Syllabus D. Audit of Historical Financial Information D2. Evidence

D2fg/D3a. IAS 24 Related Parties 8 / 9

Syllabus D2fg/D3a)

D2f) Explain the specific audit problems and procedures concerning related parties and related party transactions.
D2g) Recognise circumstances that may indicate the existence of unidentified related parties and select appropriate audit procedures.
D3a) Evaluate the matters (e.g. materiality, risk, relevant accounting standards, audit evidence) relating to:
xiii)  related parties

A party is said to be related to an entity if any of the following three situations occur:

The 3 situations are:

  1. Controls / is controlled by entity

  2. is under common control with entity

  3. has significant influence over the entity

Types of related party

These therefore include:

  1. Subsidiaries

  2. Associate

  3. Joint venture

  4. Key management

  5. Close family member of above (like my beautiful daughter pictured in her new school uniform aaahhh)

  6. A post-employment benefit plan for the benefit of employees

Not necessarily related parties

  • Two entities with a director in common

  • Two joint venturers

  • Providers of finance

  • A big customer, supplier etc

Stakeholders need to know that all transactions are at arm´s length and if not then be fully aware.

Similarly they need to be aware of the volume of business with a related party, which though may be at arm´s length, should the related party connection break then the volume of business disappear also.


  • General

    • The name of the entity’s parent and, if different, the ultimate controlling party

    • The nature of the related party relationship

    • Information about the transactions and outstanding balances necessary for an understanding of the relationship on the financial statements

  • As a minimum, this includes:

    Amount of outstanding balances
    Bad and doubtful debt information

  • Key management personnel compensation should be broken down by:

    • short-term employee benefits

    • post-employment benefits

    • other long-term benefits

    • termination benefits

    • share-based payment

Group and Individual accounts

  1. Individual accounts

    Disclose related party transactions / outstanding balances of parent, venturer or investor.

  2. Group accounts

    The intragroup transactions and balances would have been eliminated.