A company that sells goods to its own director’s firm, lends money to its chief executive or buys from its parent may do so on terms no outsider would get. Statements that hide these links can mislead users about profit, assets and risk. International Accounting Standard (IAS) 24 Related Party Disclosures does not stop such dealings.
It requires the entity to disclose who its related parties are, what it has done with them and what is owed. This topic covers who is a related party and who is not, what must be disclosed about relationships, transactions and balances, and the special disclosure of key management compensation. The next topic starts income taxes.
In the diets reviewed for this page none of the questions read tests the topic directly. The classification of parties is a short recall topic, and related party disclosures are easy marks in a written part of a question. Read events after the reporting period first.
In 30 seconds
A related party is a person or entity with control, joint control or significant influence over the reporting entity, or that the reporting entity controls or influences, or a member of its key management personnel and their close family. Entities in the same group, associates and joint ventures are related.
Two entities are not related merely because they share a director, or because one is a lender, a trade union, a utility, a government department or a major customer or supplier.
The entity discloses the name of its parent and ultimate controlling party, key management compensation in total and by category, and for each related party transaction the nature of the relationship, the amounts, the balances outstanding with their terms, any guarantees and any bad debt provisions or expenses.
Who is a related party
A related party is a person or entity that is related to the entity preparing its financial statements (the reporting entity). A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, whether or not a price is charged.
A person or a close member of their family
A person, or a close member of that person’s family, is related to the reporting entity if the person:
- has control or joint control of the reporting entity;
- has significant influence over the reporting entity; or
- is a member of the key management personnel of the reporting entity or of its parent.
Close members of the family are those who may be expected to influence, or be influenced by, that person in their dealings with the entity. They include the person’s spouse or partner, children, and the children of the spouse or partner, and dependants of the person or the partner.
Key management personnel are those persons with authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director, whether executive or not.
An entity
An entity is related to the reporting entity if any of these applies:
- it and the reporting entity are members of the same group (the parent, subsidiaries and fellow subsidiaries are all related);
- one is an associate or joint venture of the other, or of a member of a group of which the other is a member;
- both are joint ventures of the same third party, or one is a joint venture of a third entity and the other is an associate of that entity;
- it is a post-employment benefit plan for the benefit of employees of either entity;
- it is controlled or jointly controlled by a person who is a related party as described above;
- a person who controls the reporting entity has significant influence over it, or is a member of its key management personnel; or
- it, or a member of its group, provides key management personnel services to the reporting entity or its parent.
The entity looks at the substance of the relationship and not just its legal form. Even where two parties are not related under the definition, the relationship may still need to be understood, for example when a lender has the power to dictate the entity’s decisions.
What is disclosed
Relationships
Relationships between a parent and its subsidiaries are disclosed whether or not there have been transactions. The entity discloses the name of its parent and, if different, the ultimate controlling party. If neither produces public financial statements, it also names the next most senior parent that does.
Key management personnel compensation
The entity discloses the compensation of key management personnel in total and for each of these categories: short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits and share-based payment. For example, directors’ salaries and bonuses are short-term benefits, pension contributions are post-employment benefits, and share options are share-based payment.
Transactions and balances
If there have been related party transactions during the periods covered, the entity discloses the nature of the relationship and the information needed to understand the effect on the statements. At a minimum that includes:
- the amount of the transactions;
- the amount of outstanding balances, including commitments, with their terms and conditions (including whether secured), the form of settlement, and any guarantees given or received;
- provisions for doubtful debts on those balances; and
- the expense recognised in the period for bad or doubtful debts due from related parties.
Examples of transactions that are disclosed include purchases or sales of goods and property, services, leases, transfers of research and development, licence agreements, finance (loans and capital contributions), guarantees and settlement of liabilities on behalf of the entity. Items of a similar nature may be disclosed in aggregate, except where separate disclosure is needed to understand the effect on the statements.
The entity may say that related party transactions were made on terms equivalent to those in arm’s length transactions only if it can substantiate that claim.
The ideas in more depth
Why disclosure matters
Related parties can enter into transactions that unrelated parties would not, and on terms that unrelated parties would not accept. Even without any transaction, the relationship can affect how the entity behaves. A user cannot judge the entity’s risks or its reported profit without knowing who is on the other side of its dealings.
