Related party transactions in family conglomerates

Family-owned industrial groups routinely buy, sell, borrow and share services across affiliates; full disclosure of relationships, transactions and balances is mandatory even at market prices. Weak related party disclosure is treated as a governance red flag by lenders, minority investors and regulators, can conceal related party pricing that shifts margin between group entities for tax or profit-allocation reasons, and undisclosed guarantees or off-market loans can materially understate the group's real risk exposure and leverage.

Does the related party register go beyond the legal shareholding chart to capture common-control entities, key management personnel and close family members and their controlled entities? Is the nature of each relationship (control, joint control, significant influence, key management) captured as a distinct field alongside the counterparty name? Are related party transactions (purchases, sales, management fees, shareholder current accounts) priced and disclosed even when management asserts they are at market terms?

1. Build and maintain a related party register that goes beyond legal shareholding: include entities under common control, entities significantly influenced by the reporting entity or its key management, and close family members of controlling shareholders/directors and entities they control or jointly control.
2. For every identified related party, capture the nature of the relationship (control, joint control, significant influence, key management personnel, close family member) as a distinct data field, not just the counterparty name.
3. Identify all transaction types with each related party for the period: purchases/sales of goods, management or shared-service fees, loans/current account movements, guarantees given or received, and asset transfers.
4. Confirm that disclosure is made regardless of whether pricing is at arm's length - IAS 24 requires disclosure of the relationship and transaction even when terms are equivalent to market terms; do not scope out transactions merely because pricing looks fair.
5. Separately identify and quantify key management personnel compensation by category (short-term benefits, post-employment benefits, other long-term benefits, termination benefits, share-based payments).
6. Where balances are settled through intercompany/shareholder current accounts, confirm they are presented gross (not netted against unrelated balances) and assess whether off-market terms (e.g. interest-free loans) require a fair value adjustment under the applicable financial instruments standard.

Basis: related party balances and transactions are measured and presented at their transacted (contractual) amounts, gross by counterparty; disclosure is a presentation/disclosure requirement rather than a separate measurement basis in itself. Included: all transaction categories - trading purchases/sales, management and shared-service charges, financing (loans, current accounts, guarantees), and asset transfers - regardless of whether pricing equals market terms. Excluded from netting: related party receivables/payables must not be offset against each other or against unrelated balances unless a legal right of set-off and intention to settle net exist under the applicable offsetting criteria. Re-measurement trigger: where a balance carries off-market terms (e.g. interest-free or below-market-rate loans to/from related parties), assess on initial recognition (and on modification) whether the instrument should be recognized at fair value with the difference treated as a distribution, contribution, or expense/income as appropriate under the relevant financial instruments standard.

Name of the parent and ultimate controlling party (individual or family, where applicable); nature of each related party relationship, not just the counterparty name; amount of transactions by category (purchases, sales, services, loans, guarantees) for the period; outstanding balances by category, their terms and conditions (including whether secured), and any guarantees given or received; provisions for doubtful debts related to related party balances and expense recognized on such balances during the period; key management personnel compensation by component (short-term, post-employment, other long-term, termination, share-based); disclosure presented gross, without netting related party balances/transactions against unrelated ones.

• Netting related party receivables and payables across different affiliates or presenting only a net position
• omitting transactions with entities controlled or significantly influenced by close family members who hold no direct shares in the reporting entity itself
• treating shareholder drawings or personal expenses routed through the company as operating expenses rather than as related party balances/distributions
• disclosing only balances but not the volume of transactions during the period (or vice versa)
• assuming that arm'
• s-length pricing removes the need for disclosure altogether
• failing to identify entities related through key management personnel who also sit on the boards of supplier or customer companies.