IAS 24 – Related Parties Disclosure Explanation with Examples

A related party is defined as a person or entity that is related to the entity that is preparing its financial statements (IAS 24, para 9). IAS 24 gives the following rules which should be used to determine the existence of related party relationships:

(a) A person or a close member of that person’s family is related to a reporting entity if that person:

(i) has control or joint control of the reporting entity

Example: Ms. Ananya owns 65% of the voting shares in Tata Electronics

• Result: Ms. Ananya is a related party to Tata Electronics because she holds outright control. Furthermore, if her spouse or child sells a building to Tata Electronics, that transaction must be disclosed because close family members inherit this related-party status.

(ii) has significant influence over the reporting entity

• Example: Mr. Rohan owns a 25% voting stake in Jamanagar Refinery and holds a seat on the board. He cannot force decisions alone, but his voice carries significant weight.
• Result: Mr. Rohan is a related party to Jamnagar Refinery due to his significant influence.

(iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

Example: Ms. Priya is hired as the Chief Financial Officer (CFO) of Tata Electronics.

• Result: Ms. Priya is a related party to Tata Electronics because she is a member of its KMP. If the company provides her with a low-interest personal loan, it must be disclosed.

(b) An entity is related to a reporting entity if any of the following conditions apply:

i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

Example (The Tata Group Hierarchy):

• Tata Sons is the ultimate Parent Company.
• Tata Sons owns 100% of  Tata Electronics (Subsidiary 1).
• Tata Sons owns 100% of Tata Motors (Subsidiary 2).
• Result: Tata Electronics and Tata Motors are related parties to each other because they are “fellow subsidiaries” under the exact same parent. Both are also related to Tata Sons.

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

Example:

• Tata Electronics buys a 30% stake in a specialized microchip research firm called Silicons, making Silicon Labs an Associate.
• Result: Tata Electronics and Silicon Labs are now related parties. If Tata Electronics buys microchips from Silicon Labs, the financial details must be explicitly flagged in the financial statements.

(iii) Both entities are joint ventures of the same third party.

Example

Imagine three companies operating in the electric vehicle (EV) sector:

1. Nvidia (The common third party)
2. Drivitech Auto  (An autonomous driving software firm)
3. Corevolt (A next-generation solid-state battery manufacturer)

The Relationship Matrix

• Nvidia enters a 50/50 joint partnership with a car manufacturer to create DriveTech Auto. Because of the 50% split and shared board control, DriveTech Auto is a Joint Venture of Nvidia.
• Nvidia simultaneously partners with a mining conglomerate to launch CoreVolt Batteries, splitting ownership and control 50/50. Therefore, CoreVolt Batteries is also a Joint Venture of Nvidia.
• Even if DriveTech Auto and CoreVolt Batteries have completely different management teams, separate offices, and no shared equity stakes in each other, they are related parties.

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

Example

• Wipro has joint control over Tata Electronics (making it a Joint Venture).
• Wipro also owns a 30% voting share in Jamnagar Refinery, giving it significant influence without full or joint control (making it an Associate).
• Result: Tata Electronics and Jamnagar Refinery are related parties to each other because they are tied together by Wipro’s influential umbrella.

(v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.

Example :

• Tata Electronics establishes Tata Pension Trust to manage and pay out retirement benefits to its staff.
• Result: The Pension Trust is a related party to Tata Electronics. If Tata Electronics contributes cash to the trust, or if the trust invests money back into Tata Electronics shares, these transactions must be clearly disclosed.

(vi) The entity is controlled or jointly controlled by a person identified in (a).

Example

• Mr. Ratan holds 60% of the voting shares in Tata Electronics (giving him individual control).
• Result: Because Mr. Ratan controls it, Tata Electronics becomes a related party to any other business Mr. Ratan controls, as well as to Mr. Ratan himself and his close family members.

(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Example

• Mr. Ratan controls Tata Electronics (owns 60% of it).
• Mr. Ratan is also hired as the Chief Executive Officer (CEO) of Jamnagar Refinery, or he buys a 25% stake in it.
• Result: Tata Electronics and Jamnagar Refinery are now related parties because Mr. Ratan’s presence allows information, influence, and strategic alignment to flow between both companies.

(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.’

• Example
  • Jamnagar Refinery does not hire its own executive board directly. Instead, it signs a corporate contract with Tata Electronics to have Tata’s executive team manage Jamnagar’s day-to-day corporate strategy and operations.
  • Result: Tata Electronics is a related party to Jamnagar Refinery because it acts as the institutional “brain” providing key management services to it.

Exceptions :

In the definition of a related party, ‘an associate includes subsidiaries of the associate and a joint venture includes subsidiaries of the joint venture.

IAS 24 notes that the following should not be considered related parties:

1. two entities just because they have a director or other member of key management personnel in common

Example: If Director A sits on the board of both Company X and Company Y, this fact alone does not make Company X and Company Y related parties. There must be actual significant influence or control exerted between the two companies for them to be related.

2. two joint venturers just because they share joint control of a joint venture

Example: If Company A and Company B together own and run a third company (a Joint Venture), Company A and Company B are not automatically related to each other outside of that venture. They are simply business partners in a specific project.

3. a customer or supplier with whom an entity transacts a significant volume of business.

Substance over form should be applied when deciding if two parties are related.

Close members of family include:

• that person’s children and spouse or domestic partner

• children of that person’s spouse or domestic partner

• dependants of that person or that person’s spouse or domestic partner