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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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The below extracts and guidance is applicable for periods beginning before 1 January 2019 and are based on the September 2015 version of FRS 102. For periods beginning on or after 1 January 2019, the March 2018 version of FRS 102 applies which incorporates the changes made by the Triennial review of FRS 102. Note the March 2018 version of FRS 102 can be voluntarily applies for periods beginning before 1 January 2019. For the extracts from the March 2018 version of FRS 102 and the related guidance please click on the following link. For details of a summary of the main changes as a result of the triennial review please see the following link.
33.6 Disclosures
33.6.1 Disclosure of parent-subsidiary relationships
33.6.1.1 Extract from FRS102: Section 33.5
33.5 Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been related party transactions. An entity shall disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces financial statements available for public use, the name of the next most senior parent that does so (if any) shall also be disclosed.
33.6.1.2 OmniPro comment
See below illustrative of the disclosure requirements in Section 33.5 of FRS102 where a parent subsidiary relationship exists. This is also a requirement under Company law. The disclosure must be provided regardless of whether there were related party transactions in the period or not as stated in Section 33.5 of FRS102.
Example 13: Extract from notes to the financial statements
Parent and ultimate controlling party
The company is [a wholly owned] subsidiary of X Limited, a company incorporated in the XXXX. The ultimate controlling party of X Limited is Y Limited, which is the parent company of the smallest and largest group to consolidate these Financial Statements. Copies of Y Limited Consolidated Financial Statements can be obtained from the Secretary, XXXXX, Country.
OR
The ultimate controlling party is considered to be the board of directors of the company.
OR
The company is owned by a number of private shareholders and companies, none of whom own more than 10% of the issued share capital of the Company. Accordingly, there is no parent nor ultimate controlling party
OR
The holders of the ordinary shares in XXXX Limited are regarded as being the ultimate controlling party of the company.
33.6.2 Disclosure of key management personnel compensation
33.6.2.1 Extract from FRS102: Section 33.6 – Section 33.7
33.6 Key management personnel are 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. Compensation includes all employee benefits (as defined in Section 28 Employee Benefits) including those in the form of share-based payments (see Section 26 Share-based Payment). Employee benefits include all forms of consideration paid, payable or provided by the entity, or on behalf of the entity (e.g. by its parent or by a shareholder), in exchange for services rendered to the entity. It also includes such consideration paid on behalf of a parent of the entity in respect of goods or services provided to the entity.
33.7 An entity shall disclose key management personnel compensation in total.
33.6.2.2 OmniPro comment
33.6.2.2.1 Key management personnel defined
Section 33.6 of FRS 102 defines, management personnel as those people having authority and responsibility for planning, directing and controlling the activities of the entity directly, including any directors of that entity. Section 3.7 of FRS 102 requires key management personnel to be disclosed. There is no requirement to split the remuneration down by type for Section 33 purposes, a total figure is only required
33.6.2.2.1.1 Additional disclosures under company law
Company law also requires disclosure of the director’s remuneration of all directors including disclosure of directors loans and transactions which may be different to the values disclosed above. The Company law disclosures are more stringent than that required by Section 33. The disclosure should include all benefits provided to the individuals including share based payments.
33.6.2.2.2 Key management personnel and directors remunerated by other groups entities or shareholders – the disclosures
Where a director is paid by a parent company consideration should to be given for what element of fees relate to the subsidiary. Where the director’s costs are recharged, then the amount recharged would be disclosed. However where no costs are recharged by the parent, an entity should provide a reasonable estimate for the work performed for that subsidiary. It is only the amount paid relating to services provided by that subsidiary that should be included in the disclosure. A disclosure should also be provided informing the reader of the financial statements that the cost has been borne by a fellow group company. These disclosures are required by company law.
