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CHAPTER 4

RELATED PARTIES
Definition
RELATED PARTY is a person or entity na related sa entity na nagpe-prepare ng
kanilang financial statements.
Ang isang party ay considered as related party if that party has:

a. Ay may kakayahan na kontrolin ang other party. He owns more than half ng
voting power ng isang entity.
b. Has significant influence over the reporting entity. He has the power ng mag-
participate sa decision ng entity when it comes to financial and operating policy
but of course wala silang power na mag-control ng policies.
Kapag may significant influence ang isang entity in the other it means pwede
silang mag-represent sa board of directors, mag-participate sa policy making
process ng entity, dependence sa technical information, etc.
If a person or an entity owns 20% or more (20%-50%) share they have a
significant influence over that entity.
c. May joint control over the entity. They contractually agreed na magse-share sila
sa control in an economic activity.

Examples of related parties

1. Entities na directly or indirectly through one or more intermediaries, nakokontrol


nila or sila yung controlled ng other entity or under sila ng iisang control ng isang
reporting entity.
o Affiliates- parent, subsidiary and fellow subsidiaries
2. Associates- ay entity, including unincorporated entity kagaya ng partnership for
ang investors ay may significant influence at hindi sya subsidiary or or interest sa
joint venture.
Associates- subsidiary or subsidiaries of the associates.

If ang investment sa ordinary shares ay 20% to 50% ay gagamit ng equity method in


accounting ng investment.
3. Venturer in a joint venture- two or more parties undertake an economic avtivity
na subject sa joint control. Ang joint ventures can take a form ng jointly controlled
operations, jointly controlled-assets at entity.,
4. Key management personnel are those persons na may authority and
responsibility sa pagpa-plano, directing and pag-control ng activities ng entity,
directly or indirectly, including any director (whether executive or otherwise) or
non-executive director of that entity.
5. Close family members of an individual are those family members who may be
expected na maka-influence, or ma-influenced by, that person in their dealings
with the entity and include:
a. that persons children and spouse or domestic partner;
b. children of that persons spouse or domestic partner; and
c. dependants of that person or that persons spouse or domestic partner.

6. Individuals na nagmamay-ari, directly or indirectly ng interest sa voting power ng


isang reporting entity na nagbibigay ng signikficant influence over the entity at
close family members ng isang individual.
Postemployment benefit plans formal or informal arrangements kung saan nagpo-
provide ang entity ng post-employment benefits for one or more employees. Ito ay
para sa benefit ng employees ng isang entity or ng entity na related party ng
isang entity. Isa pa, ito ay required na mai-disclosed.

Examples of relate party transactions


A related party transaction ay ng pagta-transfer ng resources, services or obligations
between a reporting entity and a related party, regardless kung magcha-charge sila ng
price or hindi sa resources na ito.

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. commitments to do something if a particular event occurs or does not occur in
the future, including executory contracts* (recognised and unrecognised)
j. settlement of liabilities on behalf of the entity or by the entity on behalf of that
related party.
Related party disclosures
Relationships sa pagitan ng parents at kanyang subsidiaries ay dapat ng i-disclosed
may transaction man o wala na naganap sa pagitan nila. An entity shall disclose ang
name ng parent entity and if hindi ay yung ultimate controlling party. If wala sa parent
entity at ultimate controlling party na nagpo-produce ng consolidated financial
statements na available for public use ay name ng next most senior parent that does so
shall be disclosed.

Disclosures of related party transaction


if an entity ay may related party transactions during the periods covered by the financial
statements, it shall disclose the nature of the related party relationship pati na rin lahat
ng information na present sa transaction na iyon and also the outstanding balances,
including commitments, necessary for users na maintidihan ang potential effect of the
relationship on the financial statements. These disclosure requirements are provided in
PAS 24, paragraph 17
At a minimum, disclosures shall include:

a. Amount of the transaction


b. the amount of outstanding balances, including commitments, and their terms
and conditions, including whether they are secured, and the nature n
consideration na ipo-provide sa settlement; and details of any guarantees na
binigay at natanggap
c. allowance for doubful accounts narelated sa outstansing balance
d. expense na na-recognized during the period In respect sa doubtful accounts
due from related parties.

Disclosures that related party transactions were made on terms equivalent to those that
prevail in arms length transactions are made only if such terms can be substantiated.

Key management personnel compensation


An entity shall disclose key management personnel compensation in total and for
each of the following categories:
(a) short-term employee benefits
(b) post-employment benefit
(c) other long-term benefits
(d) termination benefits
(e) share-based payment (share options)
Unrelated parties
Unrelated parties include the following:

1. Two entities simply because they have a director or key management personnel
in common.
2. Providers of finance, trade unions, public utilities, and government agencies in
the course of their normal dealings with an entity by virtue only of those dealings.
3. A single customer, supplier, franchisor or general agent with whom with an entity
transacts a significant volume of business merely by virtue of the resulting
economic dependence.
4. Two venturers simply because they share joint control over a joint venture.

Transactions with government-related entities

A reporting entity is exempt from the disclosure requirements of paragraph 18 in


relation to related party transactions and outstanding balances, including
commitments, with:

(a) a government that has control, joint control or significant influence over the
reporting entity
(b) another entity that is a related party because the same government has
control, joint control or significant influence over both the reporting entity and the
other entity.

If a reporting entity applies the exemption in paragraph 25, it shall disclose the
following about the transactions and related outstanding balances referred to in
paragraph 25:

(a) pangalan ng government at ang relationship nito sa reporting entity (ie


control, joint control or significant influence);
(b) the following information in sufficient detail to enable users of the entitys
financial statements to understand the effect of related party transactions on its
financial statements:
(i) the nature and amount ng bawat isang significant transaction
(ii) for other transactions that are collectively, but not individually,
significant, a qualitative or quantitative indication of their extent. Types of
transactions include those listed in paragraph 21
Related party disclosure not required
PAS 24, paragraph 3, ay nirerequire ang disclosure of related party transactions
at outstanding balances sa separate financial statements ng parent, subsidiary,
associate or venture. However, paragraph 4 provides na ang intragroup related
party transactions at outstanding balances ay eliminated sa preparation ng
consolidated financial statements of the group.

Pricing policies
Ang accounting recognition ng pag-transfer ng resources ay normally based sa price
agreement ng parties. Sa unrelated parties naman, the price is an arms length price.

Ang PAS 24 ay hindi nag-provide para sa measurement ng relate party transaction.


However, mayroong ibat ibang methods na ginagamit para ma-price ang transactions
between related parties.
1. Uncontrolled price method
This sets the price sa pagkuha ng reference sa comparable goods na ibinebenta
sa kaparehas na market sa mga buyer na unrelated sa seller.
2. Resale price method
Method na palaging ginagamit kung saan tina-transfer ang goods sa related
parties before sya ibenta sa independent party.
3. Cost plus method
Method kung saan nag-aadd ng appropriate markup sa suppliers cost
4. No price method
Literally, walang price na china-charge as in the case of free provision of
management services at sa extension ng free credit at debt.