The Board continued its discussion of responses to the exposure draft State-controlled Entities and the Definition of a Related Party, published in February 2007.
Exemption for state-controlled entities
The Board tentatively decided to propose a different exemption for state-controlled entities, rather than finalising the exemption proposed in the exposure draft.
The proposal would exempt an entity from disclosing:
- transactions with a state if that state is a related party only because it has control, significant influence or joint control over the entity; and
- transactions with another entity that is a related party only because the same state has control, significant influence or joint control over both entities. For example, the exemption would apply when a state controls both an entity and its parent (unless the entity and its parent also meet the definition of a related party for reasons other than control by the same state).
The proposal would also require the entity to disclose the name of the state that controls, significantly influences or jointly controls it, and the fact that it has transactions with that state or with other entities controlled, significantly influenced or jointly controlled by that state. The staff will consider how to draft a requirement for the entity to indicate the scale of these transactions, without requiring the gathering of extensive information.
Definition of a related party
As a follow up to discussions in November 2007, the Board discussed issues arising from the definition of a related party and tentatively decided:
- that two entities are related if a person or a third entity has joint control over one entity and that person, a close member of that person�s family or the third entity jointly controls or significantly influences, or has significant voting power in, the other entity.
- that two entities are not related parties simply because a member of key management personnel of one entity has significant influence over the other entity (to amend paragraphs 9(b)(vi)-(vii) of the exposure draft and paragraph 11(a) of IAS 24).
that an entity is a related party of the reporting entity if a person controls, significantly influences or jointly controls the reporting entity and a close member of that person�s family is a member of the key management personnel of the other entity (to amend paragraph 9(b)(vii) of the exposure draft).
- that a multi-employer plan is a related party of its sponsoring entities and, for the financial statements of the plan, its sponsoring entities are related parties of the plan.
- not to consider in this project whether an entity can be a member of key management personnel.
Interactions with other IFRSs
The Board discussed a consequential amendment to paragraph 34 of IFRS 8 Operating Segments. That paragraph requires an entity to disclose information about its reliance on major customers. In November 2007 the Board had tentatively decided that entities would not be regarded as a single customer simply because they are controlled by the same state. At this meeting, the Board tentatively decided that an entity should use judgement to determine whether it should regard entities controlled by the same state as a single customer. The staff will develop guidance on the factors relevant for this judgement, including the extent of economic integration between those state-controlled entities.
The Board noted that the definition of a qualifying insurance policy in IAS 19 Employee Benefits refers to the definition of a related party. The Board tentatively decided to attach a footnote to paragraph 68L of the Basis for Conclusions on IAS 19, to draw attention to the revised definition of a related party.
The Board decided that the proposed exemption for state-controlled entities requires re-exposure. The re-exposure draft will seek input on that proposal and on one aspect of the proposed definition of a related party (described in the first bullet of this subsection). To provide context for respondents, the re-exposure draft will also include the revised definition of a related party. The Board expects to publish the re-exposure draft around the end of this year.