33.6.2.2.2.1 Directors duties merely incidental and incurred by parent entity
Where a director is performing very little duties other than acting as director and attending the annual general meetings, it can be argued that the parent company are incurring this cost as the director is providing a service for the parent company itself. A possible disclosure to be included where this is the case would be:
33.6.2.2.2.1.1 Possible disclosure in financial statements where directors duties are incidental
‘Mr Y is a director to a number of subsidiaries and the compensation for Mr Y’s service is incurred by the parent company and not recharged. The majority of Mr Y’s compensation for services performed for the parent company. Given the difficulty in apportionment no amount has been included in the key management personnel disclosure above. My Y’s total compensation is disclosed in the notes of the consolidated financial statements of the parent’.
33.6.2.2.3 Sample key management personnel disclosure
See below an example of a key management personnel disclosure:
Example 14: Extract from notes to the financial statements
All directors and certain senior employees who have authority and responsibility for planning, directing and controlling the activities of the company are considered to be key management personnel. The total remuneration in respect of these individuals was CUXXX (2014:CUXXX).
33.6.3 Disclosure of related party transactions
33.6.3.1 Extract from FRS102: Section 33.8-33.14
33.8 A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.
Examples of related party transactions that are common to entities within the scope of this FRS include, but are not limited to:
(a) transactions between an entity and its principal owner(s);
(b) transactions between an entity and another entity when both entities are under the common control of a single entity or person; and
(c) transactions in which an entity or person that controls the reporting entity incurs expenses directly that otherwise would have been borne by the reporting entity.
33.9 If an entity has related party transactions, it shall disclose the nature of the related party relationship as well as information about the transactions, outstanding balances and commitments necessary for an understanding of the potential effect of the relationship on the financial statements. Those disclosure requirements are in addition to the requirements in paragraph 33.7 to disclose key management personnel compensation. At a minimum, disclosures shall include:
(a) The amount of the transactions.
(b) The amount of outstanding balances and:
(i) their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and
(ii) details of any guarantees given or received.
(c) Provisions for uncollectible receivables related to the amount of outstanding balances.
(d) The expense recognised during the period in respect of bad or doubtful debts due from related parties.
Such transactions could include purchases, sales, or transfers of goods or services, leases, guarantees and settlements by the entity on behalf of the related party or vice versa.
33.10 An entity shall make the disclosures required by paragraph 33.9 separately for each of the following categories:
(a) entities with control, joint control or significant influence over the entity;
(b) entities over which the entity has control, joint control or significant influence;
(c) key management personnel of the entity or its parent (in the aggregate);
(d) entities that provide key management personnel services to the entity; and
(e) other related parties.
33.11 An entity is exempt from the disclosure requirements of paragraph 33.9 in relation to:
(a) a state (a national, regional or local government) that has control, joint control or significant influence over the reporting entity; and
(b) another entity that is a related party because the same state has control, joint control or significant influence over both the reporting entity and the other entity. However, the entity must still disclose a parent-subsidiary relationship as required by paragraph 33.5.
33.12 The following are examples of transactions that shall be disclosed if they are with a related party:
(a) purchases or sales of goods (finished or unfinished);
(b) purchases or sales of property and other assets;
(c) rendering or receiving of services;
(d) leases;
(e) transfers of research and development;
(f) transfers under licence agreements;
(g) transfers under finance arrangements (including loans and equity contributions in cash or in kind);
(h) provision of guarantees or collateral;
(i) settlement of liabilities on behalf of the entity or by the entity on behalf of another party; and
(j) participation by a parent or subsidiary in a defined benefit plan that shares risks between group entities.
33.13 An entity shall not state that related party transactions were made on terms equivalent to those that prevail in arm’s length transactions unless such terms can be substantiated.
33.14 An entity may disclose items of a similar nature in the aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity.
33.6.3.2 OmniPro comment
33.6.3.2.1 Overview
As per Section 33.9 of FRS 102 if an entity has related party transactions, it shall disclose the nature of the related party relationship as well as information about the transactions, outstanding balances and commitments necessary for an understanding of the potential effect of the relationship on the financial statements. Those disclosure requirements are in addition to the requirements in paragraph 33.7 to disclose key management personnel compensation. At a minimum, disclosures shall include:
(a) The amount of the transactions.
