Disclosure of related party transactions
This bulletin provides guidance on the implementation of AASB 124 related party disclosures by local government in Queensland.
Under the Local Government Act 2009, Local Government Regulation 2012, City of Brisbane Act 2010 and the City of Brisbane Regulation 2012 (the Acts) all local governments in Queensland must produce annual financial statements that comply with Australian Accounting Standards.
From 1 July 2016, the Australian Accounting Standards Board has determined that AASB 124 related party disclosures will apply to government entities, including local governments.
AASB 124 Related Party Disclosures.
AASB 2015-6 Amendments to Australian Accounting Standards – Extending Related Party Disclosures to Not-for-Profit Public Sector.
AASB 10 Consolidated Financial Statements, AASB 11 Joint Arrangements & AASB 128 Investments in Associates and Joint Ventures.
From 2016/17, local governments (councils) must disclose related party relationships, transactions and outstanding balances, including commitments, in the annual financial statements.
Related parties are likely to include the mayor, councillors, chief executive officers (CEO), senior executives, their close family members and any entities that they control or jointly control. Any transactions between council and these parties, whether monetary or not, may need to be identified and disclosed.
This information will be audited as part of the annual external audit by Queensland Audit Office.
Councils need to start preparing for this change as soon as possible.
From 1 July 2016 each council will need to have systems to identify related parties and capture transactions with them.
What is a related party of council?
The following diagram gives an overview of common related parties that a council will have:
Appendix 1 contains more detailed information on how to identify related parties. Appendix 2 lists common related parties of councils.
Download appendices 1 to 8 ( 195 KB).
What will be disclosed?
Councils must disclose related party relationships, transactions and outstanding balances, including commitments. Appendix 3 ( 195 KB) contains examples of the format of the disclosures.
Generally, disclosure will only be made where a transaction has occurred between council and a related party of council. In addition the transaction must be material in nature or size, when considered individually or collectively.
Transactions between council and a subsidiary must be disclosed if they are individually significant. When assessing whether such transactions are significant councils could consider the following factors:
- significance in terms of size
- carried out on non-market terms
- outside normal day-to-day council operations
- subject to council approval
- provide a financial benefit not available to the general public
- transaction likely to influence decisions of users of financial statements.
The total remuneration paid to KMP must be disclosed.
Policy on implementation of the new standard
Councils are encouraged to develop and adopt a policy on related party disclosures. This policy can be used to guide staff in implementing the standard and will assist councils in mitigating the risk of non-compliance.
This policy is not required by the Local Government Act 2009. Whether to adopt such a policy, and its content, is completely at council discretion.
The policy could consider each of the five steps identified below, or could concentrate on one or two key areas. For example, council’s policy could simply address how, and how often, the close family members and related entities of KMP are identified and/or whether council will separately identify and collect/collate ordinary citizen transactions with related parties.
The policy could also define key terms for staff understanding such as arms-length, normal terms and conditions and ordinary citizen transactions or other types of transactions which may be trivial or domestic in nature that council will collect but are unlikely to report.
Appendix 4 ( 195 KB) contains a checklist that may be helpful to councils that choose to adopt such a policy.
Steps to comply with AASB 124
- Establish a system to identify and record related parties and related party relationships.
- Identify ordinary citizen transactions, depending upon council’s policy in this regard.
- Establish a system to identify and record related party transactions and related party transaction terms and conditions.
- Assess materiality of the related party transactions that have been captured.
- Make disclosure.
Appendices 5, 6, 7 and 8 ( 195 KB) contain further detail about these steps, together with tools that may assist councils in implementing them.
Suggested timetable for implementation
|Suggested steps||Timeframe for implementation|
|Develop and adopt policy (with audit committee endorsement)||1 January to 1 July 2016.|
|1–3||1 January to 1 July 2016.|
|4-5||When the financial statements for 2016/17 are prepared.|
Councils are reminded that the information collected and disclosed in accordance with this standard will be audited. It is normal audit practice to audit not only the disclosures made but also the systems and policies implemented by council. These are audited to ensure that council has not omitted material transactions.
Council could receive a qualified audit opinion, if audit are not satisfied that council’s systems and policies capture all material transactions with related parties. In addition this issue could be mentioned in the Auditor-General’s annual report to parliament on local government entities.
Any further enquiries on this matter should be addressed to:
Mr Bill Gilmore
Director, Finance and Funding
Department of Infrastructure, Local Government and Planning
PO Box 15009
Brisbane QLD 4002