Section 33: Related Party Disclosures
Section 33 deals with disclosures required for all related party transactions and includes the definition of related parties.
What is new?
Section 33.10 requires related party transactions to be disclosed separately for each of the below categories whereas old GAAP allowed these to be aggregated:
- entities with control, joint control or significant influence;
- Entities over which the entity has control or significant influence;
- Key management personnel of the entity or its parent (in aggregate); and
- Other related parties.
What is different?
Section 33 requires the disclosure for pension contributions paid into a pension fund. There was no such requirement under old GAAP (FRS 8) however, it was required under FRS 17 so it would have been disclosed in any event.
Section 33 requires disclosure of key management personnel compensation in total. This is in additional to the requirements of Company Law in relation to directors’ remuneration and transactions with connected persons.
The section also provides no exemption on the grounds of confidentiality. Under old GAAP, disclosure was not required on the basis of confidentiality which was imposed by statute or entity law.
Section 33.11 provides an exemption from disclosure about related party transactions with a related party that is a state (a national regional or local government) that has control, joint control or significant influence over the reporting entity.
What are the key points?
A related party is a person or entity that is related to the entity that is preparing its financial statements (the reporting entity). Section 33.2 provides a detailed definition of related parties:
(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.
(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.
Disclosures are not required of transactions between group members, providing that any subsidiary involved is wholly owned (Section 33.1A).
Disclosure required of the name of the parent entity and if different, the ultimate controlling party.
What do accountants need to do?
Be aware of the differences between old GAAP and Section 33 mentioned above and ensure FRS 102 financial statements are compliant with these additional disclosures. Advise clients of the additional disclosures that are required.
What do Companies need to do?
Be aware of the differences between old GAAP and Section 33 mentioned above and ensure FRS 102 financial statements are compliant with these additional disclosures.