FRS 8 require companies to disclose related party transactions in its notes to the financial statements.
Disclosure should include name of the related party, nature and value of the transactions and the relationship of that related party to the company.
A subsidiary company is exempted from the requirement to disclose related party information in its notes to the financial statements provided the parent company prepares consolidated accounts will disclosure such information.
The subsidiary company should also have a controlling party note in its notes to the financial statements stating the parent company and address of where the consolidated accounts can be obtained.
Why related party transactions are important?
The disclosure of related parties transactions could help the users of the financial statements to understand the performance result of the company or group of companies.
Transactions such as loans from one company to another company within the group. Information such as whether the loan is interest free or interest is chargeable at the market rate, terms and conditions of the loan arrangement should be disclosed and what are the terms and conditions of the loans.
Such information will allow the users of the financial statements to evaluate whether the company will be better off to borrow directly from financial institution or continue with the existing loan arrangement.
