IAS 24: related party disclosures

If a company sells goods to a stranger, the price is set by the market. If the same company sells goods to its chairman’s other business, the price can be anything the two of them agree. Readers of the accounts want to know when that is happening, because it can make profits look better, hide debts, or move value out of the company.

International Accounting Standard (IAS) 24, Related Party Disclosures, requires companies to tell readers who their related parties are and what business they have done together.

This topic covers the objective of IAS 24, who counts as a related party, which relationships usually do not, what a related party transaction is, the disclosures required (including pay for key management), and the extra governance rules that Nigerian practice adds. The previous topic covered interim reports. The next topic covers operating segments. May 2026 Question 3(a) tested the principles of related party transactions for 8 marks.

Key terms in plain English

Syllabus check

IAS 24 is examinable at this level. It supports Syllabus Area B, item 3(c), on the effect of related party transactions and disclosures on reported performance. This topic covers:

• the objective of IAS 24 and why it is a disclosure standard;
• the definition of a related party and of a related party transaction;
• relationships that are usually not related party relationships;
• the disclosures required, including key management compensation;
• the Nigerian principles and regulations on handling related party transactions.

CAMA 2020 and related parties

The Companies and Allied Matters Act 2020 (CAMA 2020) has its own rules on dealings between a company and its directors and connected persons.

The objective of IAS 24

A reader normally expects transactions to take place on arm’s length terms. Where they do not, or where a party could force a non-arm’s length deal on the entity, the reported results may mislead. For example, a subsidiary may sell goods to its parent at a lower price than to other customers, which makes the subsidiary’s profit look smaller than it should be.

IAS 24 therefore requires enough disclosure to draw attention to the possibility that the entity’s financial position or profit or loss may have been affected by (a) the existence of related parties and (b) transactions and balances with them. It does not require the statements to be redrafted. Redrafting would be hard because the transactions might never have happened, or might have been at different prices, without the relationship.

Who is a related party?

A party is related to the reporting entity if any of the following is true:

1. It controls the entity or is controlled by it (parent and subsidiary).
2. It has significant influence over the entity (investor and associate).
3. It has joint control over the entity (joint venturers).
4. The parties are under common control (fellow subsidiaries).
5. It is a member of the key management personnel of the entity or of its parent.
6. It is a close family member of any of the people above.

For persons and entities connected to a related person there are extra rules. An entity is also related if it is controlled, jointly controlled or significantly influenced by a related person, or if it is a post-employment benefit plan for the employees of the reporting entity. A parent is related to its subsidiaries and associates. Fellow subsidiaries are related, because the parent controls them all.

Substance over form. Each relationship is judged by its substance, not only its legal form. Two companies that merely share a director are not automatically related, but a related party relationship exists if influence can be shown.

Close family members

These are family members who may be expected to influence, or be influenced by, the person. They include the person’s partner, children and dependants, and the children and dependants of the person’s partner. The list is not exhaustive. Whether someone is close family is a matter of judgement.

Parties that are usually not related

• Two venturers that merely share joint control of a joint venture.
• Providers of finance, such as a lending bank or bondholder.
• Trade unions.
• Public utilities.
• Government departments and agencies.
• Customers, suppliers, franchisors, distributors or agents with whom the entity does a lot of business.

These are usually not related. The substance of each case should always be checked.

Related party transactions

A related party transaction is a transfer of resources, services or obligations between related parties, whether or not a price is charged.

Examples: purchases or sales of goods; purchases or sales of property and other assets; rendering or receiving services; transfers of research and development; finance arrangements such as loans and equity contributions; guarantees; and settling liabilities on behalf of the entity or by the entity on behalf of another party.

Disclosure requirements

Always, whether or not there are transactions

• The name of the entity’s parent.
• If different, the name of the ultimate controlling party.

Where transactions have taken place

Regardless of whether a price was charged or the terms were arm’s length, disclose:

• the nature of the related party relationship;
• the amount of the transactions;
• for outstanding balances: the amount, the terms and conditions, any guarantees given or received, and any provision for irrecoverable debts, and the expense recognised in the period for irrecoverable debts from related parties.

These are given separately for each category: the parent; entities with joint control or significant influence over the entity; subsidiaries; associates; joint ventures in which the entity is a venturer; key management personnel of the entity or its parent; and other related parties.

Key management personnel pay

The entity discloses the total compensation of key management, and for each category: short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits and share-based payments.

