The Australian Accounting Standards Board made Accounting Standard AASB 124 Related Party Disclosures under section 334 of the Corporations Act 2001 on 20 December 2005.
This compiled version of AASB 124 applies to annual reporting periods beginning on or after 1 January 2009. It incorporates relevant amendments contained in other AASB Standards made by the AASB up to and including 6 June 2008 (see Compilation Details).
ACCOUNTING STANDARD AASB 124
Related Party Disclosures
Objective
1 The objective of paragraphs 1 to 22 of this Standard is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances with such parties.
Aus1.1 The objective of paragraphs Aus25.1 to Aus25.9.3 of this Standard is to require disclosing entities to disclose additional information relating to key management personnel.
Application
Aus1.2 Subject to paragraph Aus1.3, paragraphs 1 to 22 of this Standard apply to:
(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
Aus1.3 Paragraphs 1 to 22 of this Standard do not apply to general purpose financial statements of not-for-profit public sector entities.
Aus1.4 Subject to paragraphs Aus1.4.1 and Aus1.5, paragraphs Aus25.1 to Aus25.9.3 of this Standard apply to each disclosing entity, or group of which a disclosing entity is the parent, that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act.
Aus1.4.1 Paragraphs Aus25.2 to Aus25.6 and Aus25.7.1 and Aus25.7.2 of this Standard do not apply to disclosing entities that are companies.
Aus1.5 An entity that is the parent entity in a group and presents its separate financial statements together with the consolidated financial statements in accordance with AASB 127 need not provide in its separate financial statements the disclosures required by paragraphs Aus25.1 to Aus25.9.3 of this Standard.
Aus1.6 This Standard applies to annual reporting periods ending on or after 31 December 2005.
[Note: For application dates of paragraphs changed or added by an amending Standard, see Compilation Details.]
Aus1.7 This Standard shall not be applied to annual reporting periods beginning before 1 January 2005.
Aus1.8 This Standard may be applied to annual reporting periods beginning on or after 1 January 2005 that end before 31 December 2005. An entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act may apply this Standard to such annual reporting periods when an election has been made in accordance with subsection 334(5) of the Corporations Act. When an entity applies this Standard to such an annual reporting period, it shall disclose that fact.
Aus1.9 The requirements specified in paragraphs 1 to 22 of this Standard apply to the financial statements where information resulting from their application is material in accordance with AASB 1031 Materiality.
Aus1.10 The disclosures required by paragraphs Aus25.1 to Aus25.9.3 of this Standard are deemed material.
Aus1.11 When applicable, this Standard supersedes:
(a) AASB 1046 Director and Executive Disclosures by Disclosing Entities as notified in the Commonwealth of Australia Gazette No S 66 on 28 January 2004;
(b) AASB 1046A Amendments to Accounting Standard AASB 1046 as notified in the Commonwealth of Australia Gazette No S 400 on 29 September 2004;
(c) AASB 124 Related Party Disclosures as notified in the Commonwealth of Australia Gazette No S 294 on 22 July 2004 and amended by AASB 2004-3 Amendments to Australian Accounting Standards as notified in the Commonwealth of Australia Gazette No S 559 on 23 December 2004; and
(d) AAS 22 Related Party Disclosures as issued in May 1993.
Scope
2 This Standard shall be applied in:
(a) identifying related party relationships and transactions;
(b) identifying outstanding balances between an entity and its related parties;
(c) identifying the circumstances in which disclosure of the items in (a) and (b) is required; and
(d) determining the disclosures to be made about those items.
3 This Standard requires disclosure of related party transactions and outstanding balances in the separate financial statements of a parent presented in accordance with AASB 127 Consolidated and Separate Financial Statements.
4 Related party transactions and outstanding balances with other entities in a group are disclosed in an entity’s financial statements. Intragroup related party transactions and outstanding balances are eliminated in the preparation of consolidated financial statements of the group.
Purpose of Related Party Disclosures
5 Related party relationships are a normal feature of commerce and business. For example, entities frequently carry on parts of their activities through subsidiaries, joint ventures and associates. In these circumstances, the entity’s ability to affect the financial and operating policies of the investee is through the presence of control, joint control or significant influence.
6 A related party relationship could have an effect on the profit or loss and financial position of an entity. Related parties may enter into transactions that unrelated parties would not. For example, an entity that sells goods to its parent at cost might not sell on those terms to another customer. Also, transactions between related parties may not be made at the same amounts as between unrelated parties.
7 The profit or loss and financial position 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. For example, a subsidiary may terminate relations with a trading partner on acquisition by the parent of a fellow subsidiary engaged in the same activity as the former trading partner. Alternatively, one party may refrain from acting because of the significant influence of another – for example, a subsidiary may be instructed by its parent not to engage in research and development.
