IAS 24 Related Party Disclosures

[xiara13]

IAS 24 clearly states that two entities are not related simply by virtue of sharing a director or member of key management personnel. It also states that parties are related if a person is a member of the key management personnel of the reporting entity and is a member of the key management personnel of the related entity. These appear to be in conflict - help!

[Marek Muc]

Hi, in my opinion there are no conflicting paragraphs when it comes parties related through key management personnel. Two entities are not related merely because they share a member of key management personnel. In which paragraph IAS 24 states otherwise in your opinion?

[xiara13]

It says,

A person or a close person of that person’s family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity (ii) has significant influence over the reporting entity or (iii) is a member of the key management personnel of the reporting entity.

It goes on to say that an entity is related to the reporting entity if: (i) the entity is controlled or jointly controlled by a person identified above (ii) a person identified above has significant influence over the entity or is a member of the key management personnel of the entity.

So a director in first paragraph it related if they a director per second paragraph???? Sorry, this might seem like a stupid question, but I really don’t get it????!!!!!

[Marek Muc]

No, you need to carefully read the references in this paragraph. It takes a while to digest it

Paragraph IAS 24.9(b)(vii) reads: A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity.

So it refers to (a)(i) ONLY and (a)(i) refers to control or joint control of the entity.

For example: Mr Smith has 70% of voting rights and controls entity X. Mr Smith is also a member of key management personnel of entity Y. Therefore, entities X and Y are related. This is completely different from alternative scenario, where Mr Smith is just a member of key management personnel of both entities.

Take a look at the diagram in this section:
https://ifrscommunity.com/knowledge-bas ... ated-party

[xiara13]

Great, got that bit!

Now...
“The entity or any member of a group to which it is party provides key management personnel services to the reporting entity or its parent”

So, a another member of the entity’s group provides key management personnel to the reporting entity- they are related too?

[xiara13]

Just to clarify, a member of entity’s group provides a directs for reporting entity...

[Marek Muc]

I'm not sure I understand your question. Can you please explain what you mean with a simple example?

[xiara13]

An entity or a member of its group provides a director to sit on board of reporting entity- makes them related parties?

[Marek Muc]

yes, this results directly from the definition of a related party, and is further explained in basis for conclusions to IAS 24 (par. BC50-BC52)