Question

Task ? 3

Specification:

Undertaking “A” entirely owns subsidiary undertaking “B” (100% of the authorised capital). One of directors of subsidiary undertaking “B” is a major shareholder of a third undertaking “D”, which otherwise will be considered as independent. Undertaking “D” supplies commodities to subsidiary undertaking “B” at a price determined by independent parties. Director is a member of the key management personnel of undertaking “B”.

Question:

Should the management of undertaking “A” disclose undertaking “D” as the related party, since the director of subsidiary “B” is the major shareholder of undertaking “D”?

Answer 1

Related Party Disclosures requires disclosures about transactions and outstanding balances with an entity's related parties. The standard defines various classes of entities and people as related parties and sets out the disclosures required in respect of those parties, including the compensation of key management personnel

A related party is a person or entity that is related to the entity that is preparing its financial statements

A related party transaction is a transfer of resources, services, or obligations between related parties, regardless of whether a price is charged.

Regardless of whether there have been transactions between a parent and a subsidiary, an entity must disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity's parent nor the ultimate controlling party produces financial statements available for public use, the name of the next most senior parent that does so must also be disclosed.

Director of subsidiary B is the major shareholder of undertaking D,therefore he has control over undertaking D

therefore it should be disclosed as related party transactions