This project is funded by EU

IAS 24 Related Parties

 Related Parties

PREFACE CONTENTS
This series of workbooks has been written by the project team of the European
Union project Accounting Reform II in the Russian Federation.
2. INTRODUCTION.......................................................................3
The workbooks cover the concepts of International Financial Reporting
Standards (‘IFRS’). They are intended to be practical self-instruction aids 2. DEFINITIONS............................................................................4
that practicing accountants can use to upgrade their knowledge, understanding
and skills.
3. DISCLOSURE...........................................................................7
Each workbook is designed for a maximum of three hours of study.

Each workbook is a combination of: 5. MULTIPLE CHOICE QUESTIONS..........................................16

 Information with examples

 Self Test Questions – Multiple choice and Exercises 6. CASE STUDIES......................................................................17
 Answers to Self Test Questions
7. ANSWERS ..............................................................................17
The members of the project team were contributed by PricewaterhouseCoopers
and Rosexpertiza, Moscow.
8. ANSWERS TO CASE STUDIES.............................................18
The Workbook Series consists of a range of titles listed on our website.

The copyright of the material contained in each workbook belongs to the 1.

European Union and, according to its policy, may be used free of charge for any
non-commercial purpose.

The project team would like to express thanks to those who have contributed
their time and thoughts to the content of the workbooks.

Contact

e-mail Web
natalia.lelyavina@ru.pwc.com www.accountingreform.ru
Tel. + 7 095- 967-6047 Fax. + 7 095- 967-6001

