The IAS 24 Scandal: The “Arm’s Length” Deal That Ended Three Careers
A public company CEO swore their $30 million supply contract was at market rates. The supplier? A company owned by the CEO’s brother-in-law. When the undisclosed relationship surfaced, shareholders sued, executives resigned, and trust evaporated.
The Related Party Web of Doom
Think related parties are just parent-subsidiary? IAS 24’s net catches everyone:
- Family members (including domestic partners!)
- Key management (and THEIR families)
- Entities under common control
- Joint ventures and associates
- Post-employment benefit plans
The family trap: CFO’s daughter owns 30% of a vendor. CFO claims no knowledge. IAS 24 doesn’t care—close family members are automatically related parties. $5 million in transactions undisclosed. Career over.
The Key Management Minefield
Who’s “key management”? More people than you think:
- Board members (obviously)
- C-suite executives (expected)
- Divisional heads? (maybe)
- Anyone who can hire/fire? (possibly)
The expanding circle: A company disclosed only board and CEO compensation. Auditors identified 12 more executives who could “plan, direct and control activities.” Additional disclosure: $8 million. Shareholders felt deceived about true management costs.
The Common Control Catastrophe
Same ultimate parent = related parties. Even if they never talk, never coordinate, operate in different countries.
The hidden connection: Company A buys from Company B at “market rates.” Both owned by same billionaire through different holding structures. Transaction price: 40% above real market. Required disclosure missed. When revealed, minority shareholders claimed $15 million in damages.
The Disclosure Detail Disaster
IAS 24 doesn’t just want totals. It wants categories:
- Sales to related parties
- Purchases from related parties
- Outstanding balances
- Bad debts
- Guarantees
- Key management compensation (by type!)
The aggregation error: Company lumped all related party transactions together: “Total: $50 million.” Auditors demanded breakdown. Reality: $45 million was routine intercompany, but $5 million was CEO selling personal property to company at inflated price. Aggregation hid the scandal.
The Market Terms Myth
“But it’s at arm’s length!” doesn’t eliminate disclosure. IAS 24 requires disclosure even for market-rate transactions. Only government-related entities get some relief.
The transparency test: Two identical office leases, same building, same rate. One from third party, one from director’s company. Guess which one raises questions at the AGM? Claiming “market rates” without disclosure looks like hiding something.
Your Takeaway as an Accountant
Create a related party register updated quarterly. Include beneficial ownership, not just legal ownership. Check every new vendor/customer against the register. Document market rate evidence for all related party transactions. When in doubt, disclose more.
Remember: Related party transactions aren’t necessarily bad—hiding them always is. Sunlight remains the best disinfectant.
Build transparent reporting with ACCOUNTANT MINDSET—where integrity drives every disclosure.