8 For these reasons, knowledge of related party transactions, outstanding balances and relationships may affect assessments of an entity’s operations by users of financial statements, including assessments of the risks and opportunities facing the entity.
Definitions
9 The following terms are used in this Standard with the meanings specified.
Close members of the family of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. They may include:
(a) the individual’s domestic partner and children;
(b) children of the individual’s domestic partner; and
(c) dependants of the individual or the individual’s domestic partner.
Compensation includes all employee benefits (as defined in AASB 119 Employee Benefits) including employee benefits to which AASB 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. Compensation includes:
(a) short-term employee benefits, such as wages, salaries and social security contributions, paid annual leave and paid sick leave, profit-sharing and bonuses (if payable within twelve months of the end of the period) and non-monetary benefits (such as medical care, housing, cars and free or subsidised goods or services) for current employees;
(b) post-employment benefits such as pensions, other retirement benefits, post-employment life insurance and post-employment medical care;
(c) other long-term employee benefits, including long-service leave or sabbatical leave, jubilee or other long-service benefits, long-term disability benefits and, if they are not payable wholly within twelve months after the end of the period, profit-sharing, bonuses and deferred compensation;
(d) termination benefits; and
(e) share-based payment.
Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
Joint control is the contractually agreed sharing of control over an economic activity.
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.
Related party – a party is related to an entity if:
(a) directly, or indirectly through one or more intermediaries, the party:
(i) controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries);
(ii) has an interest in the entity that gives it significant influence over the entity; or
(iii) has joint control over the entity;
(b) the party is an associate (as defined in AASB 128 Investments in Associates) of the entity;
(c) the party is a joint venture in which the entity is a venturer (see AASB 131 Interests in Joint Ventures);
(d) the party is a member of the key management personnel of the entity or its parent;
(e) the party is a close member of the family of an individual referred to in (a) or (d);
(f) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or
(g) the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is a related party of the entity.
A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged.
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.
Aus9.1 The following terms are also used in this Standard with the meaning specified.
Director means:
(a) a person who is a director under the Corporations Act; and
(b) in the case of entities governed by bodies not called a board of directors, a person who, regardless of the name that is given to the position, is appointed to the position of member of the governing body, council, commission or authority.
Disclosing entity is defined in the Corporations Act.
Remuneration is compensation as defined in this Standard.
Aus9.1.1 Although the defined term ‘compensation’ is used in this Standard rather than the term ‘remuneration’, both words refer to the same concept and all references in the Corporations Act to the remuneration of directors and executives is taken as referring to compensation as defined and explained in this Standard.
10 In considering each possible related party relationship, attention is directed to the substance of the relationship and not merely the legal form.
11 In the context of this Standard, the following are not necessarily related parties:
(a) two entities simply because they have a director or other member of key management personnel in common, notwithstanding (d) and (f) in the definition of ‘related party’;
(b) two venturers simply because they share joint control over a joint venture;
(c) (i) providers of finance;
(ii) trade unions;
(iii) public utilities; and
(iv) government departments and agencies;
simply by virtue of their normal dealings with an entity (even though they may affect the freedom of action of an entity or participate in its decision-making process); and
(d) a customer, supplier, franchisor, distributor or general agent with whom an entity transacts a significant volume of business, merely by virtue of the resulting economic dependence.
Disclosure
12 Relationships between parents and subsidiaries shall be disclosed irrespective of whether there have been transactions between those related parties. An entity shall disclose the name of the entity’s parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed.
Aus12.1 When any of the parent entities and/or ultimate controlling parties named in accordance with paragraph 12 is incorporated or otherwise constituted outside Australia, an entity shall:
(a) identify which of those entities is incorporated overseas and where; and
(b) disclose the name of the ultimate controlling entity incorporated within Australia.
13 To enable users of financial statements to form a view about the effects of related party relationships on an entity, it is appropriate to disclose the related party relationship when control exists, irrespective of whether there have been transactions between the related parties.
14 The identification of related party relationships between parents and subsidiaries is in addition to the disclosure requirements in AASB 127, AASB 128 and AASB 131, which require an appropriate listing and description of significant investments in subsidiaries, associates and jointly controlled entities.
15 When neither the entity’s parent nor the ultimate controlling party produces financial statements available for public use, the entity discloses the name of the next most senior parent that does so. The next most senior parent is the first parent in the group above the immediate parent that produces consolidated financial statements available for public use.
