IAS 24

Definition

IAS 24, also known as 'Related Party Disclosures,' is an International Accounting Standard that requires entities to disclose information about transactions with related parties. This standard ensures transparency in financial reporting by requiring organizations to reveal the nature and extent of related party relationships, transactions, and outstanding balances, which can significantly impact the financial position and performance of the entity.

5 Must Know Facts For Your Next Test

1. IAS 24 requires disclosures to be made in the financial statements when transactions occur between the entity and its related parties, which includes both individuals and entities.
2. The standard aims to provide users of financial statements with relevant information about the potential effects of related party relationships on the financial position and performance of the entity.
3. Entities are required to disclose the nature of their relationships with related parties, along with the types of transactions that have occurred during the reporting period.
4. Key management personnel are specifically identified as related parties under IAS 24, which means their compensation and any transactions involving them must be disclosed.
5. Non-disclosure of related party transactions can lead to misinterpretation of financial results and can be seen as a breach of accounting standards.

Review Questions

• How does IAS 24 enhance the understanding of financial statements for stakeholders?
  • IAS 24 enhances understanding by requiring disclosures about related party transactions that could significantly influence an entity's financial results. By revealing these relationships and transactions, stakeholders can better assess potential biases or conflicts of interest that might affect an entity's financial performance. This level of transparency helps users make informed decisions regarding investments or lending.
• What specific requirements does IAS 24 impose on entities concerning disclosures related to key management personnel?
  • IAS 24 mandates that entities disclose comprehensive information regarding compensation paid to key management personnel, including salaries, bonuses, share-based payments, and other benefits. Additionally, any transactions between the entity and key management personnel must also be disclosed to highlight any potential conflicts of interest or preferential treatment. This requirement helps ensure that stakeholders have a clear picture of how management decisions might impact financial outcomes.
• Evaluate the implications of non-compliance with IAS 24 for an organization’s reputation and legal standing.
  • Non-compliance with IAS 24 can severely damage an organization's reputation as it may indicate a lack of transparency and accountability in financial reporting. Failure to disclose related party transactions could lead to mistrust among investors and stakeholders, potentially resulting in lower investment and diminished market value. Legally, such non-disclosure could expose the organization to regulatory scrutiny or penalties, as it is essential for maintaining good governance practices in line with international accounting standards.

Related terms

Related Party: An individual or entity that has a relationship with the reporting entity that could influence its financial decisions, such as family members of key management personnel or entities under common control.

Disclosure:

The process of making information available to stakeholders, particularly in financial statements, which enhances the transparency and accountability of an entity's operations.

Transactions: Economic events that occur between two parties, which can involve the exchange of goods, services, or financial assets, and may be affected by related party relationships.