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Ifrs 24 Related Party DisclosuresEdit

IFRS 24 Related Party Disclosures is a cornerstone of financial reporting under the modern IFRS framework, designed to shine a light on relationships and transactions that could influence a company’s financial decisions. The idea is simple in principle: when a company interacts with parties it has a close or controlling connection to, those interactions may affect the economics of the business and should be visible to investors, lenders, and other stakeholders. The standard defines what qualifies as a related party, what kinds of transactions and relationships must be disclosed, and the level of detail required. For many firms, this means expanding note disclosures and tightening governance around how related party information is gathered and reported. See IFRS and IFRS Foundation for the governance and origins of this framework, and note that IFRS 24 supersedes the older IAS 24 approach in the IFRS era.

IFRS 24 sits at the intersection of corporate governance, financial transparency, and practical reporting discipline. It requires entities preparing financial statements under IFRS to identify related party relationships and to disclose significant related party transactions, outstanding balances, and terms and conditions that might affect the user’s understanding of the financial position and performance. The standard also covers the identification of key management personnel and discloses the compensation and other material dealings with those individuals. In practice, this means that a parent and its subsidiaries, entities under common control, associates, joint ventures, and individuals who influence management decisions can trigger disclosure obligations. See related party for the conceptual scope and key management personnel for the personnel who typically drive these disclosures.

Scope and definitions

  • Related party: anyone who has control, joint control, significant influence, or who is part of the same group; includes close family members and entities under common control. The criteria are designed to capture the relationships that could shape decisions and outcomes, not just formal ownership. See control and significant influence for the governance concepts behind judgment calls in practice.
  • Related party transaction: transfers of resources, services, or obligations between related parties, regardless of whether a price is charged. This can include sales, purchases, loans, guarantees, or leases and other arrangements that could affect a party’s financial position.
  • Key management personnel: individuals who have authority or responsibility for planning, directing, and controlling the activities of the entity, whether directly or indirectly. The standard requires disclosure of compensation and other material transactions with these individuals.
  • Government-related entities: many jurisdictions involve public sector relations in the corporate landscape, and transactions with government-related entities may carry additional disclosure considerations due to public accountability requirements. See government-related topics in related literature.

If a relationship exists, the entity must assess whether the relationship constitutes a related party and whether related party transactions need to be disclosed. The definitions are intentionally broad to ensure that readers of the financial statements can interpret a company’s business reality without needing to infer too much from the numbers alone. For context on how these concepts map onto practice, see corporate governance and auditing.

Disclosure requirements

  • Nature of related party relationships: disclosing relationships helps readers understand the context behind financial movements and balances.
  • Types of related party transactions: the entity must describe the kinds of transactions with related parties (e.g., sales, purchases, services, loans, guarantees), including how they arise from the relationships identified.
  • Terms and conditions: disclosure of the terms governing related party transactions, including pricing, interest rates, collateral, and settlement terms, helps indicate whether the arrangements are conducted on terms similar to those with independent third parties.
  • Outstanding balances and commitments: the entity should reveal the amounts owed to or by related parties at reporting dates, including any default risks or guarantees given or received.
  • Provisions and compensation: for key management personnel, disclosure of compensation and the nature of related party transactions with these individuals provides a window into governance and decision-making incentives.

The objective is to balance transparency with relevance, avoiding disclosures that would be immaterial or duplicative of information found elsewhere in the financial statements. See financial statements and corporate governance for broader context on what investors expect from annual reporting and governance disclosures. Some jurisdictions have additional, non-IFRS requirements that address related party disclosures in specific sectors or regulatory regimes, linking IFRS reporting to a broader regulatory ecosystem. See regulation and accounting standards discussions for related material.

Practical implications and debates

From a market-oriented or business-friendly perspective, IFRS 24 is valuable because it improves the information set available to capital providers and other stakeholders. Clear disclosures about related party relationships and transactions reduce the risk of mispricing associated with opaque arrangements and help ensure that pricing, terms, and judgments reflect true economic substance rather than hidden incentives. Supporters argue that this aligns with a well-functioning market where investors can assess governance and risk more accurately. See investor relations and equity markets for readers interested in how disclosure quality feeds into capital allocation.

Critics, particularly those who favor lighter regulatory touch and simpler compliance, raise concerns about cost, complexity, and potential over-disclosure. For smaller firms or those with pervasive related party activity, the burden of data collection, documentation, and ongoing monitoring can be sizable, raising questions about proportionality and competitiveness. Critics also worry that extensive disclosures could reveal commercially sensitive information to competitors or reduce strategic flexibility. In the policy debate, some argue for more principles-based disclosures or selective exemptions where related party relationships are well controlled and transparent through other governance mechanisms. See discussions around regulatory reform and small business policy for related arguments.

If one takes a practical approach to implementation, the focus is on building robust internal processes: mapping relationships, maintaining a ledger of related party transactions, and ensuring consistent application of definitions. Implementers must coordinate with finance, governance, and legal teams to identify all relevant relationships and capture the required data in a way that supports audit and assurance processes. See internal controls and auditing for practical considerations.

From a policy standpoint, supporters of stronger transparency often frame IFRS 24 as a check against cronyism and misaligned incentives, particularly when public funds or government-related entities are involved. Critics may view some aspects of disclosure as an overreach that taxes corporate resources without delivering corresponding benefits in all contexts. The debate tends to center on balancing transparency, governance quality, and cost of compliance, with market participants generally favoring disclosures that meaningfully inform investment decisions while regulators consider whether existing governance structures provide sufficient oversight.

Related topics and cross-references

See also