Disclosures of Related Party Transactions †Myassignmenthelp.Com

Question: Explain on Disclosures of Related Party Transactions? Answer: Introducation AASB 124 Related Party disclosures prescribed under Section 334 of the Companies Act 2001. Overview This AASB 124 disclose the dealings of the enterprise with related parties including the compensation of key managerial people. Objective [Paragraph 1]: The objective of this standard is to make sure that reporting enterprise must disclose in the financial statements about the profit or loss may have been affected because of the presence of the related parties and the transactions including outstanding balances and commitments between them. Scope [Paragraph 2]: AASB 124 shall be applied in: Identifying the relationship between related parties and transactions. Identifying any outstanding balances and the commitments between related parties and reporting enterprise. Identifying the conditions which required the disclosures of above two points, and Establish the disclosures to be made about those transactions. This standard also requires to disclose related party relationships, transactions, commitments and any outstanding balances in both consolidated financial statements as per AASB 10 as well as standalone financial statements as per AASB 127. The following are not related parties: Only by virtue of high volume of transactions with dealer, supplier, agent etc. these are not related parties to the reporting enterprise (Deloitte, 2017). Joint control shared by two ventures over joint venture. Director or manager is common both entities. Disclosures: Irrespective of the transactions between parent and subsidiary, a reporting enterprise must reveal the parents name and the name of the last parent entity that discloses the financial statements for the public use (Technical Summary, 2012). Disclose total key managerial compensation and each of the following groups: Short-term employee benefits, Post-employment benefits termination benefits share-based payment benefits etc. Rationale of related party disclosures [Paragraph 5]: It is very common for the enterprises to trade with their subsidiary companies, joint ventures and associate companies which will enable the enterprises to affect the monetary and working policies of the investee through the existence of control, joint control or substantial influence. A profit or loss and financial performance of the company are affected by the related party transactions. There are sometimes related parties enter into transactions that would not be possible from other customers such as they sell products to each other at cost which might not be possible to sell products at cost to other customers. Mere existence of the relationship is sufficient to affect the financial position of the enterprise even if related party transactions do not occur at that moment. Knowledge of transactions, balances and commitments with related parties may affect the opinion of its performance by the stakeholders. According to AASB 124, Related parties are defined under Paragraph 9 which are as follows: An entity or a person which is related to the reporting enterprise or can be called as reporting entity. A person or any other member of that persons family is related to reporting enterprise if: That person or close member has control or have a joint control over the reporting enterprise. That person or close member has substantial influence over the reporting enterprise. That person or close member is a key managerial people of the reporting enterprise or of a parent company of that reporting enterprise. An entity and reporting entity are related parties if any of the following conditions are satisfied: Parent and subsidiary companies of entity and reporting entity are related to each other. An entity is an associate or joint venture of one of the entity of the group for which the reporting enterprise is also a member of that entity. Entity and reporting enterprise are the joint ventures of the same third entity. An entity is a joint venture of the third entity for which reporting enterprise is an associate member of that third entity. An entity is a post-employment benefit plans for the advantage of workforce either for itself or for the employees of the reporting enterprise. If the entity is controlled by the person recognized in point (a) above. An entity provides the key managerial people services to the reporting enterprise or to the parent company of the reporting enterprise (Chong and Dean, 1985). According to AASB 124, related party transactions is a transfer of properties, resources, facilities or commitments between reporting enterprise and a related party irrespective of the prices charged. The following examples are related to related party transactions: Buying or issuing of goods whether they are completed goods or incomplete goods. Buying or selling of properties or other assets. Providing or getting of services. Lease arrangements. Transmission under research and development. Disbursement of liabilities by the entity or on behalf of the entity. Transmissions under research arrangements, license arrangements etc. APPLICATION Company Name Name of related party Type of related party Type of related party transactions Amount Mortgage choice ltd* Mc Loan Book Security Pty ltd. 100% Subsidiary Undisclosed Undisclosed Help me choose Pty ltd 100% Subsidiary Undisclosed Undisclosed Mortgage Choice financial planning Pty Ltd 100% Subsidiary Undisclosed Undisclosed J.L. Flavell Key management personnel Undisclosed Undisclosed M.I. Russell Key management personnel Undisclosed Undisclosed S.R. Mitchell Key management personnel Undisclosed Undisclosed A.J. Russell Key management personnel Undisclosed Undisclosed N.C. Rose Innes Key management personnel Undisclosed Undisclosed M.J. Mc Carney Key management personnel Undisclosed Undisclosed Mantle Mining Corporation