Essential guide to FRS 8 : Reporting related parties

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Steve Collings offers a clarification of the financial reporting requirements governing related party disclosures.

The standard governing related party issues, FRS 8 Related Party Disclosures, often causes confusion with preparers of financial statements because of its subjective nature. This article will look at some of the core areas of FRS 8, notably control, common control, influence and common influence.

Related party transactions can take many forms but are usually confined to transactions undertaken in the normal course of business (this is mostly the case with companies in the SME sector). The overall objective of FRS 8, its international counterpart IAS 24, and FRSSE (April 2008) section 15 is to draw attention to the fact that reported financial information may have been i...

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Steven Collings
Audit and Technical Partner
Leavitt Walmsley Associates Ltd
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By Anonymous
09th Oct 2009 13:26

Non Uk registered related parties?

This is a really useful document, thank you. One question, does it still apply if the related party is a company not registered in the UK?

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09th Oct 2009 14:31

Non UK registered related party

Hi,

 If your non UK registered related party meets the definition of a related party under the framework you are reporting under (e.g. FRS/FRSSE) then it does not matter where your related party is situated, it will still be caught under the related party provisions and all material transactions between the reporting entity and its overseas related party will be disclosable.

 Kind regards,

Steve

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By Anonymous
09th Oct 2009 14:50

Related Party Example

Hi,

I have two companies, one owned by the husband (sole director & 100% shareholder) and the other by the wife (sole director & 100% shareholder).

The husbands company manufactures items and sells them on to various retailers one of which is his wife's company. All of the transactions are of a commercial nature with no 'special' terms. The wife also has other suppliers but around 80% is from her Husbands Company.

I am planning not to disclose these as related party transactions as this information may not sit well with the Husbands other customers and therefore prejudice his ability to trade.

15.7 of the FRSSE also states that disclosure of a related party transaction is not required of (c) transactions with the parties listed below simply as a result of their role as (iv) a customer, supplier etc.

Is non-disclosure of these transactions acceptable?

 

Many thanks

 

 

 

 

 

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09th Oct 2009 15:12

Husband/wife run companies

Hi,

I think in your example above, where husband has 100% in his company and wife 100% in hers and both enter into commercial transactions, then you need to be looking at the "close family" provisions (which are quite grey - para 2.1 FRS 8).  The definition of a related party can also apply to close family where those family members could influence the other family member in their dealings with the company. For example, the wife could ask (or maybe demand!!) the husband to supply goods to her at a discount which he would not normally offer other customers in the normal course of business.  In this instance, the wife has influenced the husband and as such would trigger a related party disclosure.

So in answer to your question, you need to establish whether husband and/or wife can (or could be expected to) influence (or be influenced by) one another in their dealings. 

Kind regards,

Steve

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10th Oct 2009 00:37

A fantastic article
A fantaastic article once again from Steve. This has helped me clear a number of problems I knew were not right in the firm I work for.

Thanks for this. It's what we come here for!

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