Moscow, Russia, December 2003

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2. Introduction
AIM
The aim of this workbook is to assist the individual in understanding Related
Party Disclosures according to IFRS.
OBJECTIVE
Related Party Disclosures are the subject of International Accounting Standard
24. The standard is short, but has a major impact on the level of disclosure in
financial statements.
Financial statements must contain the disclosures necessary to highlight the
possibility that an undertaking’s financial position and its profit, or loss, may
have been affected by the existence of related parties, and by transactions and
outstanding balances with such parties.
Disclosure must be made of the existence of the related party relationships
where control exists, even though there have been no transactions.
To achieve this, you need to identify who are the related parties of the
undertaking, and then trace the transactions and balances incurred with them.
SCOPE
The standard will be applied in:
1. Identifying related party relationships and transactions;
2. Identifying outstanding balances between an undertaking and related
parties;
3. Identifying when the disclosures should be made; and
4. Determining what disclosures should be made.
The standard relates to separate financial statements of undertakings, parent
companies, venturers, investors and consolidated groups.
Groups of companies
Members of the same group are considered to be related parties. Their
intragroup transactions and balances are disclosed in the financial statements
of the individual undertakings, but eliminated on consolidation.
Related Parties
Purpose of related party disclosures
Related party relationships are a normal feature of business throughout the
world. Trading often takes place through subsidiaries, associates and joint
ventures. The parent can control, or influence the financial and operating
policies of the investee, especially in terms of pricing and credit terms.
The related party relationships can have an impact on the profit, or loss, of an
undertaking. Transactions may be made that would not be made with
unrelated parties, or on different terms or prices, than would have been made
with unrelated parties.
The profits and financial position of an undertaking may be affected, even if no
transactions occur between the related parties. A parent company can give
instructions to other members of a group that could limit the commercial
actions of those other group members.
Example
Parent companies may limit the trade of a subsidiary to one country, limit its
product range, or insist that no local research and development is carried
out. Some car manufacturers in Western Europe make different parts of cars
in different countries, so that no one country makes all the parts. This
provides flexibility when negotiating with unions and governments, as the
companies can threaten to move production to another country to wring
concessions from the unions and governments. Due to the central control of
their parents, these local subsidiaries cannot operate like independent firms.
Knowledge of the related parties, their transactions and balances may impact
the assessments of the undertakings by the users of financial statements,
especially assessments of risks and opportunities facing the undertaking.
Example
A bank may give a loan to an independent firm, knowing that the loan will be
used for the firm’s business. A similar loan to a subsidiary company may be
used to finance its parent’s business, or the business of other group
companies, thus increasing the bank’s risk in making the loan.
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Example
A bank finances a company constructing apartment blocks. The extent of the
banks involvement may indicate that it effectively controls the construction
company. The construction company cannot therefore be treated as a
normal part of the banks credit portfolio and related party disclosures should
be made.
Example
In some countries a group may include a bank which finances group
activities on special terms (a pocket bank). The rationale is that the bank is
exists primarily to finance group activities so the normal risk evaluation
procedures may be waived for group members.
The existence of the relationship and the extent and nature of the
transactions should be disclosed.
2. Definitions
RELATED PARTY
In summary, a related party is a major shareholder, group company, key
manager or pension fund. Close relatives of
people in this list are included to ensure full compliance.
Pension funds are often managed by key management personnel of a
company. Funds may become shareholders in a company. These and other
financial transactions may have a material impact on a firm’s financial
situation, and may be open to manipulation.
Example
A major shareholder insists that his wife’s firm has a monopoly of the
undertaking’s export sales. His wife is a related party by virtue of being a
close relative of a major shareholder, who has demonstrated his ability to
significantly influence the commercial policy of the undertaking.
The detailed definition of a related party is as follows:
The party may be an individual, or a firm. It may be a shareholder, parent or
group company.
A party is related to an undertaking if:
(1) directly, or indirectly through one or more intermediaries, the
party:
Related Parties
(i) controls, is controlled by, or is under common control with,
the undertaking (this includes parents, subsidiaries and
fellow subsidiaries);
(ii) has an interest in the undertaking that gives it significant
influence over the undertaking; or
(iii) has joint control over the undertaking;
(2) the party is an associate of the undertaking;
(3) the party is a joint venture in which the undertaking is a venturer;
(4) the party is a member of the key management personnel of the
undertaking, or its parent;
(5) the party is a close member of the family of any individual referred to in (1)
or (4);
(6) the party is an undertaking that is controlled, jointly controlled or
significantly influenced by or for which significant voting power in such
undertaking resides with, directly or indirectly, any individual referred to in
(4) or (5); or
(7) the party is a post-employment benefit plan (pension fund) for the benefit
of employees of the undertaking, or of any undertaking that is a related
party of the undertaking.
Related party transaction
A related party transaction is a transfer of resources, services, or obligations
between related parties, regardless of whether a price is charged.
Example
A parent company may provide some of its key staff to a subsidiary without
cost. The subsidiary is being subsidised at the expense of the parent.
Close members of the family of an individual
Close members of the family of an individual are those family members who
may be expected to influence, or be influenced by, that individual in their
dealings with the undertaking. They may include:
(1) the individual’s domestic partner and children;
(2) children of the individual’s domestic partner; and
(3) dependants of the individual or the individual’s
domestic partner.
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Example
Adopted children would be included as close family members. Companies
and investment vehicles owned by family members would also be
considered as related parties, if they had any interaction with the
undertaking.
Close family members are included to avoid related parties disguising their
activities by using family members.
COMPENSATION
Compensation includes all employee benefits, including payments in kind,
such as the provision of a company car. Employee benefits are all forms of
consideration paid, payable or provided by the undertaking, or on behalf of the
undertaking, in exchange for services rendered to the undertaking. It also
includes such consideration paid on behalf of a parent of the undertaking in
respect of the undertaking.
The following classifications of compensation are important, as disclosure of
compensation has to be shown under these 5 headings, and in total.
Compensation includes:
(1) short-term employee benefits, such as wages, salaries and social security
contributions, paid annual leave and paid sick leave, profit-sharing and
bonuses (if payable within twelve months of the end of the period) and non
monetary benefits (such as medical care, housing, cars and free or
subsidised goods or services) for current employees;
(2) post-employment benefits such as pensions, other retirement benefits,
post-employment life insurance and post-employment medical care;
(3) other long-term employee benefits, including long-service leave or
sabbatical leave, jubilee or other long-service benefits, long-term disability
benefits and, if they are not payable wholly within twelve months after the
end of the period, profit-sharing, bonuses and deferred compensation;
(4) termination benefits; and
(5) equity compensation benefits.
Related Parties
Example
Your chief executive is fired. To settle his contractual claims, your firm pays
him $200.000, plus provide a car for the next 3 years, valued at $10.000 per
year. This information will be detailed as termination benefits.
Compensation to your management team includes both the right to buy a
specific number of shares at a discount price to that of the market, and a
share option scheme, which allows participants to fix the price today of
future share purchases. Both will be detailed under equity compensation
benefits.
Compensation may not be paid to the individual directly.
It may be paid to another firm, but must be shown in the same manner, with a
note detailing to whom it is paid.
Example
Among your directors are 2 people who are not paid directly by the
undertaking. Their directors’ fees are paid to their employers. Ivan is an
architect, and his firm receives $30.000 for his services. Elena works for the
government, and you pay the government $35.000 for her services. No other
compensation is paid in respect of them by your undertaking.
Both amounts will be disclosed, next to the names of Ivan and Elena,
together with the fact that the money is paid to the architect’s firm and the
government respectively.
There is no difference in presentation whether Ivan and Elena receive the
money from their employers, or not. Nor is there any difference in
presentation if it is not known whether they receive the money.
CONTROL
Control is the power to govern the financial and operating policies of an
undertaking so as to obtain benefits from its activities.
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Example
The government has a small shareholding in your defence company, but has
the right to appoint, and dismiss all directors. The government has control,
even if it decides not to exercise it. It may let the company appoint its own
directors, but retains the right to dismiss any directors it chooses. The
benefits the government derives from this structure may be political, rather
than economic. The control may be needed to avoid the company being
controlled by a foreign power.
JOINT CONTROL
Joint control is the contractually-agreed sharing of control over an economic
activity.
Example
You have a joint-venture agreement with a foreign sales agent. You provide
the goods, which your agent sells in a foreign territory.
The agreement identifies the product range, promotional material,
management support, limit of the sales area, and transfer price.
You share the profits, with 40% coming you, 60% to the agent.
This is an example of joint control.
KEY MANAGEMENT PERSONNEL
This includes all directors and their equivalents.
It also includes persons having authority and responsibility for planning,
directing and controlling the activities of the undertaking, directly or indirectly.
Example
Executives from your parent company may give instructions to your staff in
important matters, such as strategic planning and treasury functions. For
your company, these are key management personnel.
SIGNIFICANT INFLUENCE
Significant influence is the power to participate in the financial and operating
policy decisions of an undertaking, but is not control over those policies.
Significant influence may be gained by share ownership, statute or agreement.
Related Parties
Example
Significant influence may be reflected in board membership, and/or a
substantial shareholding of between 20% and 50%. A majority shareholding
is more than a significant influence, as at would yield control, in most
circumstances.
In considering each possible related party relationship, attention is directed to
the substance of the relationship and not merely the legal form.
The following are not necessarily related parties:
(1) a client, supplier, franchisor, distributor, or general agent with whom
an undertaking transacts a significant volume of business, merely by
virtue of the resulting economic dependence.
(2)
 providers of finance, such as banks,
 trade unions,
 public utilities, and
 government departments and agencies,
simply by virtue of their normal dealings with an undertaking (even though they
may affect the freedom of action of an undertaking, or participate in its decision
making process); and
(3) two venturers simply because they share joint control over a joint
venture.
Example
You set up a foreign representative office with a firm from an unrelated
business. The joint venture is structured in order to share the costs of the
office. The other firm is unlikely to be a related party.
(4) two undertakings simply because they have a director or other
member of key management personnel in common,
notwithstanding (4) and (6) in the definition of ‘related party’.
Example
2 of your directors are also directors of a government –sponsored
export insurance firm. Your firm does not export any goods or services. The
directors are in a minority on the insurance firm’s board, and their role is
advisory. The insurance firm is unlikely to be a related party.
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 Related Parties

