than £1 million) due to Freud.
The financial statements of BP p.l.c. illustrate the disclosure of commitments to
related parties:
Extract 35.5: BP p.l.c. (2017)
Notes on financial statements [extract]
11. Capital commitments
Authorized future capital expenditure for property, plant and equipment by group companies for which contracts had
been signed at 31 December 2017 amounted to $11,340 million (2016 $11,207 million). BP’s share of capital
commitments of joint ventures amounted to $483 million (2016 $522 million).
15. Investments in associates [extract]
BP has commitments amounting to $13,932 million (2016 $15,344 million), primarily in relation to contracts with
its associates for the purchase of transportation capacity.
2.8
Disclosure of expense incurred with management entity
As discussed at 2.2.9 above disclosure of amounts incurred by the entity for the
provision of key management personnel services by a separate management entity is
required. [IAS 24.18A].
2.9
Disclosures with government-related entities
IAS 24 provides an exemption from the disclosure requirements of paragraph 18,
discussed at 2.7.2 above, in relation to related party transactions and outstanding
balances, including commitments, with:
(a) a government that has control or joint control of, or significant influence over, the
reporting entity; and
(b) another entity that is a related party because the same government has control or
joint control of, or significant influence over, both the reporting entity and the
other entity. [IAS 24.25].
Related party disclosures 2993
This wording implies that a reporting entity is related to an entity that is significantly
influenced by a government that also has significant influence over the reporting entity.
However, the definition of a related party does not include entities that are subject to
significant influence from the same entity, but are not otherwise related parties as
defined in IAS 24 (see 2.2.3 above).
The application of the disclosure exemption is illustrated in the example below, which
is based on an illustrative example accompanying IAS 24.
Example 35.10: Application of the disclosure exemption for government-related
entities
Government G
X
Entity 1
Entity 2
Entity A
Entity B
Entity C
Entity D
Government G directly or indirectly controls Entities 1 and 2 and Entities A, B, C and D. Person X is a
member of the key management personnel of Entity 1.
For Entity A’s financial statements the exemption applies to: (a) transactions with Government G which is
the government that ultimately controls Entity A; and (b) transactions with Entities 1, 2, B, C and D which
are related entities because they are controlled by the same government as A, i.e.: Government G.
The exemption does not apply to transactions with Person X because Person X is not controlled by
Government G.
The use of the disclosure exemption is conditional on the reporting entity making the
following disclosures about the transactions and related outstanding balances with the
government-related entities:
(a) the name of the government and the nature of its relationship with the reporting
entity (i.e. 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. Types of transactions
include those discussed at 2.7.1 above. [IAS 24.26].
2994 Chapter 35
The wording above does not explicitly mention ‘commitments’ when referring to
transactions. However, given that IAS 24 describes a commitment as a form of
transaction (see 2.7.1 above), disclosure of individually and collectively significant
commitments with government-related entities is required.
In using its judgement to determine the level of detail to be disclosed in accordance with
the requirements in (b) above, a reporting entity considers the closeness of the related
party relationship and other factors, including materiality, relevant in establishing the
level of significance of the transaction such as whether it is:
(a) significant in terms of size;
(b) carried out on non-market terms;
(c) outside normal day-to-day business operations, such as the purchase and sale of
businesses;
(d) disclosed to regulatory or supervisory authorities;
(e) reported to senior management; and
(f) subject to shareholder approval. [IAS 24.27].
Disclosure of the nature and amount of each individually significant transaction is not a
requirement for other related party transactions (see 2.7.2 above). The Board considered
that this requirement should not be too onerous for a reporting entity because:
(a) individually significant transactions should be a small subset, by number, of total
related party transactions;
(b) the reporting entity should know what these transactions are; and
(c) reporting such items on an exceptional basis takes into account cost-benefit
considerations. [IAS 24.BC45].
The Board also considered that more disclosure of individually significant
transactions would better meet the objective of IAS 24 because this approach focuses
on transactions that, through their nature or size, are of more interest to users and
are more likely to be affected by the related party relationship. [IAS 24.BC46]. In
response to concerns about whether a reporting entity would be able to identify
whether the counterparty to such transactions was a government-related entity, the
Board concluded that ‘management will know, or will apply more effort in
establishing, who the counterparty to an individually significant transaction is and
will have, or be able to obtain, background information on the counterparty’.
[IAS 24.BC47-48].
Extract 35.6 below from the financial statements of The Royal Bank of Scotland
Group
plc illustrates disclosure summarising the types of transactions with
government-controlled entities that are related parties and details of an individually
material transaction.
Related party disclosures 2995
Extract 35.6: The Royal Bank of Scotland Group plc (2017)
Notes on the consolidated accounts [extract]
40 Related
parties
[extract]
UK Government
On 1 December 2008, the UK Government through HM Treasury became the ultimate controlling party of The Royal
Bank of Scotland Group plc. The UK Government’s shareholding is managed by UK Financial Investments Limited,
a company wholly owned by the UK Government. As a result, the UK Government and UK Government controlled
bodies became related parties of the Group. During 2015, all of the B shares held by the UK Government were
converted into ordinary shares of £1 each (see Note 25).
The Group enters into transactions with many of these bodies on an arm’s length basis. Transactions include the
payment of: taxes principally UK corporation tax (see Note 6) and value added tax; national insurance contributions;
local authority rates; and regulatory fees and levies (including the bank levy (see Note 3) and FSCS levies (see
Note 31) together with banking transactions such as loans and deposits undertaken in the normal course of banker-
customer relationships.
