An Executive Guide to IFRS: Content, Costs and Benefits to Business

Related party transactions

IAS 24 Related Party Disclosures is a standard that has had its troubles over the years. Its main thrust is that companies should disclose transactions with ‘related parties’, which could be human relationships with close family but also relationships with other companies that are owned by a common shareholder, etc. It does also mandate disclosure of the remuneration of key management personnel, and requires disclosure of parent/subsidiary relationships, even if there are no transactions.

The standard was first issued in 1984, but was slightly revised by the IASB in 2003. The revision, however, inadvertently created a significant issue for China, giving rise to a long series of papers and exposure drafts trying to address ‘the Chinese problem’. This resulted in a new version in 2009.

In its earlier days, the main problem for IAS 24 was its requirement to disclose the remuneration of key management personnel. In some jurisdictions there is no legal requirement to disclose this information, or disclosures are limited to main board directors. Consequently when the EU decided to adopt IFRS from 2005, this meant, by way of example, that senior divisional managers, who had extremely advantageous packages that had never been revealed to shareholders, were reluctant to see this information published.

China has not directly adopted IFRS, but has been progressively aligning its domestic rules for listed companies on IFRS (this is also referred to by some as convergence, ...