3. Disclosure (2)
(3)
post-employment benefits;
other long-term benefits;
(4) termination benefits; and
Relationships between parents and subsidiaries shall be disclosed,
(5) equity compensation benefits.
irrespective of whether there have been transactions between those related
parties. An undertaking shall disclose the name of the undertaking’s parent
If there have been transactions between related parties, an undertaking shall
and, if different, the ultimate controlling party.
disclose the nature of the related party relationship as well as information
about the transactions and outstanding balances necessary for an
Example understanding of the potential effect of the relationship on the financial
If the undertaking’s parent is itself a subsidiary of another company, the statements.
parent is not the controlling party. It is necessary to establish which company
is at the top of the group structure to identify the controlling party. These disclosure requirements are in addition to the requirements to disclose
key management personnel compensation. At a minimum, disclosures shall
If neither the undertaking’s parent nor the ultimate controlling party produces include:
financial statements available for public use, the name of the next most senior (1) the amount of the transactions;
parent that does so shall also be disclosed. (2) the amount of outstanding balances and:
(i) their terms and conditions, including whether they are
To enable users of financial statements to form a view about the effects of secured, and the nature of the consideration to be provided in
related party relationships on an undertaking, it is appropriate to disclose the settlement; and
related party relationship when control exists, irrespective of whether there (ii) details of any guarantees given or received;
have been transactions between the related parties. (3) provisions for doubtful debts related to the amount of outstanding
balances; and
This is especially true of groups of companies, where a parent can decide the (4) the expense recognised during the period in respect of bad or
operating and financial strategies of other group members. doubtful debts due from related parties.