Government-related entities
An entity controlled, jointly controlled or significantly influenced by a government is exempt from the full disclosure of transactions with that government and with other entities under the same government. But it must still say who the government is, give a general description of the nature and amount of significant transactions and the existence of collective significant ones.
Sources and references
- IAS 24 Related Party Disclosures: definitions, the related party relationships, disclosure of relationships, key management compensation, transactions and balances.
These points are stated as at 5 November 2026.
Worked examples
Example 1: who is related? Kano Plc has the following. (a) Alpha Ltd, its 100% subsidiary. (b) Beta Ltd, which shares one director with Kano Plc and has no other link. (c) Gamma Ltd, in which Kano holds 30% and has board representation. (d) The wife of Kano’s managing director. (e) Delta Bank, which provided a loan to Kano. (f) Zeta Ltd, which supplies 60% of Kano’s materials. Required: say which are related parties.
- (a) A subsidiary: related.
- (b) A common director alone does not make entities related: not related, unless the director controls or has significant influence over both.
- (c) An associate (significant influence): related.
- (d) A close family member of key management personnel: related.
- (e) A provider of finance in the normal course: not related.
- (f) A supplier dealt with in significant volume: not related merely because of economic dependence.
Example 2: key management compensation. The directors of Kano Plc received salaries of ₦120 million, pension contributions of ₦12 million and share-based payments of ₦18 million. Required: the disclosure.
- Short-term employee benefits. ₦120 million.
- Post-employment benefits. ₦12 million.
- Share-based payment. ₦18 million.
- Total.
₦120m + ₦12m + ₦18m = ₦150 million, with the categories shown separately.
How to answer in the exam
- Define. A related party is related by control, joint control, significant influence or key management. Add close family.
- Classify. For each party, test the definition. Common directors, lenders, utilities and large customers are not enough.
- List disclosures. Parent and ultimate controlling party; compensation by category; for transactions, the relationship, the amounts, the balances with terms, guarantees and bad debts.
- Draft a note. Use headings for compensation and for each transaction, and state amounts in the currency of the statements.
Common mistakes in the exam
- Treating a common director as enough to make two companies related.
- Treating a lender or a large customer as a related party.
- Leaving out the close family of directors.
- Giving one total for key management compensation with no categories.
- Omitting the disclosure of the parent and ultimate controlling party when there are no transactions.
- Claiming arm’s length terms without evidence.
Quick revision
- Related: control, joint control, significant influence, key management, close family; group members, associates, joint ventures, benefit plans.
- Not related by themselves: common director, lender, union, utility, government department, major customer or supplier.
- Disclose: parent and ultimate controlling party; key management compensation by category; transactions, balances, terms, guarantees, bad debts.
- Arm’s length statement only if substantiated.
Practice questions
These are original questions written in the style of the Institute’s exams. Try each one before you open the answer. Section A is a recall check, because the paper itself is written.
Recall check: multiple choice
Question 1. The purpose of IAS 24 is to ensure that financial statements disclose:
- The profit of each related party
- The related party relationships, transactions and balances that affect the entity
- The shareholdings of all directors only
- The tax paid
Show the answer
B. Users need to understand the possible effect on the statements.
Question 2. Which of the following is NOT, by itself, a related party of the entity?
- A company with which it shares one director and nothing else
- Its subsidiary
- Its associate
- Its parent
Show the answer
A. A common director alone does not create a related party.
Question 3. Key management personnel are persons with authority and responsibility for:
- Preparing the tax return
- Auditing the entity
- Selling its goods
- Planning, directing and controlling its activities, including any director
Show the answer
D. This includes non-executive directors.
Question 4. Close members of the family of a person include:
- Only the person’s spouse
- All relatives
- The spouse or partner, children and dependants
- Nobody
Show the answer
C. Those who may be expected to influence or be influenced by the person.
Question 5. The entity discloses its parent and ultimate controlling party:
- Only if there have been transactions
- Whether or not there have been transactions
- Only if the parent is listed
- Never
Show the answer
B. Relationships between a parent and its subsidiaries are always disclosed.
Question 6. Key management compensation is disclosed:
- In total and for each category such as short-term benefits and post-employment benefits
- As one figure only
- For the chairman only
- Only if above a threshold
Show the answer
A. The categories are short-term, post-employment, other long-term, termination and share-based payment.
Question 7. An entity may state that related party transactions were on arm’s length terms only if:
- The directors say so
- The auditor is paid
- It can substantiate the statement
- The amounts are small
Show the answer
C. Otherwise the claim is not made.
Question 8. Which of the following is not a related party merely because of the relationship?
