Related-party disclosure: what to report beyond the closing balance
The supplier statement agrees with the ledger: the business owes £4,000 to a stationery supplier. What the purchase ledger does not show is that the supplier is controlled by the finance director, who is one of the business's key management personnel. Under UK-adopted IAS 24, that makes the supplier a related party, and a reconciled balance is only part of the note. The disclosure covers the relationship, the transactions during the year, outstanding balances, their terms and any guarantees. In this hypothetical, that means reporting £18,000 of purchases, not just the £4,000 still owed.
Why the group list is not enough
IAS 24 paragraph 9 reaches beyond companies in a group. Related parties include people with control, joint control or significant influence over the reporting entity, members of its key management personnel (KMP), their close family members, and entities those people control. Paragraph 10 directs attention to the substance of the relationship, not merely its legal form.
The limits matter as much. Paragraph 11 says two entities are not related simply because they share a director or another KMP member. In this example the relationship comes from the finance director's control of the supplier together with their KMP status. A family connection or a large supplier is not automatically related either; each case turns on the facts.
An intercompany reconciliation covers group companies and supports consolidation, where intragroup transactions are eliminated under consolidation rules (paragraph 4). The finance director's supplier sits outside that list. The example below is for the reporting entity's own standalone accounts, applying the full IAS 24 requirements under UK-adopted IFRS, not FRS 102 or US GAAP.
Sources and context, checked :
The schedule for one supplier
The figures are hypothetical, in pounds, and the transactions are assumed material. There is no tax or transfer pricing analysis here.
Assuming nothing was owed to the supplier at the start of the year, £18,000 of purchases less £14,000 paid leaves the £4,000 payable. A note that reports only the £4,000 hides the size of the trading relationship. Paragraph 18 asks for the nature of the relationship, the amount of the transactions, outstanding balances including commitments, their terms and conditions, details of any guarantees given or received, and any doubtful debt provisions and expense relating to those balances.
| Schedule field | Hypothetical record |
|---|---|
| Relationship | Supplier controlled by a member of the reporting entity's KMP |
| Purchases during the year | £18,000 |
| Cash paid | £14,000 |
| Closing payable | £4,000 |
| Terms | Unsecured, payable within 30 days |
| Guarantees and commitments | Checked separately, not inferred from invoices |
| Arm's length statement | Only with supporting evidence |
Sources and context, checked :
What the ledger will not show
A transaction does not need a price. IAS 24 defines a related party transaction as a transfer of resources, services or obligations, regardless of whether a price is charged, so free use of equipment owned by another related party can still need disclosure. Record its nature and terms and pass them to whoever owns the accounting for it. IAS 24 is a disclosure standard and does not itself supply a measurement entry.
Relationships between a parent and its subsidiaries are disclosed even when no transactions took place (paragraph 13). KMP compensation has its own disclosure, in total and by category (paragraph 17).
Describing terms as equivalent to an arm's length transaction is allowed only when that can be substantiated (paragraph 23). Similar items can be aggregated unless separate disclosure is needed to understand their effects (paragraph 24). The government-related entity exemptions in paragraphs 25 to 27 carry specific conditions and do not apply to this private example. None of this settles tax transfer pricing or directors' duties under company law.
Sources and context, checked :
Cross-check the register
Our suggestion: collect written declarations of interests from directors and other KMP, covering close family and the entities they control, and keep the ownership evidence behind each one. Match the names against the supplier and customer master files, pull the year's transactions and closing balances for every match, check contracts for guarantees and commitments, and have the disclosure owner review the schedule against paragraph 18. Run that match before reconciling any balance, because a reconciliation cannot find a relationship nobody has declared.