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(b) It shall disclose the following about the transactions and related outstanding balances:
(a) the name of the government and the nature of its relationship with the reporting entity (ie control,
joint control or significant influence);

(b) the following information in sufficient detail to enable users of the entity’s financial statements to
understand the effect of related party transactions on its financial statements:
(i) the nature and amount of each individually significant transaction; and
(ii) for other transactions that are collectively, but not individually, significant, a qualitative or
quantitative indication of their extent.

Q5 (Nov. 20)

Mr. X owns 95% of entity A and is its director. He is also the beneficiary of a trust that owns 100% of
entity B, of which he is a director.
Whether entities A and B are related parties?
Would the situation be different if:
(a) Mr. X resigned as a director of entity A, but retained his 95% holding?
(b) Mr. X resigned as a director of entities A and B and transferred the 95% holding in entity A to the

trust?
SOLUTION

Entities A and B are related parties, because the director (Mr. X) controls entity A and is a member of the
key management personnel of entity B.
Answers to different given situations would be as under:
(a) Mr. X resigned as a director of entity A, but retained his 95% holding
Mr. X continues to control entity A through his 95% holding even though he is not (nominally) a director

of the entity. Entities A and B are related if Mr. X controls the trust. Mr. X controls entity A and also,
through the trust, controls entity B. Entities A and B are controlled by the same person, and so they are
related parties.
Mr. X might still be a member of ‘key management personnel’ even though he is not (nominally) a
director of entity A. Key management personnel includes, but is not restricted to, directors, which include

those who are executive ‘or otherwise’ provided they had authority and responsibility for planning,
directing and controlling the activities of the entity. There could be two reasons why entities A and B
would continue to be related parties: Mr. X being a member of ‘Key management personnel’ of entity A
and Mr. X controlling entity A.
(b) Mr. X resigned as a director of entities A and B and transferred the 95% holding in entity A to the

trust.
If Mr. X controls the trust, he controls entities A and B through the trust, so they will be related parties
(see reason in (a) above)
Mr. X is a member of ‘key management personnel’ of the two entities (see (a) above) if, as seems likely, he
continues to direct their operating and financial policies. The substance of the relationship and not merely the

legal form should be considered. If Mr X is regarded as a member of the key management personnel of, say,
entity A, entity B is a related party, because he exercises control or significant influence over entity B by
virtue of his control over the trust.

24. 4