16 An entity shall disclose key management personnel compensation in total and for each of the following categories:
(a) short-term employee benefits;
(b) post-employment benefits;
(c) other long-term benefits;
(d) termination benefits; and
(e) share-based payment.
17 If there have been transactions between related parties, an entity shall disclose the nature of the related party relationship as well as information about the transactions and outstanding balances necessary for an understanding of the potential effect of the relationship on the financial statements. These disclosure requirements are in addition to the requirements in paragraph 16 to disclose key management personnel compensation. At a minimum, disclosures shall include:
(a) the amount of the transactions;
(b) the amount of outstanding balances and:
(i) their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and
(ii) details of any guarantees given or received;
(c) provisions for doubtful debts related to the amount of outstanding balances; and
(d) the expense recognised during the period in respect of bad or doubtful debts due from related parties.
18 The disclosures required by paragraph 17 shall be made separately for each of the following categories:
(a) the parent;
(b) entities with joint control or significant influence over the entity;
(c) subsidiaries;
(d) associates;
(e) joint ventures in which the entity is a venturer;
(f) key management personnel of the entity or its parent; and
(g) other related parties.
19 The classification of amounts payable to, and receivable from, related parties in the different categories as required in paragraph 18 is an extension of the disclosure requirement in AASB 101 Presentation of Financial Statements for information to be presented either in the statement of financial position or in the notes. The categories are extended to provide a more comprehensive analysis of related party balances and apply to related party transactions.
20 The following are examples of transactions that are disclosed if they are with a related party:
(a) purchases or sales of goods (finished or unfinished);
(b) purchases or sales of property and other assets;
(c) rendering or receiving of services;
(d) leases;
(e) transfers of research and development;
(f) transfers under licence agreements;
(g) transfers under finance arrangements (including loans and equity contributions in cash or in kind);
(h) provision of guarantees or collateral; and
(i) settlement of liabilities on behalf of the entity or by the entity on behalf of another party.
Participation by a parent or subsidiary in a defined benefit plan that shares risks between group entities is a transaction between related parties (see paragraph 34B of AASB 119 as issued in December 2004). [Note: This part of paragraph 20 applies only to accounting periods beginning on or after 1 January 2006 and to accounting periods beginning before 1 January 2006 and on or after 1 January 2005 for those entities that choose to early-adopt AASB 119 (December 2004) and AASB 2004-3 before 1 January 2006.]
21 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.
22 Items of a similar nature may be disclosed in aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity.
Effective Date of IAS 24
23 [Deleted by the AASB]
Withdrawal of IAS 24 (reformatted 1994)
24 [Deleted by the AASB]
Other Key Management Personnel Disclosures by Disclosing Entities
Aus25.1 Paragraphs Aus25.2 to Aus25.9.3 of this Standard apply to each disclosing entity (subject to parent entity relief) that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act. However, paragraphs Aus25.2 to Aus25.6 and Aus25.7.1 and Aus25.7.2 of this Standard do not apply to disclosing entities that are companies. The disclosures required of disclosing entities by paragraphs Aus25.2 to Aus25.9.3 are in addition to those required by paragraphs 1 to 22.
Aus25.2 The following details about each key management person shall be disclosed:
(a) the name of the person;
(b) the position held; and
(c) where the period of responsibility is less than the reporting period, the date or dates identifying the period of responsibility.
Aus25.3 If any of the following changes occur in the period after the end of the reporting period and prior to the date when the financial statements are authorised for issue, the name, position and date for each person involved shall be disclosed for:
(a) each change in the chief executive officer and directors of the entity; and
(b) the retirement of any key management person (other than a director or chief executive officer).
Compensation
Aus25.4 For each key management person, the following components of the categories required by paragraph 16, shall be disclosed:
(a) short-term employee benefits. Amounts in this category shall be divided into at least the following components:
(i) cash salary, fees and short-term compensated absences;
(ii) short-term cash profit-sharing and other bonuses;
(iii) non-monetary benefits; and
(iv) other short-term employee benefits;
(b) post-employment benefits. Amounts in this category shall be divided into at least the following components:
(i) pension and superannuation benefits; and
(ii) other post-employment benefits;
(c) other long-term employee benefits, separately identifying amounts attributable to long-term incentive plans;
(d) termination benefits; and
(e) share-based payment. Amounts in this category shall be divided into at least the following components:
(ii) cash-settled share-based payment transactions; and
(iii) all other forms of share-based payment compensation (including hybrids).