The identification of related party relationships between parents and Example

subsidiaries is in addition to the disclosure requirements in IAS 27, IAS 28 and In addition to the standard compensation recorded for the key management
IAS 31, which require an appropriate listing and description of significant personnel, 3 executives have subsidised loans for $50.000, $65.000 and
investments in subsidiaries, associates and jointly controlled undertakings. $95.000. These will be disclosed, with the detailed terms of the loans. Any
overdue repayment of any loan will also be noted.
When neither the undertaking’s parent nor the ultimate controlling party The loans would also be detailed, even if the rates were not subsidised.
produces financial statements available for public use, the undertaking
discloses the name of the next most senior parent that does so. The next most
The disclosures shall be made separately for each of the following categories:
senior parent is the first parent in the group above the immediate parent that
(1) the parent;
produces consolidated financial statements available for public use.
(2) undertakings with joint control or significant influence over the
undertaking;
An undertaking shall disclose key management personnel compensation
(3) subsidiaries;
in total and for each of the following categories, which are detailed in the
(4) associates;
definition of ‘Compensation’ above:
(5) joint ventures in which the undertaking is a venturer;
(1) short-term employee benefits;
(6) key management personnel of the undertaking or its parent; and
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 Related Parties

(7) other related parties, including major shareholders. Related party transactions
The Company is controlled by Parent Ltd (incorporated in [name of country])
The classification of amounts payable to, and receivable from, related which owns 51% of the Company’s shares. The remaining 49% of the shares
parties in the different categories as required in this paragraph is an are widely held. The ultimate parent of the Group is Ultimate Parent Ltd
extension of the disclosure requirement in IAS 1 Presentation of Financial (incorporated in [name of country]).
Statements for information to be presented either on the balance sheet or The following transactions were carried out with related parties:
in the notes.
i) Sales of goods and services
The categories are extended to provide a more comprehensive analysis of 2002 2001
Sales of goods:
related party balances and apply to related party transactions.
[Name(s) of joint venture(s)} 618 557
[Name(s) of associate(s)} 168 93
The following are examples of transactions that are disclosed if they are
Household Paints Ltd 337 279
with a related party:
1,123 929
(1) purchases or sales of goods (finished or unfinished);
Sales of services:
(2) purchases or sales of property and other assets; Parent Ltd (legal services) 67 127
(3) rendering or receiving of services; Ultimate Parent Ltd (consultation services) 84 69
(4) leases; [Name(s) of associate(s)] 16 35
(5) transfers of research and development; 167 231
(6) transfers under license agreements;
(7) transfers under finance arrangements (including loans and
equity contributions in cash or in kind); Sales to the joint ventures were carried out on commercial terms and
(8) provision of guarantees or collateral; and conditions and at market prices.
(9) settlement of liabilities on behalf of the undertaking or by
the undertaking on behalf of another party. Sales to Household Paints Ltd are based on a long-term agreement, which
enables Household Paints Ltd to purchase certain goods slightly under the
Disclosures that related party transactions were made on terms equivalent to normal sales price. Household Paints Ltd is a firm belonging to the wife of E
those that prevail in arm’s length transactions are made only if such terms can Choo, a director of the Company.
be substantiated.
As an average the goods were sold at 5% under the normal sales price in
Items of a similar nature may be disclosed in aggregate, except when separate 2002 (4% under the normal sales price in 2001). Sales to the associated
disclosure is necessary for an understanding of the effects of related party undertakings and to Parent Ltd and Ultimate Parent Ltd were carried out at
transactions on the financial statements of the undertaking. cost.

