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Overview

IPSAS 20 is based on IAS 24 Related Party Disclosures (Reformatted 1994).


IPSAS 20 requires the disclosure of the existence of related parties and information about the transactions between related parties. These disclosures are required for accountability purposes and to allow a better understanding of the financial performance and position of the entity. The standard provides guidance on the identification of related parties and what information should be disclosed.


IPSAS 20 was issued in October 2002 and applies to annual periods beginning on or after 1 January 2004.


History of IPSAS 20






Effective date

Annual periods beginning on or after 1 January 2004.


Summary of IPSAS 20 Related Party Transactions


Objective

IPSAS 20 requires the disclosure of the existence of related parties and information about the transactions between related parties. These disclosures are required for accountability purposes and to allow a better understanding of the financial performance and position of the entity. The standard provides guidance on the identification of related parties and what information should be disclosed.


Scope

This standard applies to entities that prepare and present financial statements under the accrual basis of accounting [IPSAS 20.1]. IPSAS 20 applies to all public sector entities other than GBEs [IPSAS 20.2].


Key definitions [IPSAS 20.4]

Related party: party that has the ability to

(a) control the other party

(b) exercise significant influence over the other party in making financial and operating decisions, or if the related party entity and another entity are subject to common control.


Significant influence: is the power to participate in the financial and operating policy decisions of an entity, but not control those policies.


Close members of the family of an individual: close relatives of the individual or members of the individual’s immediate family who can be expected to influence, or be influenced by, that individual in their dealings with the entity.


Key management personnel are:

(a) All directors or members of the governing body of the entity;

(b) Other persons having the authority and responsibility for planning, directing, and controlling the activities of the reporting entity.


Related party transaction: a transfer of resources or obligations between related parties, regardless of whether a price is charged. Related party transactions exclude transactions with any other entity that is a related party solely because of its economic dependence on the reporting entity or the government of which it forms part.


Who is considered as related party?


Related party is a party that [IPSAS 20.4]:

• controls or has significant influence over the reporting entity including:

a) controlling entities and major shareholders

b) associates

c) individuals having directly or indirectly a participation giving significant influence and their families

d) key management personnel and their families

e) entities in which a substantial interest is held the persons included under c) and d)

• parties that are controlled or over which the entity has significantly influence:

a) controlled entities

b) joint ventures

c) associates

d) entities subject to common control with the reporting entity



The substance of the relationship is determining, not merely the legal form [IPSAS 20.10] The following are deemed not to be related parties:

• two entities because they have a member of key management in common [IPSAS 20.11]

• providers of finance, trade unions [IPSAS 20.12]

• agencies [IPSAS 20.12]

• a single customer, supplier, franchiser, distributor, or general agent with whom an entity transacts a significant volume of business merely by virtue of the resulting economic dependency [IPSAS 20.14]


Disclosures


Related party relationships are required to be disclosed, irrespective of whether transactions have occurred or not between the related parties [IPSAS 20.25].



Disclosure for related party transactions is required for [IPSAS 20.27]:

• nature of the relationship

• types of transactions that have occurred

• elements of the transactions necessary to clarify the significance of these transactions to its operations and sufficient to enable the financial statements to provide relevant and reliable information for decision making and accountability purposes.


For key management personnel remuneration following shall be disclosed [IPSAS 20.34]:

• showing separately for major class of key management personnel

o aggregate remuneration

o number of individuals involved on an FTE-basis

o a description of each major class of key management personnel

• total amount of other remuneration and compensation provided to key management and their close family members, showing separately amounts provided to

o key management

o close family members

• for loans that are not widely available to persons who are not key management personnel and loans whose availability is not widely known by members of the public, for each individual member of key management personnel and each close member of the family of key management personnel:

o amount of loans advanced during the period and terms and conditions thereof

o amount of loans repaid during the period

o amount of the closing balance of all loans and receivables

o in case the individual is not a director or member of the governing body or senior management group of the entity, the relationship of the individual to such body or group.

October 2002

IPSAS 20: Related Party Disclosures was issued

1 January 2004

Effective date of IPSAS 20

IPSAS 20 Related Party Disclosures