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ACCA Strategic Professional · Strategic Business Reporting (International) · Other reporting issues

Dune plc sold a property to a company controlled by the close family of its chief executive. The sale was at a price the directors state was 'equivalent to fair value', but no valuation was obtained. Dune's draft note describes the transaction as 'on an arm's length basis'. Under IAS 24, what is the correct position?

Dune may only state that terms were equivalent to arm's length if that can be substantiated. With no valuation the claim must be removed, though the relationship, transaction and amounts are still disclosed. Fair value pricing does not exempt a related party transaction from disclosure.

  1. AThe statement may be made without support because the transaction is with a family member's company
  2. BDisclosure of arm's length terms is never permitted
  3. CThe note may state that terms were equivalent to arm's length only if that can be substantiated; otherwise the claim must be omitted, while the transaction, amount and relationship are still disclosedCorrect
  4. DThe transaction need not be disclosed if the price was at fair value

Explanation

IAS 24 permits a statement that related party transactions were on arm's length terms only if it can be substantiated. With no valuation, the claim is unsupported and also raises an ethical concern about misleading users. Disclosure of the transaction, relationship and amounts is required regardless of price.

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