Accounting Q&A · Financial Accounting · Topic 48
Work through the questions and reveal the answers to check your reasoning.
25 short-answer questions. Try each question before revealing its answer.
Worked example
A company buys 40,000 of services from a related entity and owes 9,000 at year-end. If disclosure is required, report the relationship, transaction amount, outstanding balance and relevant terms.
Core concepts
1. Why disclose related parties?
Relationships can affect transactions, balances and how users assess financial statements.
2. What is a related party transaction?
A transfer of resources, services or obligations between related parties, whether or not a price is charged.
3. Can a transaction with no consideration require disclosure?
Yes. Free services or guarantees can still be related party transactions.
4. Can a person who controls the entity be related?
Yes, as can relevant close family members.
5. What is a close family member for this purpose?
A family member expected to influence or be influenced by the person in dealings with the entity, including those specified by IAS 24.
6. Is the parent a related party?
Yes. Disclose the parent relationship even if there were no transactions.
7. Are fellow subsidiaries generally related?
Yes. They belong to the same group.
8. Can a company’s associate be a related party?
Yes, subject to the IAS 24 definitions.
Applying the rules
9. Are two companies related simply because they share one director?
A common director alone does not create a related party relationship.
10. Are major customers related simply because of economic dependence?
Economic dependence alone does not establish the relationship.
11. Who are key management personnel?
People with authority and responsibility for planning, directing and controlling the entity’s activities.
12. Which compensation categories does IAS 24 specify?
Short-term, post-employment, other long-term, termination and share-based payment benefits.
13. What is an example of a related party loan?
The reporting entity lends to its controlling shareholder or to a group company.
14. Which loan terms matter for disclosure?
Consider amount, outstanding balance, security, settlement terms and guarantees.
15. What if 40,000 was purchased and 31,000 paid?
The balance is 9,000, assuming no opening balance, returns or other movements.
16. Can similar transactions be disclosed in aggregate?
Yes, unless separate disclosure is needed to understand their effects.
17. Can management describe terms as arm’s length?
Only when that claim can be substantiated.
Review and exam practice
18. Are intragroup transactions generally disclosed in consolidated accounts?
They are generally eliminated on consolidation, subject to applicable exceptions.
19. Can those transactions matter in separate financial statements?
Yes. Apply IAS 24 to the reporting entity and statements being prepared.
20. What is the government-related entity exemption?
A partial disclosure exemption for qualifying relationships, with specific disclosures still required.
21. Do guarantees count as related party transactions?
They can represent transfers of obligations even when no fee is charged.
22. Why track related party commitments?
Commitments can affect future obligations and may require disclosure.
23. Which records help identify related parties?
Ownership records, director declarations, entity registers and contracts.
24. What should you check for doubtful related party balances?
Assess the relevant allowance and bad debt expense disclosures under IAS 24.
25. What is an exam checklist for IAS 24?
Identify the relationship, assess the transaction or balance, then state the applicable disclosure.