1 December 2002
Sample Accounting Note –
Taken from Illustrated Corporate Financial Statements 2002 – PWC

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 Related Parties

ii) Purchases of goods and services 2002 2001

Purchases of goods
Sister Ltd 83 70
[Name(s) of associate(s)] 54 58
137 128
Purchases of services
Parent Ltd (management services) 89 94
Haven Ltd (consultation services) 206 174
295 268

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 Related Parties

Sister Ltd is a fellow subsidiary of Parent Ltd. Haven Ltd is owned by P

Wallace, the Managing Director of Ultimate Parent Ltd.

The above transactions were carried out on commercial terms and conditions,
except for the goods and services purchased from the associated undertaking
and from Parent Ltd, which were at cost. There were no purchases from the
joint ventures.

iii) Year-end balances arising from sales/purchases of goods/services

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 Related Parties

2002 2001
Receivables from related parties:
[Name(s) of joint venture(s) 26 23
[Name(s) of associate(s)] 54 46
Household Paints Ltd 14 11
Parent Ltd 14 17
108 97

Payables to related parties:

[Name(s) of associate(s)] 2,202 1,195

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 Related Parties

2002 2001
iv) Loans from related parties Loan from Ultimate Parent Ltd:
At the beginning of year 2,300 2.495
Repaid during the year (2,300) (195)
At the end of the year - 2,300

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 Related Parties

The loan from Ultimate Parent Ltd was provided interest free, and there was
no specified repayment date.

v) Loans to directors

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 Related Parties

2002 2001
Loans to the directors of the Company (and their
families)
At the beginning of year 196 168
Loans advanced during the year 343 62
Loan repayments received (49) (34)
At the end of the year 490 196

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 Related Parties

2002 2001
In 2002, loans were advanced to B van der Hoek At the beginning of year 660 674
of Local Currency 173; repayable monthly over two years; Loans advanced during the year - 50
interest rate 7.7% and to J Kelly of Local Currency 170; repayable monthly Loan repayments received (70) (64)
over two years; interest rate 7.7%. At the end of the year 590 660

In 2001 loans were advanced to T Ferreira of Local Currency 42; repayable in

2003; interest rate 7.5% and to Y Sovgyra of Local Currency 20; repayable in The loans to associates were given on commercial terms and conditions. The
2002; interest rate 7.6%). The loans were given on commercial terms and related interest income was
conditions. Local Currency 36 (2001: Local Currency 38).

The related interest income in 2002 was Local Currency 30 (2001: Local The loans are due on 1 January 2004 and carry interest at 7.0%.
Currency 16). No provision has been required in 2002 and 2001 for the loans No provision has been required in 2002 and 2001 for the loans made to
made to directors. associated undertakings.