Intra-group transactions are eliminated in the consolidated statements, so the main disclosure in group statements is about related parties outside the group, such as associates, joint ventures and key management. The parent’s separate statements show transactions with its own subsidiaries.

Nigerian principles, rules and regulations

May 2026 Question 3(a) asked for the basic principles, rules and regulations for handling related party transactions. The suggested solution gave:

1. Arm’s length principle. Related party transactions should be conducted as if between unrelated parties, avoiding conflicts of interest.
2. Disclosure. Transactions with subsidiaries, associates and key management must be disclosed in the statements.
3. Shareholder approval. Material related party transactions need shareholder approval by special resolution, with related parties not voting.
4. Audit committee approval. Related party transactions need prior approval of the audit committee.
5. Substance over form. Paragraph 10 of IAS 24 requires attention to the substance of the relationship, not merely its legal form.

The rules in more depth

Why disclosure and not adjustment

If a company sells a machine to its director for ₦10 million when the market price is ₦25 million, IAS 24 does not change the ₦10 million in the accounts. It requires the note to say that the buyer was a related party. Readers can then judge for themselves.

Why a price does not have to be charged

A parent may lend money to a subsidiary interest-free or provide staff without charge. These are related party transactions even though no price appears. They can be just as important as a priced sale.

Why “joint control” does not make venturers related to each other

Two venturers share control of the joint venture, but that does not mean they control each other. Each is related to the joint venture, not to the other venturer, unless something else links them.

Why close family needs judgement

The test is who may be expected to influence or be influenced. A daughter who runs her own firm independently of her parents may not be a related party. One whose parents decide her business moves probably is.

Worked example: spotting related parties

1. Chinedu and Amaka. Directors and controlling shareholders, so they are key management and related parties.
2. Sapphire Ltd. It is jointly controlled by Amaka, who is a related party of Ruby. So Sapphire is a related party, and the ₦40 million purchases and ₦5 million balance must be disclosed.
3. Ngozi. A daughter is a close family member of Amaka and may be a related party. Whether she is depends on whether she can be expected to influence or be influenced by her parents. Judgement is needed. Even if she is not, Sapphire is related through Amaka.
4. Garnet Ltd. An associate (40%, significant influence), so related. Disclose the ₦12 million sales and any balance.
5. The bank. A provider of finance, so usually not a related party.
6. Disclosure for Sapphire. The nature of the relationship (jointly controlled by a director and her daughter), ₦40 million of purchases, ₦5 million owed, terms (60 days), any guarantees, and any provision for irrecoverable debts.
7. CAMA 2020. The sections on disclosure of related party dealings (ss. 382 to 384, as ICAN teaches them) add to the IAS 24 duty, and the audit committee should review the dealings (s. 404(7)(a)).

How to score full marks

• For a definition answer, use the six circumstances. Control, significant influence, joint control, common control, key management, close family.
• Name the relationship and the reason. Write “Sapphire is related because it is jointly controlled by a close family member of key management”.
• Remember the exceptions. Lenders, unions, utilities, government and normal trading partners.
• Give disclosure in two groups. Always: parent and ultimate controlling party. Where there are transactions: nature, amounts, balances, terms, guarantees, provisions, split by category, and key management pay.
• In a Nigerian question, add the arm’s length principle, shareholder approval, audit committee approval and substance over form, and make clear which come from IAS 24.
• Say it is disclosure only. IAS 24 does not change the numbers.

Common mistakes in the exam

• Saying two companies are related because they share a director. Influence must be shown.
• Treating a lending bank or a major customer as a related party.
• Missing the key management pay disclosure and its five categories.
• Forgetting that a transaction can be related party even with no price.
• Saying IAS 24 requires restatement of the figures to arm’s length prices.
• Giving the approval rules as if they were in IAS 24.
• Forgetting the parent and ultimate controlling party disclosure when there are no transactions.

Quick revision

• IAS 24 is a disclosure standard. No adjustment to numbers.
• Related: control, significant influence, joint control, common control, key management, close family.
• Usually not related: lenders, unions, utilities, government, ordinary trading partners, venturers sharing joint control.
• Transaction: transfer of resources, services or obligations, price or no price.
• Disclose: parent, ultimate controlling party, nature, amounts, balances with terms, guarantees, provisions, by category, key management pay by five categories.
• Nigeria: arm’s length, disclosure, shareholder approval, audit committee approval, substance over form.
• CAMA 2020: ss. 378, 382 to 384, 404(7)(a), 406.

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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