The relations between parties and transactions between them are an inherent part of the economy. Most business entities conduct their business through related entities and joint ventures, which means they have to enter into contracts. IAS24 requires disclosure of information on the relationship between a parent company and its subsidiaries. 

Related parties - definition

The definition of related parties can be found in the International Accounting Standards, and more specifically in Standard 24, which defines them as individuals or entities related to the reporting entity. This Standard specifies exactly what conditions must be met in order for the entity to be considered related. Any one of the seven conditions specified in IAS 24 should be met in order to for an entity to qualify as a subsidiary.

Standard 24 also indicates who can be described as close family members. These will be family members who may be expected to influence, or be influenced by, that person in their dealings with the entity.

IAS 24 – related party disclosures

Financial statements are meant to reliably present the financial situation of a company and undoubtedly the relationships between related parties will have an influence on a company's financial situtation. The objective of IAS 24 is to ensure that the following information is provided: information on the ties between related parties and transactions between them, information on outstanding balances, (including commitments, with such parties).
Financial statements should disclose information on:

• the relationship between the parties,
• compensation to strategic personnel,
• transactions between related parties.

Furtherrmore it is necessarry to disclose the relations between related parties even if no transaction has been concluded between them. This is the case because the mere fact that such relations existed may affect a transaction between the entity and a third party.
Disclosure of information on compensation to strategic personnel means the full amountof compensation, including:

• short-term employee benefits for current employees
• post-employment benefits ,
• other long-term benefits,
• termination benefits ,
• share-based payments (gratuitous or discounted).

In the case of the execution of transactions between related entities, the following should be disclosed: the transaction amount, the amount of unsettled account balances, detailed information on granted and received guarantees, provisions for doubtful debts, as well as the cost of doubtful or uncollectible receivables.
All information subject to disclosure should be disclosed separately for each related entity. The purpose IAS 24 is to ensure that all financial statements of an entity contain information about relationships with related parties that may affect the financial position of such entity.