Certain loans advanced to directors during the year amounting to
Local Currency 50 (2001: Local Currency 30) are secured by shares in listed
companies, which are held as collateral for these loans, and are repayable in
monthly instalments over four year terms.
The fair value of these shares was Local Currency 65
at the balance sheet date (2001: Local Currency 39).
viii) Share options granted to directors
The aggregate number of share options granted to the directors of the
Company during 2002 was 125 (2001: 175). The share options were given on
the same terms and conditions as those offered to other employees of the
Company.

vi) Directors’ remuneration The outstanding number of share options granted to the directors of the
Company at the end of the year was 480 (450 at the end of 2001).
In 2002 the total remuneration of the directors was Local Currency 2.2
million (2001: Local Currency 1.3 million). ix) Commitments and contingencies

The amount for 2002 included termination benefits of Local Currency 0.4
million and Local Currency 0.2 million paid, respectively, to two directors, A
Tardos and J Laakso, who left the Group during the year (2001: Local
Currency Nil).
vii) Loans to associates
The Company has guaranteed a loan made by a bank to V Ribollet, a director
of the Company, in a total amount of Local Currency 17 (2001: Local
Currency 17). The loan is repayable in 2003.
4.

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 Related Parties

7. A major shareholder can avoid the consequences of related party

5. MULTIPLE CHOICE QUESTIONS transactions, by transacting other business through his wife, or
her husband, when the undertaking in which he, or she, has
1. Groups of companies are considered to be related parties: invested is involved.
1. Sometimes. 1.True.
2. Never. 2.False.
3. Always. 3.Sometimes.
2. Intragroup transactions and balances appear in: 8. If services are provided, without charge, between group
1. Consolidated financial statements. companies, does this qualify as a related party transaction?
2. Financial statements of individual statements. 1. Yes.
3. Neither. 2. No.
3. A parent company can control, or influence its subsidiary’s: 9. Close family members of a related party. Does a brother of the
1. Financial policies. related party qualify as a related party in his own right?
2. Operating policies. 1. Never.
3. Both. 2. Always.
3. Only if he is expected to influence, or be influenced by the first
4. If no transactions occur between the related parties, can the related party, in dealings with the undertaking.
profits and financial position of either party be affected by the
other? 10. Close family members are included as related parties to:
1. Yes. 1. Avoid related parties disguising their activities.
2. No. 2. Help related parties disguise their activities.
5. What is the likely response of users of financial statements to the 11. Classify each of the following transactions as either:
knowledge of related parties, their transactions and balances?
1. Ignore them. 1.Short-term employment benefits.
2. Adjust their assessments of the risks and opportunities facing the 2.Post-employment benefits.
undertaking. 3.Long-term employment benefits.
3. Refuse to deal with the undertaking on principle. 4.Equity compensation benefits.
6. Which of the following are related parties? Transactions
1. major shareholders.
2. group companies. Share option schemes
3. key managers. Pensions
4. pension funds. Paid sick leave
5. all suppliers. Sabbatical leave
6. all government departments. Subsidised goods or services provided to employees
7. relatives of any member of staff.

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 Related Parties

12. Compensation relating to a director that is paid to the director’s

firm, rather than to the director directly: 3. Company M buys a franchise to run a Russian food restaurant in Tula. Is it a
1.Can be ignored. related party to the company that sold it the franchise.
2. Should be reported without mentioning the director’s firm.
3. Should be reported with a note detailing to whom it is paid.
7. ANSWERS
13. Significant influence in an undertaking is:
1.Control of an undertaking. 1. Groups of companies are considered to be related parties:
2.Power to participate in the financial and operating policy decisions. 3. Always.
3.Holding 10% of the shares, without board representation.
2. Intragroup transactions and balances appear in:
14. In considering any related party relationship, attention should be 2. Financial statements of individual statements.
directed primarily to the:
1.Legal form of the relationship. 3. A parent company can control, or influence its subsidiary’s:
2.Substance of the relationship. 3. Both.
3. Neither of these.
4. If no transactions occur between the related parties, can the
15. Two venturers who share a joint venture are: profits and financial position of either party be affected by the
1. Always related parties. other?
2. Never related parties. 1. Yes.
3. Not necessarily related parties.
5. What is the likely response of users of financial statements to the
16. Related party relationships need not be disclosed, if no knowledge of related parties, their transactions and balances?
transactions have taken place. 2. Adjust their assessments of the risks and opportunities facing the
1.True. undertaking.
3. False.
6. Which of the following are related parties?
YES
6. Case Studies 1. major shareholders.
2. group companies.
1. A bank is financing a construction company with a loan that provides 90% of 3. key managers.
the construction company’s capital requirements. The construction company is 4. pension funds.
owned by a friend of the Chief Executive Officer of the bank. The loan is NO
secured on the assets of the construction company. 5. all suppliers.
6. all government departments.
Is the construction company a related party? 7. relatives of any member of staff.
2. Company T trades with company K. They are not in the same group of 7. A major shareholder can avoid the consequences of related party
companies, but both of their parent companies have the same person as transactions, by transacting other business through his wife, or
majority shareholder. her husband, when the undertaking in which he, or she, has
invested is involved.
Are they related parties? 2.False.
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 Related Parties