- A subsidiary
- A joint venture
- A director’s spouse
- A government department that regulates the entity
Show the answer
D. Public bodies, utilities and trade unions are not related parties by themselves.
Question 9. For related party transactions the entity discloses:
- Only the names
- Only the total
- The amounts, the outstanding balances with terms and guarantees, and any bad debt provisions or expenses
- Only the dates
Show the answer
C. These are the minimum disclosures.
Question 10. An associate of the reporting entity is:
- A related party
- Never a related party
- A related party only if it is loss-making
- A related party only if listed
Show the answer
A. Associates and joint ventures are related parties.
Section B style: written questions
Question 11 (10 marks). (a) Define a related party and a related party transaction. (4 marks) (b) State FOUR parties that are related parties of an entity. (4 marks) (c) State TWO parties that are not related parties merely because of the relationship. (2 marks)
Question 12 (15 marks). Say whether each is a related party of Ibadan Plc, with reasons. (i) Its 60% subsidiary. (ii) A company with the same finance director and no other link. (iii) The brother of the chairman, who is a dependant of the chairman. (iv) The pension fund for its employees. (v) Its bank. (vi) A customer that buys 50% of its output. (3 marks each)
A further written question
Question 13 (20 marks). Kano Plc’s directors received salaries and bonuses of ₦170 million (of which salaries were ₦140 million), pension contributions of ₦16 million, share-based payments of ₦24 million and termination benefits of ₦10 million. During the year Kano sold goods of ₦80 million to its associate, with ₦12 million unpaid at year end, unsecured and payable in cash within 60 days, and made a loan of ₦5 million to a director at 4% below market rate.
(a) Prepare the key management compensation disclosure. (8 marks)
(b) State the disclosure required for the sale to the associate. (6 marks)
(c) State the disclosure required for the director’s loan. (3 marks)
(d) State the disclosure about the parent required even if there are no transactions. (3 marks)
Model answers
Show the model answer to Question 11
(a) A related party is a person or entity that is related to the reporting entity, by control, joint control, significant influence or membership of key management (2). A related party transaction is a transfer of resources, services or obligations between the reporting entity and a related party, whether or not a price is charged (2).
(b) (1 mark each, any four) A parent; a subsidiary; a fellow subsidiary; an associate; a joint venture; key management personnel; close family members of key management; a post-employment benefit plan.
(c) (1 mark each, any two) An entity with only a director in common; a lender; a trade union; a public utility; a government department; a customer or supplier dealt with in significant volume.
Show the model answer to Question 12
(i) Related: a subsidiary is controlled by the entity (3). (ii) Not related: a common finance director alone does not make entities related, unless he or she controls or significantly influences both (3). (iii) Related: a close family member of key management personnel (3). (iv) Related: a post-employment benefit plan for the benefit of employees of the entity (3). (v) Not related: a provider of finance in the normal course of business (3).
(vi) Not related merely because of economic dependence on a major customer (3).
Show the model answer to Question 13
(a)
- Short-term employee benefits ₦170 million (salaries ₦140 million and bonuses ₦30 million) (2); post-employment benefits ₦16 million (1.5); share-based payment ₦24 million (1.5); termination benefits ₦10 million (1.5).
- Total ₦170m + ₦16m + ₦24m + ₦10m = ₦220 million (1.5).
(b) The nature of the relationship, an associate (1); the amount of the transaction, ₦80 million (1); the outstanding balance of ₦12 million (1); its terms: unsecured, payable in cash within 60 days (2); any guarantees given or received (0.5) and any provision or expense for doubtful debts (0.5).
(c) The nature of the relationship, a director (key management personnel) (1); the amount of the loan, ₦5 million, and the terms including the below-market interest rate and whether it is secured (1); the balance outstanding at year end and any provision for doubtful debts (1).
(d) The name of the parent (1.5) and of the ultimate controlling party if different (1.5), whether or not there have been transactions.
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