Following are examples of related parties:
- An entity that is controlled by, controls or has common ownership with the reporting entity.
- An individual who has direct or indirect control over the reporting entity.
- Investors or investees in investments accounted for under the equity or proportionate consolidation method.
- Persons in the management group of the reporting entity and those engaged in management contracts when the entity is either the managing or managed entity..
- Individuals with ownership interests in the reporting entity that have a significant degree of influence or joint control.
- Immediate family members of management persons and owners of a reporting entity as described above.
- Any other party having significant influence over the reporting entity.
- Parties that are subject to joint control related to each of the venturers in a joint venture.
When identifying related parties, management should consider such factors as uncommon terms or transactions between the reporting entity and its customers or vendors. Related party transactions should be conducted and recorded at “arms-length”, the same as other transactions of the entity in the normal course of its business.
Presentation and Disclosure
Similar to U.S.GAAP, the FRF for SMEs includes the following disclosure requirements:
- Specific descriptions of the relationships, such as investee, significantly-influenced investee, management, shareholder, etc.
- The volume of transactions in major account categories, including the items exchanged and that the exchange was in normal operations. Transactions like management services or the use of a patent or license for no consideration should also be described.
- The basis for valuing the transactions aggregated by major financial statement classifications. When transactions are valued similar to other ordinary transactions, this fact should be disclosed. References to market value should be made only if market value can be substantiated.
- Any receivables or payables to or from the related parties.
- Commitments and contingencies with related parties.
Webcasts covering the FRF for SMEs can be accessed by clicking the “Live Webcasts” box on the left side of my home page, www.cpafirmsupport.com.