parties
(Continues)
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
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NZ IAS 24 ‘Related Party
Disclosures’ (cont.)
• Examples of transactions to be disclosed:
–
–
–
–
–
–
–
–
–
purchases or sales of goods
purchases or sales of property and other assets
rendering or receiving of services
leases
transfers of research and development
transfers under licence agreements
transfers under finance arrangements
provision of guarantees or collateral
settlement of liabilities
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Section 211 of the Companies
Act 1993 disclosure requirements
• Section 211(1)(f) of the Companies Act 1993
requires that the total remuneration and the
value of other benefits received by each director
or former director of the company during the
accounting period be disclosed
(Continues)
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PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
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Section 211 of the Companies Act
1993 disclosure requirements (cont.)
• Guidance on what individual items make up
directors’ remuneration can be found in the
definition of compensation contained in NZ IAS 24,
par. 9. In terms of this paragraph, compensation
includes:
–
–
•
all employee benefits (as defined in NZ IAS 19 'Employee
Benefits') including employee benefits to which NZ IFRS 2
'Share-based Payment' applies.
Employee benefits are all forms of consideration paid, payable
or provided by the entity, or on behalf of the entity, in exchange
for services rendered to the entity. It also includes such
consideration paid on behalf of a parent of the entity in respect
of the entity
Refer to Table 22.1, 'Items included in director’s
remuneration', pp. 919–20
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
22-17
Summary
• The chapter considers related-party transactions
• The disclosure of these transactions is highly
•
•
•
•
regulated within New Zealand
Accounting standards on related-party disclosures
include NZ IAS 24 and the Companies Act 1993
Director- and executive-related transactions are
subject to highest degree of required disclosure
Cost of preparing and reporting the information
would be high
Regulators consider these costs to be outweighed
by benefits
Copyright  2006 McGraw-Hill Australia Pty Ltd
PPTs t/a New Zealand Financial Accounting 3e by Grant Samkin
Slides prepared by Grant Samkin and Annika Schneider
22-18