IAS 24 Related Party Disclosures | Goal, Scope and Purpose

IAS 24 Related Party Disclosures sets out the requirements for disclosing transactions, outstanding balances, and commitments between an entity and its related parties. This lets company audit specialists in Dubai and the UAE properly analyze the financial impact of dealings with parties that aren’t genuinely independent from the reporting entity.

IAS 24 was reissued in November 2009 and applies to annual periods beginning on or after 1 January 2011.

The Goal of IAS 24 Related Party Disclosures

The standard’s purpose is to make sure a UAE entity’s financial statements include disclosures that draw attention to the possibility that its financial position and profit or loss have been affected by related parties, and by transactions, outstanding balances, and commitments with those parties.

Scope of IAS 24

Audit firms in Dubai and other accounting professionals apply the standard to:

• Identifying related party relationships and transactions
• Identifying outstanding balances and commitments between entities and their related parties
• Identifying the circumstances in which disclosure of these items is required
• Determining what disclosures are actually made about them

The standard requires disclosure of related party relationships, transactions, and outstanding balances in the consolidated or separate financial statements of a parent, investor, or other party with significant influence over an investee, presented in accordance with IFRS 10 Consolidated Financial Statements or IAS 27 Separate Financial Statements. IAS 24 applies to individual entity financial statements as well.

An entity’s financial statements need to disclose related party transactions and balances with other entities within its group. Intragroup related party transactions are generally eliminated when preparing the group’s consolidated financial statements. The exception involves investment entities: where a subsidiary is measured at fair value through profit or loss under the IFRS 10 investment entities exception rather than consolidated, transactions with that subsidiary aren’t eliminated, since there’s no consolidation taking place for it in the first place.

Also read: An Audit Firm in Dubai Explanation of the Impact of IFRS 16 on Financial Statements

Key Definitions for Financial Audit Experts to Note

Related Party Transaction

A related party transaction is a transfer of resources, services, or obligations between a reporting entity and a related party, regardless of whether a price is charged for it.

Close Family Members

• Family members who could be expected to influence, or be influenced by, that person in their dealings with the entity
• The person’s children, and their spouses or domestic partners
• Children of the person’s spouse or domestic partner
• Dependents of the person, or of the person’s spouse or domestic partner

Key Management Personnel

Individuals with the authority and responsibility for planning and directing an entity’s activities, whether directly or indirectly.

Government

Refers to government, government agencies, and similar bodies, whether local, national, or international.

Government-Related Entity

A Dubai entity is government-related where it’s controlled, jointly controlled, or significantly influenced by a government in any capacity.

Also check: Statutory Audit Services in Dubai

What Counts as a Related Party?

A related party is a person or entity that is related to the entity preparing its financial statements, the “reporting entity.” A person, or a close family member of that person, is related to the reporting entity if they:

• Control or jointly control the reporting entity
• Have significant influence over the reporting entity
• Are a member of key management personnel of the reporting entity or of its parent

An entity is considered related to a Dubai reporting entity if any of the following conditions apply:

• The two entities are members of the same group, meaning every parent, subsidiary, and fellow subsidiary is related to the others.
• One entity is an associate or joint venture of the other, or of a member of a group the other entity belongs to.
• Both entities are joint ventures of the same third party.
• One entity is a joint venture of a third entity, and the other entity is an associate of that same third entity.
• The entity is a post-employment benefit plan for the employees of either the reporting entity or an entity related to it; if the reporting entity is the sponsoring employer, it’s related too.
• The entity is controlled or jointly controlled by a person identified in the individual-level conditions above.
• A person identified in the individual-level conditions has significant influence over the entity, or is a member of its key management personnel or that of its parent.
• The entity, or a member of the group it belongs to, provides key management personnel services to the reporting entity or to its parent.