The following are other illustrations of the type of disclosures required for transactions
with government-related entities based on examples in the standard:
Example 35.11: Individually significant transaction carried out on non-market
terms
On 15 January 2019 the company sold a 10-hectare piece of land to an entity controlled by Government G
for €5,000,000. On 31 December 2019 a plot of land in a similar location, of similar size and with similar
characteristics, was sold for €3,000,000. There had not been any appreciation or depreciation of the land in
the intervening period. See Note X for disclosure of government assistance as required by IAS 20.
Example 35.12: Individually significant transaction because of size of transaction
In the year ended 31 December 2019 Government G provided the company with a loan equivalent to 50% of
its funding requirement, repayable in quarterly instalments over the next five years. Interest is charged on the
loan at a rate of 5%, which is comparable to that charged on the company’s external bank loans.
Example 35.13: Collectively significant transactions
The company’s significant transactions with Government G and other entities controlled, jointly controlled or
significantly influenced by Government G are a large portion of its sales of goods and purchases of raw materials
[alternatively – about 50% of its sales of goods and services and about 35% of its purchases of raw materials].
The company also benefits from guarantees by Government G of the company’s bank borrowing. See Note X
of the financial statements for disclosure of government assistance as required by IAS 20.
In Example 35.13 above, either a qualitative or a quantitative disclosure is permitted for
transactions that are collectively but not individually significant.
References
1 IFRIC Update, May 2015, IASB.
2996 Chapter 35
2997
Chapter 36
Statement of cash flows
1 INTRODUCTION .......................................................................................... 3001
1.1
Terms used in IAS 7 .......................................................................................... 3001
2 OBJECTIVE AND SCOPE OF IAS 7 ............................................................. 3002
2.1
Objective ............................................................................................................. 3002
2.2 Scope
....................................................................................................................
3002
3 CASH AND CASH EQUIVALENTS ............................................................... 3002
3.1
Policy for determining components of cash equivalents .......................... 3003
3.2
Components of cash and cash equivalents ................................................... 3004
3.2.1
Demand deposits and short-term investments ............................ 3004
3.2.2 Money
market
funds
.........................................................................
3004
3.2.3
Investments with maturities greater than three months ............ 3006
3.2.4 Bank
overdrafts
..................................................................................
3006
3.3
Reconciliation with items in the statement of financial position............. 3007
3.4
Restrictions on the use of cash and cash equivalents................................. 3007
4 CLASSIFICATION IN THE STATEMENT OF CASH FLOWS ........................ 3009
4.1
Cash flows from operating activities .............................................................. 3011
4.1.1
The direct method .............................................................................. 3012
4.1.2
The indirect method .......................................................................... 3013
4.2
Cash flows from investing activities ............................................................... 3015
4.3
Cash flows from financing activities ............................................................... 3016
4.4
Allocating items to operating, investing and financing activities .............. 3017
4.4.1
Interest and dividends ....................................................................... 3017
4.4.2 Taxes
on
income
................................................................................
3018
4.4.3
Sales taxes and other non-income tax cash flows ....................... 3018
4.4.4
Cash flows from factoring of trade receivables and
supply-chain financing ...................................................................... 3019
4.4.5
Property, plant and equipment held for rental ............................ 3020
2998 Chapter 36
4.4.6
Cash flows for service concession arrangements ....................... 3020
4.4.7 Treasury
shares ................................................................................... 3021
4.4.8
Cash flows related to the costs of a share issue ........................... 3021
4.4.9
Cash flows on derivative contracts ................................................. 3021
4.4.10 Classification of cash flows – future developments ................... 3023
5. OTHER CASH FLOW PRESENTATION ISSUES ............................................ 3024
5.1
Exceptional and other material cash flows .................................................. 3024
5.2
Gross or net presentation of cash flows ........................................................ 3024
5.3 Foreign
currency
cash flows ........................................................................... 3025
5.3.1
Entities applying the direct method ............................................... 3025
5.3.2 Entities
applying
the indirect method ........................................... 3026
5.3.2.A
Foreign currency operating transactions
settled in the period ..................................................... 3026
5.3.2.B Unsettled
foreign
currency
operating
transactions .................................................................... 3026
5.3.2.C
Determining the value of non-operating cash
flows ................................................................................ 3026
5.3.2.D
/> The indirect method and foreign subsidiaries ........ 3026
5.4
Non-cash transactions and transactions on deferred terms ..................... 3027
5.4.1
Asset purchases on deferred terms ................................................ 3027
5.4.2
Asset disposals on deferred terms .................................................. 3028
5.5
Changes in liabilities arising from financing activities ............................... 3028
5.6 Voluntary
disclosures
........................................................................................
3029
5.6.1
Cash flows to increase and maintain operating capacity .......... 3029
5.6.2
Segment cash flow disclosures ....................................................... 3030
6 ADDITIONAL IAS 7 CONSIDERATIONS FOR GROUPS ............................... 3030
6.1
Preparing a consolidated statement of cash flows ....................................... 3031
6.2 Transactions
with
non-controlling interests ................................................. 3031
6.3 Acquisitions
and disposals ............................................................................... 3032
6.3.1
Acquisition-related costs ................................................................. 3034
6.3.2
Deferred and other non-cash consideration ................................ 3034
6.3.3 Contingent
consideration
................................................................
3034
6.3.3.A
Business combinations ................................................. 3034
6.3.3.B
Asset acquisitions outside of business
combinations ................................................................. 3035
6.3.4
Settlement of amounts owed by the acquired entity ................. 3035
6.3.5
Settlement of intra-group balances on a demerger .................... 3035
6.4
Cash flows of subsidiaries, associates and joint ventures .......................... 3036
6.4.1
Investments in associates and joint ventures ............................... 3036
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 594