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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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33.4 Related Party Defined – Entities
33.4.1 Extract from FRS102: Section 33.2 (b) and Section 33.4
(b) An entity is related to a reporting entity if any of the following conditions apply:
(i) the entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) both entities are joint ventures of the same third party.
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.
(vi) the entity is controlled or jointly controlled by a person identified in (a).
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.
33.4A In the definition of a related party, an associate includes subsidiaries of the associate and a joint venture includes subsidiaries of the joint venture. Therefore, for example, an associate’s subsidiary and the investor that has significant influence over the associate are related to each other.
33.4.2 OmniPro comment
33.4.2.1 Overview
As per section 33.2(b) and 33.4A of FRS 102 an entity is related to a reporting entity if any of the following conditions apply:
(i) the entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) one entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) both entities are joint ventures of the same third party.
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.
(vi) the entity is controlled or jointly controlled by a person identified in (a).
(vii) a person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.
In the definition of a related party, an associate includes subsidiaries of the associate and a joint venture includes subsidiaries of the joint venture. Therefore, for example, an associate’s subsidiary and the investor that has significant influence over the associate are related to each other.
33.4.2.2 Related party entity examples
See examples below which illustrate some of the points in Section 33.2(b) and 33.4A of FRS 102. Also see 33.3.2 for related parties with regard to persons and close family members.
33.4.2.2.1 Entities are members of a group
Example 5: entities are members of a group (Section 33.2(b)(i) of FRS 102)
A group exists where a company owns greater than 50% of the ordinary shares or where there is a right to control the board of directors (i.e. a golden share arrangement exists). Any transactions entered into by any of the below companies are related party transactions. However as stated above, Section 33.1A of FRS102 allows an exemption from disclosure where the companies are wholly owned subsidiaries. Therefore in this case, no disclosure is required for transactions entered into between Parent A, Subsidiary A and Subsidiary B in each of these financial statements. Disclosure of transactions entered into between any of the aforementioned entities with Subsidiary C & D will need to be disclosed. In the financial statements of Subsidiary C & D, all transactions entered into with the other group companies and each other will need to be disclosed.
33.4.2.2.2 One entity is an associate or joint venture of the other or one entity is a joint venture of a third entity and the other entity is an associate of the third party
Example 6: One entity is an associate or joint venture of the other or one entity is a joint venture of a third entity and the other entity is an associate of the third party (Section 33.2(b)(ii) & (iv)
In the below, all Companies are related parties in each of the separate financial statements.
33.4.2.2.3 Both entities are joint venture of the same third party
Example 7: Both entities are joint venture of the same third party (Section 33.2(b)(iii) of FRS 102)
In this instance all companies are related parties in each of the separate financial statements.
33.4.2.2.4 Entity is controlled by a person that has control or significant influence or joint control or is a member of key management over/in the reporting entity
Example 8: Entity is controlled by a person that has control or significant influence or joint control or is a member of key management over/in the reporting entity, (Section 33.2(b)(vi) of FRS 102)
In the illustration below, Company A, B and C are related parties. If Mr A owned 100% of Company B, they would also be related parties.
33.4.2.2.5 Person has control or joint control of the reporting entity has significant influence over the other entity or is a member of key management personnel of the other entity
Example 9: Person (has control or joint control of the reporting entity) has significant influence over the other entity or is a member of key management personnel of the other entity (Section 33.2(b)(vii) of FRS102
Company A and Company B are related parties as Mr A has a significant influence over Company B. Company B is a related party of Company A as Mr A controls Company A (Section 33.2(b)(vi) of FRS 102). If in the above example Mr A did not have any ownership in Company B but was one of the key management personnel of Company B, then Company A & B would still be related parties.
33.4.2.2.6 Transactions with a subsidiary of a joint venture or associate
Example 10: Transactions with a subsidiary of a joint venture or associate
In the example below Company A, is related to Company B, C, E and G. Company A is related to company E by virtue of Section 33.4A of FRS102 i.e. Company E is a subsidiary of Company A’s associate.
From Company A’s perspective, Company D is not a related party as it does not have significant influence over Company D i.e. it only owns 10% (20%*50%) of Company C and Company C does not have a subsidiary (i.e. Company D is only a joint venture).
From Company D’s perspective, Company C & F are related. The other companies are not.
33.4.2.2.7 Pension funds
Example 11: Pension funds (Section 33.2(b)(v)of FRS102)
Company A enters into a lease on a property with a pension fund which is held for the benefit of its directors. In this case the rent paid for the use of the property is a related party transaction as Company A and the pension fund are related under Section 33.2(b)(v).
33.4.2.2.8 Provision of managements services by an entity or any member of a group of which it is part to the reporting entity or to the parent of the reporting entity
Example 12: Provision of managements services by an entity or any member of a group of which it is part to the reporting entity or to the parent of the reporting entity (Section 33.2 (viii) of FRS102)
Company A recharges Company B for management service. In this case Company A and B are related.
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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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