Principles of Compensation
Aus25.5 The following details concerning the compensation of each key management person shall be disclosed:
(a) discussion of board policy for determining the nature and amount of compensation of key management personnel of the entity;
(b) discussion of the relationship between such policy and the entity’s performance;
(c) if an element of the compensation of a key management person is dependent on the satisfaction of a performance condition:
(i) a detailed summary of the performance condition;
(ii) an explanation of why the performance condition was chosen;
(iii) a summary of the methods used in assessing whether the performance condition is satisfied and an explanation of why those methods were chosen; and
(iv) if the performance condition involves a comparison with factors external to the entity:
(A) a summary of the factors to be used in making the comparison; and
(B) if any of the factors relates to the performance of another entity, of two or more other entities or an index in which the securities of an entity or entities are included – the identity of that entity, of each of those entities or of the index;
(d) for each grant of a cash bonus, performance-related bonus or share-based payment compensation benefit, whether part of a specific contract for services or not, the terms and conditions of each grant affecting compensation in this or future reporting periods, including:
(i) the grant date;
(ii) the nature of the compensation granted;
(iii) the service and performance criteria used to determine the amount of compensation; and
(iv) if there has been any alteration of the terms or conditions of the grant since the grant date, the date, details and effect of each alteration;
(e) for each contract for services between the key management person and the disclosing entity (or any of its subsidiaries), such further explanations as are necessary in addition to those prescribed in subparagraphs (c) and (d) to provide an understanding of how the amount of compensation in the current reporting period was determined and how the terms of the contract affect compensation in future periods;
(f) if an element of the compensation consists of securities of a body and that element is not dependent on the satisfaction of a performance condition – an explanation of why that element of the compensation is not dependent on the satisfaction of a performance condition;
(g) an explanation of the relative proportions of those elements of the person’s compensation that are related to performance and those elements of the person’s compensation that are not; and
(h) if the person is employed by the entity under a contract – the duration of the contract, the periods of notice required to terminate the contract and the termination payments provided for under the contract.
Modification of Terms of Share-based Payment Transactions
Aus25.6 Where the terms of share-based payment transactions (including options or rights) granted as compensation to a key management person have been altered or modified by the issuing entity during the reporting period, the following details shall be disclosed for each such person:
(a) the date of each alteration of the terms;
(b) the market price of the underlying equity instrument at the date of alteration;
(c) the terms of the grant immediately prior to alteration, including the number and class of the underlying equity instruments, exercise price, time remaining until expiry and each other condition in the terms affecting the vesting or exercise of the option or other right;
(d) the new terms; and
(e) the difference between the total of the fair value of the options or other rights affected by the alteration immediately before the alteration and the total of the fair value of those options or other rights immediately after the alteration.
Equity Instruments
Different Classes to be Separately Identified
Aus25.7 All disclosures required by paragraphs Aus25.7.1 to Aus25.7.5 refer to equity instruments issued or issuable by the disclosing entity and any of its subsidiaries and shall be separated into each class of equity instrument identifying each class by:
(a) the name of the issuing entity;
(b) the class of equity instrument; and
(c) if the instrument is an option or right, the class and number of equity instruments for which it may be exercised.
Options and Rights Provided as Compensation
Aus25.7.1 The following details of options and rights over equity instruments provided as compensation to each key management person shall be disclosed:
(a) the number of options and the number of rights that, during the reporting period, have:
(i) been granted; and
(ii) vested;
(b) particulars of the terms and conditions of each grant made during the reporting period, including:
(i) the fair value per option or right at grant date;
(ii) the exercise price per share or unit;
(iii) the amount, if any, paid or payable by the recipient;
(iv) the expiry date;
(v) the date or dates when the options or rights may be exercised; and
(vi) a summary of the service and performance criteria that must be met before the beneficial interest vests in the person.
Equity Instruments Provided on Exercise of Options and Rights Granted as Compensation
Aus25.7.2 The following details of the equity instruments provided as a result of the exercise during the reporting period of options and rights granted as compensation to each key management person shall be disclosed:
(a) the number of equity instruments;
(b) when the number of options or rights exercised differs from the number of equity instruments disclosed under (a), the number of options or rights exercised;
(c) the amount paid per instrument; and
(d) the amount unpaid per instrument.
Options and Rights Holdings
Aus25.7.3 In respect of options and rights held, whether directly, indirectly or beneficially, by each key management person, including their related parties (as referred to in (e) and (f) of the related party definition), disclosure shall be made of the number:
(a) held at the start of the reporting period;
(b) granted during the reporting period as compensation;
(c) exercised during the reporting period;
(d) resulting from any other change during the reporting period;
(e) held at the end of the reporting period;
(f) vested at the end of the reporting period;
(g) vested and exercisable at the end of the reporting period; and
(h) vested and unexercisable at the end of the reporting period.
