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CFAS - Lec. 10 PAS 24 and 26

This document summarizes the key points of PAS 24 Related Party Disclosures and PAS 26 Accounting and Reporting by Retirement Benefit Plans. PAS 24 requires entities to disclose relationships and transactions between related parties, including key management personnel compensation. It defines related parties and provides examples. PAS 26 provides the accounting and reporting requirements for retirement benefit plans, requiring a statement of net assets for defined contribution plans and various statement presentations for defined benefit plans.

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439 views13 pages

CFAS - Lec. 10 PAS 24 and 26

This document summarizes the key points of PAS 24 Related Party Disclosures and PAS 26 Accounting and Reporting by Retirement Benefit Plans. PAS 24 requires entities to disclose relationships and transactions between related parties, including key management personnel compensation. It defines related parties and provides examples. PAS 26 provides the accounting and reporting requirements for retirement benefit plans, requiring a statement of net assets for defined contribution plans and various statement presentations for defined benefit plans.

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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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PAS 24 Related Party Disclosures

Learning Objectives
• Enumerate examples of related parties.
• Describe the disclosure requirements for related parties.

Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 1


Objective and Scope

• PAS 24 prescribes the necessary disclosures regarding related party


relationships and transactions, outstanding balances and
commitments between an entity and its related parties.

Conceptual Framework & Acctg.


2
Standards (by: Zeus Vernon B. Millan)
Core principle

• The financial position and profit or loss of an entity may be affected


by a related party relationship even if related party transactions do
not occur. The mere existence of the relationship may be
sufficient to affect the transactions of the entity with other parties.
• Necessary disclosures, therefore, should be provided to draw users’
attention to the possible effects of such relationships and
transactions on the financial statements presented.

Conceptual Framework & Acctg.


3
Standards (by: Zeus Vernon B. Millan)
Related parties

• A related party is “a person or entity that is related to the


reporting entity that is preparing its financial statements.” (PAS 24)

• Examples of related parties:


1. Investor and investee relationship where control, joint control or
significant influence exists.
2. Key management personnel
3. Close family member
4. Post-employment benefit plan

Conceptual Framework & Acctg.


4
Standards (by: Zeus Vernon B. Millan)
Definition of terms

• Control – an investor controls an investee when the investor is


exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power
over the investee..
• Significant influence is the power to participate in the financial and
operating policy decisions of an entity, but is not control over those
policies. Significant influence may be gained by share ownership,
statute or agreement.
• Joint control is the contractually agreed sharing of control over an
economic activity.

Conceptual Framework & Acctg.


5
Standards (by: Zeus Vernon B. Millan)
Definition of terms - continuation
• Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the entity, directly or indirectly,
including any director (whether executive or otherwise) of that entity.

• Close members of the family of an individual


a. the individual’s domestic partner and children;
b. children of the individual’s domestic partner; and
c. dependents of the individual or the individual’s domestic partner.

• 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.
 

Conceptual Framework & Acctg.


6
Standards (by: Zeus Vernon B. Millan)
Unrelated parties
• The following are not related parties:
1. Two entities simply because they have a director in common.
2. Two venturers simply because they share joint control over a joint
venture.
3. Providers of finance, trade unions, public utilities, and departments
and agencies of a government that does not control, jointly control
or significantly influence the reporting entity, simply by virtue of
their normal dealings with an entity.
4. A customer, supplier, franchisor, distributor or general agent with
whom an entity transacts a significant volume of business, simply by
virtue of the resulting economic dependence.

Conceptual Framework & Acctg.


7
Standards (by: Zeus Vernon B. Millan)
Disclosure

1. Parent-subsidiary relationship regardless of whether there have been


transactions between them.
2. Key management personnel compensation broken down into the
following categories SPOTS and loans to key management personnel.
3. Related party transactions – nature of transaction and outstanding
balances

• Disclosures that related party transactions were made on terms equivalent


to those that prevail in arm’s length transactions are made only if such
terms can be substantiated.

Conceptual Framework & Acctg.


8
Standards (by: Zeus Vernon B. Millan)
PAS 26 Accounting and Reporting by
Retirement Benefit Plans

Learning Objectives
• State the applicability of PAS 26.
• Describe the accounting and reporting requirements of PAS
26.

Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 9


Applicability

PAS 19 PAS 26
 Applied by an employer  Applied by, for example, a
in (among others) trustee, when preparing
determining the cost of the financial
providing retirement statements of a
benefits. retirement benefit
plan. PAS 26
complements PAS 19.

Conceptual Framework & Acctg.


10
Standards (by: Zeus Vernon B. Millan)
Financial Statements of a Defined
Contribution Plan
• a statement of net assets available for benefits;
• a statement of changes in net assets available for
benefits; and
• accompanying notes to the financial statements

Conceptual Framework & Acctg.


11
Standards (by: Zeus Vernon B. Millan)
Financial Statements of a Defined Benefit
Plan
1. a statement that shows:
a. the net assets available for benefits;
b. the actuarial present value of promised retirement benefits,
distinguishing between vested benefits and non-vested benefits;
and
c. the resulting excess or deficit (PAS 26.17)
or
2. a statement of net assets available for benefits including either:
a. a note disclosing the actuarial present value of promised retirement
benefits, distinguishing between vested benefits and non-vested
benefits; or
b. a reference to this information in an accompanying actuarial
report. (PAS 26.17)

• A statement of changes in net assets available for benefits and


accompanying notes are provided in both (1) and (2) above.
Conceptual Framework & Acctg.
12
Standards (by: Zeus Vernon B. Millan)
END
Conceptual Framework & Acctg. Standards (by: Zeus Vernon B. Millan) 13

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