Ltd Trafford coal Pty ltd 100% Subsidiary Undisclosed Undisclosed Zulu Gold Pty ltd 100% Subsidiary Undisclosed Undisclosed Mt Mulligan Coal Pty Ltd 100% Subsidiary Undisclosed Undisclosed Ian Kraemer and Martin Blakeman Key management personnel Unsecured Interest free loans $ 2,25, 000 Azalea Investments Pty Ltd Winton Willesee is associated with Azalea Investments Pty Ltd Unsecured Interest free loans $ 1,57,947 Stephen De Belle Key management personnel Undisclosed Undisclosed Peter Anderton Key management personnel Undisclosed Undisclosed Mr. Stuart Moore Key management personnel Undisclosed Undisclosed Mr. mark Maxwell Key management personnel Undisclosed Undisclosed MinQuest Ltd Mr. Ian Prentice Key management personnel Rendering of geological services $ 25, 636 Adam Davey Key management personnel Rendering of financial advisory services $ 20, 000 Zephyr Consulting group Pty. Ltd Mr. Ian Prentice is the major shareholder in Zephyr Consulting group Pty. Ltd Providing support services $ 15, 551 In Note 26: Related party transactions of Mortgage choice limited of 2015, it was found that trust has been formed for the employees share scheme. Further, no provisions have been made for bad and doubtful debts in relation to related parties. As per AASB 124, Related party transactions includes transfers of assets, resources, services and commitments between reporting enterprise and a related party (GAAP, 2001). Related parties and the transactions must be disclosed to the Audit committee of the group to confirm that transaction must be entered in normal course of business and at arms length price (Cotter, 2012). Therefore, in above point (a), related parties and the transactions are identified for three companies i.e. MinQuest Mining Ltd, Mantle Mining Corporation Ltd and Mortgage Choice Ltd. These companies have key management personnel, subsidiaries companies etc. For Mortgage Choice Ltd: Mc Loan Book Security Pty Ltd, Help me Choose Pty ltd and Mortgage choice financial planning Pty Ltd are subsidiary companies and considered as related parties and there are also key managerial persons which are also considered as related parties and but during 2015, there are no related party transactions occurred (Mortgage choice limited, 2015). For Mantle Mining Corporation Ltd: Ian Kraemer and Martin Blakeman are Key Management Personnel of the company and are considered as related parties and they have given interest free loans to the company at $ 2, 25, 000 which is given at a price less than the market value. In addition to this, company has also issued securities to them (Martin Blakeman: 4257860 and Ian Kraemer: 161577). Remaining four key management personnel are also related parties but there are no transactions occur for the year ended 2015. Trafford Coal Pty Ltd, Zulu Gold Pty Ltd and Mt Mulligan Pty Ltd are subsidiary companies and also considered as related parties. In addition to this, Azalea Investments Pty ltd has given unsecured interest free loans for $ 157947. Thus, it has been seen that related party transactions are occurred at arms length price (Mantle Mining Corporation limited, 2015). For MinQuest Ltd: Mr. Ian Prentice is the key managerial person and he has rendered Geological services of $ 25,636. Mr. Adam Davey is also a key managerial person and he has also rendered financial advisory services of $ 20,000. Mr. Zephyr Consulting group Pty. Ltd has rendered support services of $ 15,551. Hence, it is seen that all the transactions between related parties are occur at arms length price (MinQuest Limited, 2015). Disclosure requirements of AASB 124 are given under paragraph 13-27. Entity has to disclose the relationship between parent and its subsidiary companies even if there are no dealings between them so that users of financial statements form an opinion about the consequence of related party relationship and these disclosures must be in addition to AASB 127 and AASB 12 (Walker and Robinson, 1994). It is also given in the AASB 124 that nature of related party transactions including amount of outstanding balances, amount of bad debts and the related expense of bad debts (AASB 124). Thus by relating to the above three companies it is observed from the annual report of 2015 that all the transactions between related parties including the nature of relationship are properly disclosed by the company as per AASB 124. References AASB 2015, related party disclosures, viewed on 25 May 2017 from https://www.aasb.gov.au/admin/file/content105/c9/AASB124_07-15.pdf. Chong, S. and Dean, G. 1985, related party transactions: A preliminary evaluation of SFAS 57 and IAS 24 using four case studies, Abacus, vol.21, no.1, pp.84-100. Cotter, D. 2012, Advanced financial reporting: A complete guide to IFRS, financial times. Deloitte 2017, IAS 124 Related party disclosures, viewed on 25 May 2017 from https://www.iasplus.com/en/standards/ias/ias24. Technical Summary 2012, IAS 124 Related party disclosures, viewed on 25 May 2017 from https://www.ifrs.org/Documents/IAS24.pdf. Walker, R.G. and Robinson, S.P. 1994, related party transactions: A complete case study of inter-organizational conflict over the development of disclosure rules, Abacus, vol.30, no.1, pp. 18-43. Leuz, C. and Verrecchia, R.E. 2000, the economic consequences of increased disclosure (digest summary), journal of accounting research, vol.38, no.3, pp.91-124. GAAP, U. and Australian, GAAP 2001, International accounting standards. Mantle mining Corporation Ltd 2015, 2015 annual report, viewed on 25 May 2017 from https://mantlemining.com/wp-content/uploads/2016/06/151021-MNM-ASX-Release-Annual-Report-to-Shareholders.pdf. Mortgage Choice 2015, annual report, viewed on 25 May 2017 from https://www.mortgagechoice.com.au/media/3805992/150827_MC_AR_v13.pdf. MinQuest Limited 2015, Financial report, viewed on 25 May 2017 from https://www.aspecthuntley.com.au/asxdata/20160315/pdf/01722679.pdf