IAS 24 Related Party Disclosures: A Practical Guide

IAS 24 Related Party Disclosures is the accounting standard that requires a business to disclose its relationships and transactions with related parties — people and entities closely connected to it. The aim is transparency: to alert users of the financial statements to the possibility that the figures may have been affected by these relationships. This practical guide explains what IAS 24 covers, who counts as a related party, what must be disclosed, and why it matters — in plain language. It's a core financial-reporting topic, relevant to ACCA and professional study.

What is IAS 24?

IAS 24 is an International Accounting Standard whose objective is to ensure that an entity's financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and performance may have been affected by the existence of related parties — and by transactions and outstanding balances with them. Importantly, IAS 24 is a disclosure standard: it doesn't change how transactions are measured or recognised, but requires that related party relationships and dealings are openly reported, so users understand the context.

Who is a related party?

IAS 24 defines a related party as a person or entity that is connected to the reporting entity. This includes:

• People who have control, joint control or significant influence over the entity, or who are members of its key management personnel (KMP) — and close members of their families.
• Entities in the same group (the parent, subsidiaries and fellow subsidiaries), associates and joint ventures, post-employment benefit plans, and entities controlled or significantly influenced by the people above.

"Key management personnel" are those with authority and responsibility for planning, directing and controlling the entity — typically directors and senior executives.

What is a related party transaction?

A related party transaction is a transfer of resources, services or obligations between related parties — and crucially, this applies regardless of whether a price is charged. So an interest-free loan to a director, or goods sold to a subsidiary at a special price, are both related party transactions. The concern is that such dealings may not be on the same arm's-length terms that would apply between unconnected parties, which is precisely why they need to be disclosed.

What must be disclosed?

IAS 24 requires several key disclosures:

• Parent and control relationships. The name of the entity's parent and, if different, the ultimate controlling party must be disclosed — regardless of whether any transactions have taken place between them. This is because a control relationship itself can affect the entity.
• Key management personnel compensation. The total, broken down by category — short-term benefits, post-employment benefits, other long-term benefits, termination benefits and share-based payment.
• Related party transactions. Where transactions have occurred, the entity must disclose the nature of the relationship, the amount of the transactions, outstanding balances (including terms and conditions), any provisions for doubtful debts, and the expense recognised for bad or doubtful debts relating to them.

Disclosures are generally made separately for each category of related party (parent, subsidiaries, associates, KMP and so on).

The government-related entities exemption

IAS 24 includes a partial exemption for entities that are related simply because they are controlled or influenced by the same government. Without it, such entities could face an impractical volume of disclosures about transactions with many other government-related bodies. The exemption reduces the detailed disclosure required, while still requiring certain information so users retain a meaningful picture.

Why IAS 24 matters

IAS 24 matters because related party relationships are a normal feature of business — but they carry a risk that transactions are not at arm's length, potentially distorting the financial statements or disadvantaging other stakeholders. By requiring transparency about who the related parties are and what dealings have occurred, the standard helps users of the accounts assess this risk and understand the figures in context. For preparers and auditors, related party disclosures are an area of real scrutiny, since they can be a vehicle for manipulation if not properly reported.

Frequently asked questions

What is IAS 24?

The international standard on Related Party Disclosures, which requires an entity to disclose its relationships and transactions with related parties, so users know its results may have been affected by them. It's a disclosure-only standard.

Who is a related party under IAS 24?

People with control, joint control or significant influence, or who are key management personnel (and their close family), plus entities in the same group, associates, joint ventures and entities controlled by those people.

What must be disclosed?

Parent and ultimate controlling party (even with no transactions), key management personnel compensation by category, and details of any related party transactions — their nature, amounts, outstanding balances and terms.

Why does IAS 24 matter?

Because related party dealings may not be at arm's length and could distort the financial statements. Disclosure gives users transparency to assess that risk and understand the figures in context.

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