In plain words
Logistics groups often provide freight or warehousing to affiliated companies owned by the same family or parent. These transactions are recorded like any other, at the invoiced amount. What IAS 24 adds is disclosure: the notes must show the relationship, the transaction values, outstanding balances and their terms, even when prices are said to be at market rates. Missing these disclosures hides possible conflicts of interest.
Why it matters
Logistics groups commonly have intercompany freight, warehousing and fleet-leasing arrangements with affiliated trading, retail or holding companies, requiring identification and disclosure of related party relationships and transaction terms regardless of whether pricing is at arm's length. Omitting these disclosures hides potential conflicts of interest and related-party concentration risk from users, even when no accounting misstatement of the transaction amount itself occurs.
Diagnostic questions
Has the full group and ownership structure been mapped to identify all related parties (parent, fellow subsidiaries, associates, joint ventures, key management personnel, and entities under common control), including those without obvious shared branding? For freight, warehousing, or leasing services provided to or received from related parties, are pricing terms benchmarked against arm's-length rates for comparable third-party arrangements? Are all required disclosures (nature of relationship, transaction amounts, outstanding balances, terms) being captured, not just the largest transactions?
Recognition
1) Map the full group and ownership structure to identify all related parties: parent, fellow subsidiaries, associates, joint ventures, key management personnel, and entities they control or significantly influence (including entities without obvious shared branding). 2) For each related party, identify all freight, warehousing, leasing, or financing transactions and outstanding balances during the period. 3) Assess pricing terms against arm's-length market rates where practical, documenting the comparison even though IAS 24 itself does not prescribe a specific pricing/measurement basis. 4) Disclose transactions and balances even where terms are, or are asserted to be, at normal commercial rates, disclosure is required regardless of pricing. 5) Reassess the related party population whenever ownership structure changes (e.g. new affiliate acquired by the family group).
Measurement
IAS 24 does not prescribe a specific measurement basis for related party transactions themselves; measure the transaction at its contractual/invoiced amount as with any other transaction. Where practical, benchmark pricing against market rates (e.g. comparable third-party freight or lease rates) to support disclosure of whether terms are equivalent to arm's-length terms, but do not adjust the recorded transaction amount merely because it differs from an estimated market rate unless a separate accounting issue (e.g. a below-market lease containing a deemed distribution) arises.
Presentation & disclosure
Disclose: (1) the nature of related party relationships (control, significant influence, key management); (2) the amount and terms of transactions (freight fees, lease income/expense, guarantees, loans); (3) outstanding balances and their terms (secured/unsecured, settlement terms, guarantees given/received); (4) key management personnel compensation by category; (5) any provision for doubtful debts related to related party balances and expense recognized for bad/doubtful related party debts.
Common mistakes
- Omitting related party disclosures because transactions are considered priced at market rates, when IAS 24 requires disclosure regardless of pricing
- failing to identify entities under common control that are not obviously affiliated by name or branding
- disclosing only balances but not the terms and conditions attached to them
- overlooking key management personnel compensation as a required related party disclosure category.
Simple example
A logistics company owned by the same family group as a retail chain provides warehousing and last-mile delivery to the retailer for SAR 8,000,000 annually, billed monthly. Journal entry for a monthly billing of SAR 666,667: Dr Trade receivable - related party 666,667 / Cr Revenue - related party services 666,667. No special accounting entry differs from a third-party transaction, but the notes must separately disclose: the related party relationship (common family ownership), the SAR 8,000,000 annual transaction value, the outstanding related-party receivable balance at period end, and the pricing basis used (e.g. benchmarked against comparable third-party 3PL rates).
Professional judgment
Identifying the full population of related parties, particularly entities under common control without obvious branding links (e.g. a holding company's minority-owned investment vehicle), requires judgment and good corporate structure knowledge, often necessitating a formal annual related-party questionnaire process. Judgment is also needed on whether close family members of key management (a specific category under IAS 24) and the entities they control should be captured, which is often overlooked in less formal group structures.
Source basis
IAS 24 · Related Party Disclosures
Paragraph references
Verified against the official standard texts used in the IFRS Expert skill.
Related issues
Educational and navigation content only. Not professional advice. Does not reproduce official IFRS/IAS text. Consult the authoritative standards and qualified professionals; professional judgment may still be required.