Related-party disclosure checklist for financial statements

A complete related-party disclosure in the notes to accounts covers four things for each related party and relationship: the nature of the relationship itself, the nature and volume of transactions during the year, the outstanding balances at year end including the maximum balance during the year, and the terms and conditions attached, including anything unusual such as a nil-interest loan or a waived fee. A note that reports accurate figures but omits relationship descriptions, terms, or the maximum-balance figure is incomplete, not merely light on detail.

The four components, in order

1. 01Name the party and describe the relationshipNot just a name. The note needs to say how the party is related — subsidiary, associate, entity under common control, KMP, relative of KMP — because the nature of the relationship is itself required disclosure, independent of whether any transaction occurred.
2. 02State the nature and volume of each transaction typeGrouped by transaction type (sales, purchases, loans given, rent paid, remuneration) rather than netted into a single figure per party, so a reader can see what actually happened rather than a summarised net movement.
3. 03Disclose the outstanding balance at year end and the maximum balance during the yearBoth figures, not just the closing one. The maximum-during-the-year figure is the one most often dropped, and it is frequently the more informative of the two for a loan or current account that moved significantly during the year.
4. 04State the terms and conditions, including when they are unusualInterest rate (including explicitly stating nil, where that is the case), security, repayment terms, and credit period. A transaction on normal commercial terms and one on favourable or nil terms look identical in a note that states only the amount.

What else the note typically needs

• Transactions with no consideration — a free loan, free use of premises, a waived fee — stated as such rather than omitted because there is no amount to report.
• KMP remuneration disclosed by category, consistent with what the Companies Act and the applicable accounting standard each separately require; the two disclosure requirements do not always use identical categories.
• Guarantees and collateral given on behalf of, or received from, related parties, including guarantees that have not been called and may look like they carry no current financial impact.
• Provisions for doubtful debts relating to related-party balances, and amounts written off or written back during the year, stated separately rather than buried in the general provisioning note.
• Transactions with the same related party during a period they qualified as related, even if that period covered only part of the year because the relationship began or ended mid-year.
• The basis of determining the transaction's terms, where that basis is unusual enough to be relevant to a reader — for instance, pricing fixed by an inter-company agreement rather than negotiated per transaction.

Reviewing the note before sign-off

• Cross the note against the related-party list built during identification work, not just against last year's note rolled forward.
• Confirm every material transaction tested during the audit appears in the note, and that every disclosed transaction was actually tested.
• Check that balances disclosed tie to the balance sheet and sub-ledger, and that the maximum-during-year figures were actually computed, not estimated.
• Confirm section 188 approval status is consistent with how the transaction is described in the note — a transaction described as ordinary-course should have the basis for that classification on file.
• Check prior-year comparatives in the note still match what was disclosed last year, since a note is sometimes redrafted during the year's close and comparatives can drift without anyone intending it.