Related party transactions and disclosures

Related party lending is where preferential treatment is most likely to occur and most damaging to market confidence if hidden, precisely because the counterparty (a director, major shareholder, or their controlled entity) may have influence over the very terms and approval process that would normally provide arm's-length discipline; IAS 24 responds by requiring disclosure of relationships and transactions regardless of pricing, making transparency itself the safeguard rather than a pricing test.

Has the related party register been built and checked against every transaction and balance at the time it occurred, covering shareholders, directors, key management, close family, and controlled entities? Are related party loans and deposits being compared against equivalent unrelated-party terms to identify any preferential pricing, collateral relaxation, or other benefit requiring specific disclosure? Is key management personnel compensation disclosed separately by category (short-term, post-employment, other long-term, termination, share-based) rather than as one aggregate figure?

1. Build and maintain a complete related party register: shareholders with significant influence or control, directors, key management personnel, their close family members, and entities controlled, jointly controlled, or significantly influenced by any of the above, plus post-employment benefit plans for employees.
2. For every transaction and balance, check counterparty identity against this register at the time of the transaction, not only at year-end.
3. Recognize and measure related party balances at their actual transaction terms; do not adjust to an assumed arm's-length rate for recognition purposes, the point is disclosure of the relationship and terms, not restatement.
4. Compare actual pricing and collateral terms granted to related parties against equivalent unrelated-party transactions to identify any preferential element requiring specific disclosure.
5. Compile key management personnel compensation separately by category (short-term benefits, post-employment benefits, other long-term benefits, termination benefits, share-based payments).

Measure and disclose related party loan balances, deposits, guarantees, and key management compensation at their actual transaction amounts, separately identifying amounts due from versus due to related parties, and separately identifying key management personnel from other related parties within each disclosure category; there is no requirement to remeasure related party transactions to a hypothetical arm's-length value, the disclosure objective is transparency about terms actually given, not correction of pricing.

Disclose: (1) the nature of each related party relationship; (2) transaction amounts and outstanding balances by category (key management, other related parties, entities under common control); (3) terms and conditions, including whether secured and the nature of consideration to be provided in settlement; (4) key management personnel compensation disaggregated by category (short-term, post-employment, other long-term, termination, share-based); (5) any provision for doubtful debts related to related party balances and expense recognized on such debts during the period.

• Omitting close family members or entities under common control/significant influence from the related party population, understating the true scope of disclosure
• disclosing only aggregate balances without distinguishing key management personnel from other related parties
• failing to disclose preferential terms (below-market rates, relaxed collateral requirements) granted to related party borrowers even when the balance itself is disclosed
• treating an entity as unrelated simply because ownership is indirect or below a control threshold without assessing significant influence
• not updating the related party register when directors or major shareholders change during the year.