An entity's finance director, who has authority and responsibility for planning, directing, and controlling the entity's activities, receives a salary, a pension contribution, and a share-based payment award during the year. A separate, unrelated supplier — in which no director or their close family holds any interest, and which has no control, joint control, or significant influence over the entity — sells raw materials to the entity at the same standard market list prices available to all customers. Under IAS 24, which of these must be disclosed as related party information?
- Both the finance director's compensation and the purchases from the unrelated supplier, since both involve transactions with the entity
- Only the purchases from the supplier, because purchases of raw materials are always considered related party transactions requiring disclosure
- Neither, because compensation paid under normal employment terms and arm's-length market transactions both fall outside the scope of IAS 24
- Only the finance director's compensation, disclosed by category, because the director is key management personnel; the unrelated supplier is not a related party
Why D? And why not the others?
Correct answer: D. Only the finance director's compensation, disclosed by category, because the director is key management personnel; the unrelated supplier is not a related party
The finance director meets IAS 24's definition of key management personnel, since that definition covers persons with authority and responsibility for planning, directing and controlling the entity's activities, so their compensation must be disclosed in total and by category — including short-term benefits, post-employment benefits, and share-based payments. The supplier, by contrast, has no control, joint control, significant influence, or family or key-management link to the entity, and transacts at standard list prices available to any customer, so it does not meet IAS 24's definition of a related party at all, regardless of the fact that ordinary trading occurs. The option treating both as related-party matters wrongly extends the definition to an arm's-length commercial counterparty with no ownership, control or influence connection to the entity. The option flagging only the supplier purchases as always requiring disclosure invents a blanket rule that all purchases are related-party transactions, which is not how IAS 24 defines its scope. The option exempting both wrongly drops key management personnel compensation, which IAS 24 specifically requires to be disclosed precisely because employment and remuneration arrangements with those individuals are within its scope.
Source: IAS 24 Related Party Disclosures, paragraphs 9 and 17 (definition of related party and key management personnel compensation disclosure)