(b) The amount of outstanding balances and:
(i) their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and
(ii) details of any guarantees given or received.
(c) Provisions for uncollectible receivables related to the amount of outstanding balances.
(d) The expense recognised during the period in respect of bad or doubtful debts due from related parties.
Such transactions could include purchases, sales, or transfers of goods or services, leases, guarantees and settlements by the entity on behalf of the related party or vice versa.
While Section 33 does not mandate that all related party information be contained in the one note, it would be best practice to include all the information in one note so that it makes it easier for the reader of the financial statements. Note where consolidated accounts are not prepared, disclosure is required in the notes to the financial statements of transactions which is with less than 100% subsidiaries.
Disclosures are required for the current and comparative period. Section 33 does not specifically require the names of the related parties to be disclosed. Disclosures can be made in aggregate as stated in Section 33.14 of FRS102 except where separate disclosure is necessary for an understanding of the effects of the transactions and the results. Section 33.10 of FRS102 requires the details of the transactions and period end balances to be segregated as per below:
(a) entities with control, joint control or significant influence over the entity;
(b) entities over which the entity has control, joint control or significant influence;
(c) key management personnel of the entity or its parent (in the aggregate);
(d) entities that provide key management personnel services to the entity; and
(e) other related parties.
Items of a similar nature should not be aggregated where:
- Separate disclosure of an item is required by law
- Aggregation would obscure the importance of significant transactions (Section 33.14 refers).
33.6.3.2.2 Rules on disclosure of items being on an arm’s length basis
Section 33.13 of FRS102 does not permit an entity to disclose the fact that transactions are made on an arm’s length basis when they are substantial.
33.6.3.2.3 Disclosures where subsidiaries/ associates/ joint ventures acquired or disposed of in the period
Section 33 does not mention how transactions with subsidiaries acquired or disposed of. Where a subsidiary is disposed of during the financial year the following rules should be applied with regard to disclosure of related parties:
In the subsidiary and parent company financial statements
- transactions from the beginning of the year to the date of disposal should be disclosed where exemption cannot be claimed under Section 33.1A of FRS102 (i.e. where it is not 100% owned). The period end balance does not have to be disclosed even if it relates to transactions entered into pre-disposal.
Where a subsidiary is acquired during the financial year the following rules should be applied with regard to disclosure of related parties:
In the subsidiary and parent company financial statements
- transactions from the beginning of the year to the date of acquisition do not need to be disclosed. Where the entity is not a wholly owned group company disclosure is required from the date of acquisition to the year-end date. The period end balance should be disclosed even if it relates to transactions entered into pre-acquisition.
33.6.3.2.4 Examples of related parties to be disclosed
Examples given of related parties transactions to be disclosed are (as per Section 33.12 of FRS102)
(a) purchases or sales of goods (finished or unfinished);
(b) purchases or sales of property and other assets;
(c) rendering or receiving of services;
(d) leases;
(e) transfers of research and development;
(f) transfers under licence agreements;
(g) transfers under finance arrangements (including loans and equity contributions in cash or in kind);
(h) provision of guarantees or collateral;
(i) settlement of liabilities on behalf of the entity or by the entity on behalf of another party; and
(j) participation by a parent or subsidiary in a defined benefit plan that shares risks between group entities.