Share option schemes 4.Equity compensation benefits.

8. If services are provided, without charge, between group companies, Pensions 2.Post-employment benefits.
does this qualify as a related party transaction? Paid sick leave 1.Short-term employment benefits.
1. Yes. Sabbatical leave 3.Long-term employment benefits.
Subsidised goods or services 1.Short-term employment benefits.
9. Close family members of a related party. Does a brother of the provided to employees
related party qualify as a related party in his own right?
3. Only if he is expected to influence, or be influenced by the first 12. Compensation relating to a director that is paid to the director’s
related party, in dealings with the undertaking. firm, rather than to the director directly:
3. Should be reported with a note detailing to whom it is paid.
10. Close family members are included as related parties to:
1. Avoid related parties disguising their activities. 13. Significant influence in an undertaking is:
2.Power to participate in the financial and operating policy decisions.
11. Classify each of the following transactions as either:
14. In considering any related party relationship, attention should be
1.Short-term employment benefits. directed primarily to the:
2.Post-employment benefits. 2.Substance of the relationship.
3.Long-term employment benefits.
4.Equity compensation benefits. 15. Two venturers who share a joint venture are:
3. Not necessarily related parties.
Transactions
16. Related party relationships need not be disclosed, if no
transactions have taken place.
3. False.

8. ANSWERS TO CASE STUDIES

1.The construction company will not be a related party, if the bank provides the
loan on standard commercial terms, having carried out its normal risk analysis
on the construction company. However, if favourable loan terms have been
offered, the construction company may be a related company.

2. They are related parties, as they are under common control of the major
shareholder, even if the major shareholder does not exercise that control.

3. They are related parties, as the franchise agreement relates only to Tula.
Company cannot expand its business without the agreement of the company
that sold it the franchise. The company’s operating policies are also governed
by the franchise agreements.

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 Related Parties

Typical Disclosure Note:

RELATED PARTY TRANSACTIONS

The holding company and ultimate holding company of the Group are Markov Holdings Limited (incorporated in the Russian Federation Land, 1991) and Limmasol
Holdings Limited (incorporated in Cyprus, 1995).

Trading Transactions
During the year, group companies entered into the following transactions with related parties who are not members of the Group:
Sales of goods Purchases of goods Amounts owed to Amounts owed by
31/12/03 31/12/02 31/12/03 31/12/02 31/12/03 31/12/02 31/12/03 31/12/02
Markov Holdings Limited $700 $650 675 876 1868 1500 0 0
Subsidiaries of Limmasol 1500 1200 456 235 1003 900 0 0
Holdings Limited
Associates and a jointly 0 0 0 0 0 0 512 323
Controlled entities
Other $800 $0

Sales of goods to related parties were made at the Group’s usual list prices, less average discounts of 20 per cent. Purchases were made at market price discounted to
reflect the quantity of goods purchased and the relationships between the parties.

Other: A property was sold to a major shareholder for $800,000. This represents a discount of 30% on the fair value as established by the real estate agents Vintor
International Limited.

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 Related Parties

This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of ZAO
“PricewaterhouseCoopers” and OOO “Rosexpertiza” and can in no way be taken to reflect the views of the European Union.

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