Equity Holdings and Transactions
Aus25.7.4 In respect of equity instruments (other than options and rights) held directly, indirectly or beneficially by each key management person, including their related parties (as referred to in (e) and (f) of the related party definition), disclosure shall be made of the number:
(a) held at the start of the reporting period;
(b) granted during the reporting period as compensation;
(c) received during the reporting period on exercise of options or rights;
(d) resulting from any other change during the reporting period;
(e) held at the end of the reporting period; and
(f) if any such are included in the number disclosed under subparagraph (e) above, held nominally at the end of the reporting period.
Aus25.7.5 If transactions involving equity instruments, other than share-based payment compensation, have occurred between a key management person, including their related parties (as referred to in (e) and (f) of the related party definition) and the issuing entity during the reporting period, the nature of each different type of transaction shall be disclosed where the terms or conditions were more favourable than those which it is reasonable to expect the entity would have adopted if dealing at arm’s length with an unrelated person. For each such transaction, the details of the terms and conditions shall be disclosed.
Loans
Aus25.8 The details required by paragraph Aus25.8.1 shall be disclosed separately in respect of each aggregate of loans made, guaranteed or secured, directly or indirectly, by the disclosing entity and any of its subsidiaries to:
(a) all key management personnel, including their related parties (as referred to in (e) and (f) of the related party definition); and
(b) each key management person, including their related parties (as referred to in (e) and (f) of the related party definition) by name whose aggregate loan amount exceeded $100,000 at any time during the reporting period.
Aus25.8.1 In respect of each aggregate of loans to key management personnel and to each key management person as required by paragraph Aus25.8, the following details shall be disclosed:
(a) the amount outstanding at the start of the reporting period;
(b) the amount of interest paid and payable in respect of the reporting period to the disclosing entity and any of its subsidiaries;
(c) the difference between the amount disclosed in accordance with subparagraph (b) above and the amount of interest that would have been charged on an arm’s-length basis;
(d) each write-down and each allowance for doubtful receivables recognised by the disclosing entity and any of its subsidiaries;
(e) the amount outstanding at the end of the reporting period;
(f) for each key management person only, the highest amount of indebtedness during the reporting period;
(g) for key management personnel only, the number of persons included in the group aggregate at the end of the reporting period; and
(h) a summary of the terms and conditions of the loans.
Aus25.8.2 For the purposes of paragraphs Aus25.8 and Aus25.8.1 loans do not include loans involved in transactions that are in substance options, including non-recourse loans.
Other Transactions and Balances
Aus25.9 In respect of transactions during the reporting period between the disclosing entity and any of its subsidiaries and key management personnel, including their related parties (as referred to in (e) and (f) of the related party definition), other than transactions covered by paragraphs Aus25.4 to Aus25.8.1 or excluded by paragraph Aus25.9.3, the following details shall be disclosed:
(a) each type of transaction of different nature;
(b) the terms and conditions of each type of transaction or, where there are different categories of terms and conditions within each type, the terms and conditions of each category of transaction; and
(c) for each type of transaction or, where there are different categories within each type, each category of transaction:
(i) the names of the persons involved; and
(ii) the aggregate amount recognised.
Aus25.9.1 In respect of each aggregate amount disclosed in accordance with paragraph Aus25.9, the following details shall be disclosed:
(a) the total of amounts recognised as revenue, separately identifying where applicable the total amounts recognised as:
(i) interest revenue; and
(ii) dividend revenue;
(b) the total of amounts recognised as expense, separately identifying where applicable the total amounts recognised as:
(i) interest expense; and
(ii) write-downs of receivables and allowances made for doubtful receivables; and
(c) any further disclosures necessary to provide an understanding of the effects of the transactions on the financial statements.
Aus25.9.2 In respect of assets and liabilities at the end of the reporting period recognised in relation to transactions identified in accordance with paragraph Aus25.9, disclosure shall be made of:
(a) the total of all assets, classified into current and non-current assets and, where applicable, any allowance for doubtful receivables at the end of the reporting period; and
(b) the total of all liabilities, classified into current and non-current liabilities.
Aus25.9.3 Transactions with and amounts receivable from or payable to a key management person, including their related parties, (as referred to in (e) and (f) of the related party definition), are excluded from the requirements of paragraphs Aus25.9 to Aus25.9.2 when:
(a) they occur within a normal employee, customer or supplier relationship on terms and conditions no more favourable than those that it is reasonable to expect the entity would have adopted if dealing at arm’s length with an unrelated person;
(b) information about them does not have the potential to affect adversely decisions about the allocation of scarce resources made by users of the financial statements, or the discharge of accountability by the key management person; and