In plain words
Retail groups often lease stores from, or buy from, family-owned affiliates. The question is what IAS 24 requires. These transactions are recorded at actual amounts under the normal standard, such as IFRS 16 for a lease. IAS 24 does not restate them to fair value; it requires disclosure of the relationship, transactions, balances and terms, including whether they are arm's length, and key management pay by category.
Why it matters
Retail groups in Saudi Arabia are frequently structured around family ownership or broader conglomerates that also own the real estate, logistics, financing, or supply businesses the retailer transacts with, so related party relationships are pervasive rather than exceptional. IAS 24 does not change how a transaction is recognized or measured in the retailer's own financial statements, but it forces transparency about relationships and terms that could otherwise mask self-dealing, transfer pricing distortions, or preferential terms that would not be available to unrelated counterparties. Investors, lenders, and regulators rely on IAS 24 disclosures to assess whether reported profitability and asset values are being influenced by non-arm's-length arrangements, making this a governance-sensitive area with reputational and, in listed or bond-issuing entities, regulatory consequences (e.g., Capital Market Authority related party rules layered on top of IFRS). Because related party relationships can be indirect (through family trusts, holding companies, or common directors) they are also a common area of financial statement fraud and misstatement risk, so identification is as important as measurement.
Diagnostic questions
Does the retailer purchase inventory, lease store premises, or receive services from entities under common control or significant shareholder influence? Have transaction terms been compared to arm's-length market terms, even though IAS 24 does not require remeasurement to a hypothetical arm's-length amount? Is key management personnel compensation completely captured, including amounts paid via the parent or through non-cash benefits?
Recognition
- Map the full related party universe at each reporting date: parent and ultimate controlling party, subsidiaries and fellow subsidiaries, associates and joint ventures, key management personnel (KMP) of the entity or its parent, and close family members of KMP and entities they control, jointly control, or significantly influence.
- For a retail group, specifically check real estate/leasing entities, logistics or distribution companies, and key suppliers for common ownership or directorships, even where the retail entity has no direct equity stake in them.
- Capture every transaction and outstanding balance with identified related parties regardless of whether pricing appears to be at arm's length - IAS 24 disclosure is triggered by the relationship and the transaction, not by whether terms look unusual.
- Distinguish disclosure (an IAS 24 requirement) from recognition and measurement of the underlying transaction, which follows the applicable standard for that transaction (e.g., IFRS 16 for a lease, IFRS 15 for a sale) exactly as it would for an unrelated party - IAS 24 does not require restating related party transactions to fair value in the primary statements.
- Aggregate and disclose key management personnel compensation by category (short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits, share-based payments) rather than as a single lump sum.
- Reassess the related party map at least annually and whenever ownership, directorship, or family relationships change.
Measurement
Related party transactions are recorded in the financial statements at the amount actually transacted (e.g., actual rent charged, actual price invoiced) - IAS 24 does not require or permit remeasuring them to a hypothetical arm's-length amount in the primary statements. However, the disclosure must state the terms and conditions, including whether they are equivalent to those prevailing in arm's-length transactions, which requires the preparer to actually benchmark the related party terms against comparable market terms (e.g., comparable third-party mall rents per square meter) to make that assertion credibly. Where a related party transaction is unusual in nature or terms compared to normal business dealings, additional judgment is needed on whether separate line-item disclosure (rather than aggregation with similar transactions) is warranted for understandability.
Presentation & disclosure
Identity of the parent and ultimate controlling party (even if no transactions occurred); nature of each related party relationship; amounts of transactions during the period by category (purchases, sales, leases, management fees, financing) and by type of related party; outstanding balances at period end, their terms and conditions (including whether secured and the nature of consideration to be provided in settlement), and any guarantees given or received; provisions for doubtful debts related to outstanding related party balances and any expense recognized for bad or doubtful debts; key management personnel compensation split by category; a statement of whether related party transactions were made on terms equivalent to arm's-length transactions, with the basis for that assertion.
Common mistakes
- Omitting store leases with shareholder-owned real estate entities from related party disclosures because the lease is accounted for under IFRS 16 and the preparer treats it as '
- just a lease'
- rather than also flagging the relationship
- failing to identify related suppliers or landlords where ownership is indirect through family holding companies, trusts, or nominee arrangements
- incomplete key management compensation disclosure that omits benefits-in-kind, share-based payments, or compensation paid by the parent on the entity'
- s behalf
- asserting terms are '
- equivalent to arm'
- s length'
- without actually benchmarking against comparable market transactions
- aggregating all related party balances into one figure without disaggregating by category and counterparty type as required
- treating IAS 24 as requiring adjustment of the transaction to fair value in the financial statements, which is not what the standard requires.
Simple example
A retail group leases 15 flagship stores from a real estate company owned by the same family shareholders, at a rent 20% above comparable third-party mall rates. The lease itself is accounted for under IFRS 16 exactly as any other lease would be - recognizing a right-of-use asset and lease liability at commencement, with subsequent depreciation of the ROU asset and interest on the lease liability - and IAS 24 does not change that recognition or measurement. What IAS 24 requires is that the relationship, the rent terms, the fact they exceed comparable third-party rates, and the outstanding lease liability balance are disclosed as related party information. Illustrative periodic entry for one such store (assume monthly lease liability interest of SAR 8,000 and principal reduction of SAR 25,000, disclosed as a related party lease - this is the ordinary IFRS 16 entry, not a special IAS 24 entry): Dr Lease liability 25,000 Dr Interest expense on lease liability 8,000 Cr Cash 33,000 The related party note separately discloses: relationship (common family ownership), annual rent charged across the 15 stores, the outstanding lease liability balance, and a statement that the rent is not on arm's-length terms because it is 20% above comparable market rates.
Professional judgment
Identifying indirect related parties through complex family trusts, nominee shareholders, or cross-directorships across a conglomerate's many entities requires judgment and often legal/corporate-structure input beyond what accounting records alone reveal. Assessing whether disclosed terms are genuinely 'equivalent to arm's length' is also judgmental, since finding a truly comparable third-party transaction (same location, size, lease term, market conditions) is rarely exact, and preparers must decide how much benchmarking evidence is sufficient to support the assertion. A further judgment area is materiality and aggregation: deciding which related party transactions warrant separate disclosure versus aggregation into a category, balancing informativeness against clutter, especially in large conglomerates with many related entities.
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.