Introduction
IAS 24 is a financial reporting standard issued by the International Accounting Standards Board (IASB) that deals with related party transactions. This standard aims to provide guidelines for companies in identifying and disclosing transactions with related parties that may impact their financial statements.
Scope
The scope of IAS 24 is to ensure that companies disclose any transactions that occur between the company and its related parties. This includes transactions that occur directly or indirectly, such as loans, sales, purchases, and transfers of assets. Related parties are defined as individuals or entities that have control or significant influence over the company, or with whom the company has a close relationship, such as shareholders, directors, and key management personnel.
Identification of Related Parties
The first step in complying with IAS 24 is to identify all related parties. Companies must disclose transactions with any related party, regardless of whether they are directly or indirectly involved in the transaction. Indirect involvement includes transactions with a related party that is controlled by another related party. For example, if the company lends money to a subsidiary, which is controlled by a director of the company, both the subsidiary and the director are considered related parties.
Disclosure Requirements
The disclosure requirements of IAS 24 require companies to disclose the following information in their financial statements:
- The nature of the relationship between the company and its related parties.
- Details of any transactions with related parties, including the nature of the transaction, the amount of the transaction, and any terms and conditions of the transaction.
- The amount of any outstanding balances with related parties at the end of the reporting period.
- The amount of any provisions for doubtful debts related to transactions with related parties.
The disclosure requirements apply to all related party transactions, regardless of their materiality. If the transaction is material, additional information may be required to be disclosed.
Conclusion
IAS 24 is an important financial reporting standard that ensures companies disclose any transactions that occur between the company and its related parties. Companies must identify all related parties, disclose the nature of the relationship, and provide details of any transactions with related parties. The aim is to increase transparency and provide users of financial statements with a clearer understanding of the financial position and performance of the company.
FAQs
Frequently Asked Questions about IAS 24
IAS 24 is a financial reporting standard issued by the International Accounting Standards Board (IASB) that deals with related party transactions.
The scope of IAS 24 is to ensure that companies disclose any transactions that occur between the company and its related parties. This includes transactions that occur directly or indirectly, such as loans, sales, purchases, and transfers of assets.
Related parties are defined as individuals or entities that have control or significant influence over the company, or with whom the company has a close relationship, such as shareholders, directors, and key management personnel.
The disclosure requirements of IAS 24 require companies to disclose the nature of the relationship between the company and its related parties, details of any transactions with related parties, the amount of any outstanding balances with related parties at the end of the reporting period, and the amount of any provisions for doubtful debts related to transactions with related parties.
Yes, the disclosure requirements of IAS 24 apply to all related party transactions, regardless of their materiality. If the transaction is material, additional information may be required to be disclosed.
IAS 24 is important because it increases transparency and provides users of financial statements with a clearer understanding of the financial position and performance of the company.
How Future Connect Training's Final Accounts Training can help in understaing IAS 24?
- Future Connect Training's Final Accounts training can be helpful in understanding IAS 24 because it covers the basics of financial reporting and accounting. It teaches individuals how to prepare financial statements, including the income statement, balance sheet, and cash flow statement. By understanding the basics of financial statements, individuals can gain an understanding of how transactions are recorded and disclosed in financial statements.
- Additionally, the Final Accounts training covers accounting standards, including IAS 24. The training will explain the scope of the standard, how to identify related parties, and the disclosure requirements under the standard. It will also provide examples of related party transactions and how they are disclosed in financial statements.
- Overall, by taking Future Connect Training's Final Accounts training, individuals will have a better understanding of financial reporting and accounting principles, including IAS 24, which will help them comply with the standard and provide transparent financial statements.
