FRED41: Related party disclosures
Comments from ACCA
October 2007
ACCA is pleased to comment on the above exposure draft which was considered by ACCA's Financial Reporting Committee
Q1. Do you agree with the ASB proposal to replace FRS8 with a UK standard based on IAS24 as approved by the IASB?
As in our previous response to FRED25, we certainly agree in principle that a new standard in the UK, which is harmonised with IAS24 would be beneficial and in line with the overall convergence of UK FRS with IFRS.
Q2. Do you agree with the ASB proposal to include in paragraphs 21A to 21C of the draft FRS guidance on materiality from IAS1 ‘Presentation of financial statements’?
We reiterate our response to question 1, in that we believe that convergence is desirable and therefore believe that the new UK standard should remain consistent with IAS. Therefore as there is no specific guidance on materiality for related party disclosures in IAS and there is no general guidance on materiality in UK standards we accept that in the interests of consistency with IAS, the guidance from IAS1 should be retained.
However, we believe that the general guidance on materiality from IAS1 does not add much compared to the specific guidance in FRS8. For example there is no consideration for materiality as based on the ‘other related party’ as well as the reporting entity (paragraph 20 of FRS8). As such we believe that this is a matter which should be brought to the attention of the IASB while it is in the process of assessing the proposed amendments to IAS24 which it issued in February 2007.
Q3. Do you agree that the proposed FRS should include disclosure exemptions for transactions entered into between wholly-owned subsidiaries?
We understand the rationale behind both the DTI's and the Board's proposals to include disclosure exemptions for such transactions in the UK context as being a practical step.
As in our responses to the previous questions, we believe however, that consistency with IFRS is paramount and that individual, jurisdictional divergence should be avoided. Where it is felt that changes to IFRS are required, the Board should press the IASB to make such changes.
Therefore as a matter of principle, we believe the UK standard should extend the disclosure requirements to be in line with IAS24.
Q4. Do you agree that the proposed FRS should include requirements to disclose key management personnel compensation?
We would agree with the proposals by the Board, as they would be a beneficial extension to company law and remain consistent with IAS24.
Q5. Do you agree that an FRS should not require disclosure of the names of the transacting related parties?
In our response to the IASB on proposed amendments to IAS24, we commented that there was a shortcoming in that standard with regards the fact that there is not a requirement to disclose names of related parties.
We again refer to our response to question 2, where we believe that in principle any UK standard should be consistent with IAS24, and the shortcomings in the international standard should be addressed by the IASB.
Q6. Do you agree with the approach and that the benefits of the proposed FRS would outweigh any additional costs involved?
We believe that in general the level of disclosure under both IFRS and UK GAAP are already quite considerable, and the additional disclosure requirements proposed in the FRED are not likely to increase the reporting burden considerably. Much of the information required for any additional disclosures is likely to be readily available in the accounting records already kept.
There could be some cost savings through retired areas of FRS8, such as names of transacting related parties and materiality. However, this along with the less detailed definitions of materiality, would result in minimal impact in terms of cost savings, but a more detrimental impact on understandability and absence of useful information.