In business, a related party transaction is a transaction which takes place between two parties who hold a pre-existing connection prior to the transaction. An example is how a dominant shareholder may benefit from making one of their companies trade with another at advantageous prices.[1] Related party transactions can be a reason for a Type II agency relationship (conflicts among controlling and non-controlling shareholders), as they are not necessarily in the best interest of minority shareholders.[1]

In commercial law, special regulations may apply restricting related party transactions, such as Part 2E of Australia's Corporations Act 2001, which requires companies to seek approval from their members for such a transaction to take place.[2]

International Financial Reporting Standard IAS 24 requires companies to disclose related party transactions in their financial statements.[3]

Academies (England)

In England, there are restrictions and notification requirements in place regarding related party transactions entered into by Academy Trusts.[4] An online reporting process for declaring or seeking approval is in place.[5] Academies must seek approval from the Education and Skills Funding Agency (ESFA) before they undertake any related party transactions valued over £20,000.[6] A review of related party transactions for the 2012-2013 academic year identified 1,350 related party transactions involving 976 trusts. The vast majority of these were compliant with relevant guidance protecting public funds (the Academies Accounts Direction),[7] but transactions at 17 trusts were found to be irregular or improper.[8]

References

  1. ^ a b Hillier, David; Ross, Stephen; Westerfield, Randolph; Jaffe, Jeffrey; Jordan, Bradford (2013). Corporate Finance (2nd European ed.). Berkshire: McGraw-Hill Education. pp. 34–35. ISBN 9780077139148.
  2. ^ Corporations Act 2001 (Cth), Part 2E
  3. ^ "Related Party Disclosures (IAS 24)". IFRScommunity.com. 26 February 2020. Retrieved 2020-08-07.
  4. ^ Education and Skills Funding Agency, Declare or seek approval for related party transactions: summary guidance, updated 26 September 2019, accessed 27 December 2020
  5. ^ Education and Skills Funding Agency, Academy trust financial returns, accessed 27 December 2020
  6. ^ Education and Skills Funding Agency, ESFA introduces new arrangements for related party transactions, updated 4 April 2019, accessed 31 July 2022
  7. ^ Education and Skills Funding Agency, Academies Accounts Direction, accessed 31 July 2022
  8. ^ Education Funding Agency, Review of related party transactions in academies, November 2014, accessed 31 July 2022


Categories