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Comments from ACCA
May 2007

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to comment on the above exposure draft (ED) of proposed amendments to IAS24, which was considered by ACCA's Financial Reporting Committee . I am writing to give you their views.

ACCA's responses to questions raised for comment by IASB

Q1. Exemption for state-controlled entities

• Do you agree with the proposal to provide in the circumstances described in this ED an exemption for entities controlled and significantly influenced by the state?

We agree that there are significant practical issues with compliance with IAS24 in the sort of circumstances described and that the solution proposed is a practical way for dealing with the issue. We note, however, that the need for transparency is just as great with state-controlled entities and the tendency for there to be transactions not at arm's length may not be any less. We would not support any reduction in disclosure of transactions of a state-controlled entity with its key management personnel (KMP) for instance.

Also we support standards based on principles and not on detailed rules and this amendment clearly falls into the category of a rule. We can see no reason why in principle this exemption should not be extended to cases other than state control – where there is no evidence of influence among bodies under common control there is no need for disclosure of transactions.

Furthermore the definition of what is or not controlled by a state may not always be sufficiently clear. A definition of a state has been provided, but the question of whether a central or federal government controls or could significantly influence a local or provincial government has not.

IASB should also clarify the meaning of ‘economically significant' and whether there is any difference between that and ‘material' as used in paragraph 31 of IAS1 for example.

• Do you agree that an indicator approach is appropriate for identifying when the exemption should be provided, and that the indicators are appropriate?

Yes, we agree with the approach and the indicators.

Q2. Definition of a related party (RP)

• An associate of the group will be a RP in all of the subsidiaries' accounts as well as in the holding company. Similarly when an investor is a person, entities that are either significantly influenced or controlled by that person are to be treated as related to each other. Do you agree?

Yes.

• Associates of an entity are not related parties with each other (see (a) above). IASB propose to align the definition of an RP by excluding an entity that is significantly influenced by a person or close members of their family. Do you agree?

Yes. It seems reasonable to align the cases of investing companies and persons in this regard.

• When a KMP of the reporting entity has at least significant influence over an entity that would make it a RP. The converse is not true. The Board propose to expand the definition to make the reporting entity in which an investor exercises at least significant influence treat as an RP any entity where the investor is a KMP. Do you agree?

The re-alignment proposed by this amendment seems to be premised on the equivalence of KMP of a reporting entity with the control relationship that a majority shareholder might be able to exercise. This equivalence is with regard to determining whether other entities over which KMP exert significant influence fall to be RPs of the reporting entity.

We do not think this should apply in every case. The degree of influence of KMP over the entity, where they are a director for example, will vary. In the majority of cases they will be able to exert significant influence rather than control over the entity which they help to manage. In other cases we can see that their influence may be greater.

• Do you agree that the proposed wording improves the definition of an RP?

Yes. We think the redrafting helps to clarify the definition, but the illustrative examples and diagrams are also very useful.

Q3. Do you agree with the proposal to clarify the definition of a RP transaction?

Yes. We support the elimination of the possible confusion explained in BC21 and also to include entering into a commitment as a transaction.

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