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33.2 Exclusions from Section 33 requirements – Wholly owned entities within the group.
33.2.1 Extract from FRS102: Section 33.1A.
33.3 Related party defined – Persons/Individuals.
33.3.1 Extract from FRS102: Section 33.2(a)
33.3.2.2 Persons of close members of that person’s family.
33.3.2.2.1 Control, joint control and significant influence.
33.3.2.2.2 Close family members defined.
33.2.2.3 Key management personnel
33.2.2.4 Examples of close family members.
33.4 Related party defined – Entities.
33.4.1 Extract from FRS102: Section 33.2 (b) and Section 33.4.
33.4.2.2.1 Entities are members of a group.
33.4.2.2.3 Both entities are joint venture of the same third party.
33.4.2.2.6 Transactions with a subsidiary of a joint venture or associate.
33.5 Specific related party exclusions.
33.5.1 Extract from FRS102: Section 33.3-33.4.
33.5.2.2 Relationships that are not related parties.
33.6.1 Disclosure of parent-subsidiary relationships.
33.6.1.1 Extract from FRS102: Section 33.5.
33.6.2 Disclosure of key management personnel compensation.
33.6.2.1 Extract from FRS102: Section 33.6 – Section 33.7.
33.6.2.2.1 Key management personnel defined.
33.6.2.2.2.1 Directors duties merely incidental and incurred by parent entity.
33.6.2.2.2.1.1 Possible disclosure in financial statements where directors duties are incidental
33.6.2.2.3 Sample key management personnel disclosure.
33.6.3 Disclosure of related party transactions.
33.6.3.1 Extract from FRS102: Section 33.8-33.14.
33.6.3.2.2 Rules on disclosure of items being on an arm’s length basis.
33.6.3.2.4 Examples of related parties to be disclosed.
33.6.3.2.5 Illustrations of the related parties required by Section 33.8 to 33.14 of FRS102.
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33.3 Related Party Defined – Persons/Individuals
33.3.1 Extract from FRS102: Section 33.2(a)
33.2 A related party is a person or entity that is related to the entity that is preparing its financial statements (the reporting entity).
(a) A person or a close member of that person’s family is related to a reporting entity if that person:
(i) has control or joint control over the reporting entity;
(ii) has significant influence over the reporting entity; or
(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
33.3.2 OmniPro comment
33.3.2.1 Overview
As per Section 33.2 of FRS102 a related party is a person or entity that is related to the entity that is preparing its financial statements. In relation to related persons, see further analysis at 33.3.2.2 and see 33.4.2 for further discussion in relation to related entities.
33.3.2.2 Persons of close members of that person’s family
A related party is a person or entity that is related to the entity that is preparing its financial statements (the reporting entity).
(a) A person or a close member of that person’s family is related to a reporting entity if that person:
(i) has control or joint control over the reporting entity;
(ii) has significant influence over the reporting entity; or
(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
33.3.2.2.1 Control, joint control and significant influence
The term control, joint control, significant influence has the same meaning here as in Section 9 – Consolidated and Separate Financial Statements,(see 9.3.2.1) Section 14 – Investment in Associates (see JM TO UPDATE ) and Section 15 see ( JM TO UPDATE ) – Investment in Joint Ventures. Significant influence would generally be presumed where an entity owns 20% or more of the shares of an entity.
33.3.2.2.2 Close family members defined
Appendix I of FRS 102 defines close members as ‘those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity including:
- that person’s children and spouse or domestic partner;
- children of that person’s spouse or domestic partner; and
- dependents of that person or that person’s spouse or domestic partner’.
This definition could include parents, siblings or relatives, in-laws, cousins, foster children, step children who may be expected to influence or be influenced by that person in their dealings with the reporting entity.
The term domestic partner would be a person whether of the same sex or not, who lives with the member of key management personnel as a partner in an enduring family relationship. This definition is broader than company law.
33.2.2.3 Key management personnel
Key management personnel is defined in Section 33.6 of FRS102 as ‘those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.’ See further details at 33.6.2.2.
The definition above makes it clear that a director is automatically considered to be classed as a member of key management personnel. However it does not exclude other employees in the company or in fact in a group of companies from coming within the remit of Section 33 ‘key management personnel’. The single factor that determines whether the personnel are considered key management personnel is if the individual has authority and responsibility for planning, directing and controlling the activities of the entity. Examples of key personnel would include:
- Shadow directors (i.e. although they are not a director they are performing the duties of a director);
- A body corporate who provides management personnel to work in the entity who have responsibility for planning, directing and controlling the activities of the entity.
A person does not have to be referred to as a manager in the entity for to be considered to be a member of key management personnel. The key thing to look at is whether they are responsible for planning, directing or controlling the activities of the entity.
33.2.2.4 Examples of close family members
Example 3: Close family members
Two companies, Company A is 100% owned by Mr Y and Company B is 25% owned by Mrs Y. Mr and Mrs Y are married.
In this case in the books of Company A, the transactions entered into with Company B are related party transactions as Mr X controls Company A and Mrs Y has a significant influence in Company B.
In the books of Company B the transactions entered into are not related party transactions as Mrs Y does not have control or joint control of Company B, Mrs Y only has a significant influence.
Example 4: Close family members
Two companies, Company A is 25% owned by Mr Y and Company B is 25% by Mrs Y. Mr and Mrs Y are married.
In this case in the books there is no related party issues as neither party have control or joint control.
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Examples
Example 1: Wholly owned group exemption.
Example 3: Close family members.
Example 4: Close family members.
Example 5: entities are members of a group (Section 33.2(b)(I of FRS 102))
Example 7: Both entities are joint venture of the same third party (Section 33.2(b)(iii))
Example 10: Transactions with a subsidiary of a joint venture or associate.
Example 11: Pension funds (Section 33.2(b)(v)of FRS102)
Example 13: Extract from notes to the financial statements.
Example 14: Extract from notes to the financial statements.
Example 15: Extract from the notes to the financial statements.
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