33.6.3.2.5 Illustrations of the related parties required by Section 33.8 to 33.14 of FRS102
Detailed below is an example of possible related party disclosures
Example 15: Extract from the notes to the financial statements
Related party transactions as required by Section 33.10 of FRS102
| Sales to related party | Purchases from related party | Amounts owed from related party | Amounts owed to related party | |
| CU | CU | CU | CU | |
| Entities with control, joint venture or significant influence over the Company | ||||
| 2015 | – | – | – | – |
| 2014 | – | – | – | – |
| Entities over which the company has control, joint control or significant influence | ||||
| 2015 | – | – | – | – |
| 2014 | – | – | – | – |
| Entities providing key management personnel services | ||||
| 2015 | – | – | – | – |
| 2014 |
–
|
–
|
–
|
–
|
Terms and conditions of transactions with related parties
Sales and purchases between related parties are made at normal market terms (ENSURE THIS IS SUBSTANTIATED) Outstanding balances with entities are unsecured, interest free and cash settlement is expected within 30 days of invoice. A provision for bad debt has been created at the year-end for CU10,000 (2014: CUnil) against an amount due from an associate company.
Other related party transactions
AN Other, the director of the company, holds an interest in patents which are licensed to the company for the manufacture of certain machines. During the period, patent royalties of CUXXXX (2014: CUXXXX) were charged to the company in respect of the use of these patents. At 31 December 2015 an amount of CUXXXX was due from the directors (2014: CUXXXX amount due to the directors).
During the year the company was charged CUXXX (2014: CUXXX) by AN Other Limited for rental of the premises where the company operates. An amount of CUXXX (2014: CUXXX) was owed to AN Other Limited at the year end. AN Other Limited is related by virtue of common directors.
During the year the company paid expenses in the amount of CUXXXX (2014: CUXXXX) on behalf of an associate, Associate Limited. An amount of CUXXXX (2014: CUXXXX) remained outstanding from this company at the year end. A provision of CUXXXXX (2014: CUXXX) was provided against this balance at the 31 December 2015. The associate is related by virtue of common directors.
Key management personnel
All directors and certain senior employees who have authority and responsibility for planning, directing and controlling the activities of the company are considered to be key management personnel. The total remuneration in respect of these individuals was CUXXX (2014:CUXXX).
Guarantees
The company has not provided or benefited from any guarantees for any related party receivables or payables.
Example 15A: Disclosure of amounts due from/to group entities and related party balances including amounts due to/from directors
DIRECTORS REMUNERATION AND TRANSACTIONS
| 2015 | 2014 | ||
| CU | CU | ||
| Remuneration | |||
|
Salary Social security costs |
182,000 | 185,600 | |
|
Retirement Benefits – defined contribution scheme Other compensation costs – share based payments |
30,000 | 30,000 | |
| 212,000 | 225,600 | ||
| XXX | XX | ||
| Directors’ Loans | Directors A | Director B | |
| Opening Balance | 100,000 | 100,000 | |
| Repayments by directors | (9,301) | – | |
| Advances to directors | 1,000 | – | |
| Closing balance | XXX | 100,000 |
The interest rate applied to this loan was X% per annum on a compound interest basis and is repayable on demand.
There was no write off on this loan during the year (2014: CUnil). A provision of CUnil (2014:CUnil) was recognised against this balance at the year end.
| Debtors – amounts falling due within one year | 2015 | 2014 |
| CU | CU | |
| Trade debtors | – | – |
| Prepayments and other debtors | – | – |
| Corporation tax | – | – |
| Value added tax | – | – |
| Amounts due from directors (see note 1) | – | – |
| Amounts due from group undertakings (see note XXX) |
–
|
–
|
| – | – | |
| Creditors – amounts falling due within one year | 2015 | 2014 |
| CU | CU | |
| Bank overdraft and loans | – | – |
| Trade creditors | – | – |
| Accruals | – | – |
| Income tax deducted under PAYE | – | – |
| Pay related social insurance | – | – |
| Amounts due to directors (see note XXX) | – | – |
| Amounts due to group undertakings (see note XXX) | – | – |
| Corporation tax | – | – |
| Amounts due to participating interests | – | – |
| Value added tax |
–
|
–
|
| – | – | |
| – | – |
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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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