IFRS 24

Definition

IFRS 24, also known as International Financial Reporting Standard 24, outlines the requirements for the disclosure of related party transactions. This standard aims to ensure that financial statements provide relevant information about these transactions to help users understand their potential impact on the financial position and performance of an entity.

5 Must Know Facts For Your Next Test

1. IFRS 24 requires disclosures about related party relationships, transactions, and outstanding balances to enhance transparency in financial reporting.
2. Entities must disclose the nature of the related party relationship along with the transaction's monetary value, terms, and conditions.
3. The standard applies to all entities and covers not only transactions with parent companies and subsidiaries but also transactions with associates and joint ventures.
4. IFRS 24 emphasizes the importance of disclosing transactions that might not be conducted at arm's length, as these can significantly impact financial results.
5. Non-disclosure of related party transactions may lead to misinterpretation of an entity's financial health and pose risks for investors and stakeholders.

Review Questions

• How does IFRS 24 enhance transparency in financial reporting regarding related party transactions?
  • IFRS 24 enhances transparency by mandating that entities disclose detailed information about related party relationships and transactions. This includes the nature of the relationship, the monetary value of transactions, terms, and outstanding balances. By providing this information, stakeholders can better assess how these relationships may affect the entity's financial performance and position.
• Discuss the implications of failing to disclose related party transactions as required by IFRS 24.
  • Failing to disclose related party transactions can lead to significant consequences, including a lack of trust from investors and stakeholders. If these transactions are not reported transparently, it can distort the true financial position of the entity and potentially mislead users of financial statements. Additionally, regulatory bodies may impose penalties for non-compliance with IFRS 24 requirements.
• Evaluate how IFRS 24 aligns with the overall goals of international accounting standards in promoting fair financial practices.
  • IFRS 24 aligns with the broader goals of international accounting standards by promoting fairness, accountability, and transparency in financial reporting. By ensuring that all related party transactions are disclosed comprehensively, IFRS 24 helps prevent potential conflicts of interest and ensures that stakeholders have access to essential information needed for informed decision-making. This alignment fosters greater trust in the integrity of financial reports on a global scale.

Related terms

Related Party: An individual or entity that has a close relationship with the reporting entity, which can influence or be influenced by the entity's financial decisions.

Disclosure: The process of providing relevant information in financial statements that enables users to make informed economic decisions.

Transactions: The economic events that affect the financial position of an entity, including sales, purchases, and other exchanges of value.