Types of Related Parties at a Glance

Category	Example
Individual with control or significant influence	A majority shareholder or founder
Close family members	Spouse, children, or dependents of a controlling individual
Key management personnel	CEO, CFO, or board members directing the entity
Group entities	Parent, subsidiaries, and fellow subsidiaries
Associates and joint ventures	An entity the reporting entity has significant influence or joint control over
Post-employment benefit plans	A pension fund sponsored by the reporting entity

Why Related Party Disclosures Matter

Related party relationships are a normal part of commerce, UAE entities frequently operate part of their business through subsidiaries, joint ventures, and associates. Where an entity holds control, joint control, or significant influence, it can meaningfully shape an investee’s operating and financial policies.

A related party relationship can genuinely affect an entity’s financial position and profit. Related parties sometimes enter into transactions on terms that wouldn’t be available to unrelated parties, a business selling goods to its parent at cost, for instance, might never offer the same price to an outside customer. The timing of related party transactions can also differ from how equivalent transactions between unrelated parties would typically occur.

These transactions, balances, commitments, and relationships can meaningfully affect how financial statement users assess the entity, including how they judge the risks and opportunities it actually faces.

Also read: IAS 34 Interim Financial Reporting and Audit Services Compliance in Dubai, UAE

Worked Example

A Dubai trading company sells inventory to its parent company at cost, with no markup, a pricing arrangement it has never offered to any third-party customer. On its own, this transaction might look unremarkable in the financial statements, but under IAS 24, it needs to be disclosed as a related party transaction, including the nature of the relationship, the transaction amount, and any outstanding balance at year-end. Without that disclosure, a lender reviewing the company’s margins in isolation might assume its pricing reflects normal market terms, when in fact a portion of its revenue is being generated on non-market terms with its own parent.

Also check: Compliance Audit Services in Dubai

Disclosures

Relationships between parents and subsidiaries in Dubai need to be disclosed regardless of whether any transactions actually took place between them. The entity discloses the name of its parent, and where relevant, the ultimate controlling party. If neither the entity’s parent nor its ultimate controlling party produces publicly available consolidated financial statements, the entity discloses the name of the next most senior parent that does.

Also check: External Audit Services in Dubai

Common Mistakes in Applying IAS 24

• Only disclosing transactions, not relationships. Parent-subsidiary relationships require disclosure even where no transactions occurred during the period.
• Missing key management personnel service arrangements. Where an entity provides KMP services to the reporting entity, that relationship qualifies as related, even without a direct transaction otherwise.
• Assuming market-rate pricing doesn’t need disclosure. IAS 24 requires disclosure of related party transactions regardless of whether pricing happens to be at arm’s length.
• Overlooking the investment entity exception nuance. Transactions with subsidiaries measured at FVTPL under the investment entity exception aren’t eliminated the way ordinary intragroup transactions are.

Frequently Asked Questions

Does IAS 24 require disclosure even if a related party transaction happens at market price?

Yes. Disclosure is required regardless of whether the transaction was priced at arm’s length, since the relationship itself, not just unfavorable pricing, is what matters for transparency.

Who counts as key management personnel under IAS 24?

Individuals with authority and responsibility for planning and directing an entity’s activities, whether directly or indirectly, this typically includes executives and board members.

Do parent-subsidiary relationships need to be disclosed even without transactions?

Yes. IAS 24 requires disclosure of the relationship itself, including the name of the parent and ultimate controlling party, whether or not any transactions occurred.

What happens to intragroup related party transactions during consolidation?

They’re generally eliminated, except for transactions with subsidiaries measured at fair value through profit or loss under the investment entity exception, which aren’t consolidated in the first place.

Are close family members of a controlling shareholder considered related parties?

Yes, where they could reasonably be expected to influence, or be influenced by, that person in dealings with the entity, this includes spouses, children, and dependents.

Getting Related Party Disclosures Right

Related party disclosures rarely trip companies up because the relationships are hidden, they trip companies up because a transaction on ordinary-looking terms doesn’t get flagged as related in the first place. Building a clear related party register into the accounting process avoids that gap entirely.

Audit Firms in Dubai can review your related party relationships and confirm your disclosures hold up against IAS 24 before your next audit.