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Plain‑English explainer of HKAS 24 / IAS 24 for students, junior accountants and non‑specialists who find official standards too dense to read.
This article is based on Hong Kong Accounting Standards (HKAS / HKFRS), which are fully aligned with IAS / IFRS except for minor local tweaks, so the same principles generally apply under IAS / IFRS unless noted otherwise. The goal is to unpack HKAS 24 Related Party Disclosures (equivalent to IAS 24) using plain English and practical, real‑life examples instead of technical jargon. It is written for students, junior accountants, audit juniors and finance professionals who want to understand not just “what the standard says” but how to actually read and prepare financial statements in line with it.
When you see “the company” or “the entity” below, you can think of any entity that prepares general purpose financial statements under HKFRS / IFRS.
When the Numbers Are Not Between Strangers
Imagine you are reviewing the financial statements of a listed company and you see a large unsecured loan to another company, with an interest rate even below market. Naturally you ask: “Is this really on normal commercial terms?” Only when you read the notes do you discover that the borrower is an entity owned by one of the company’s directors.
That is the heart of related party issues: relationships influence judgment, and judgment influences how “true and fair” the financial statements really are. HKAS 24 / IAS 24 exists exactly for this reason – to let users see when the entity’s transactions are with parties that are not economic “strangers”, and how those relationships might affect resource allocation, risk and decisions.
If you already understand the basic concepts and want to go deeper into common mistakes and exam‑style traps, the author of the original Chinese article also runs a separate Substack case study series using virtual scenarios to show how misjudgments happen in practice.
What You Should Be Able To Do After Reading?
By the end, you should be able to:
- Understand the purpose of HKAS 24 / IAS 24 and how it supports transparency for users of financial statements.
- Clearly identify the scope of the standard and which types of financial statements it applies to.
- Distinguish “normal” related party relationships from those that may create bias, conflicts of interest or additional risk.
- See how HKAS 24 / IAS 24 connects with other key standards such as HKFRS 10 / IFRS 10, HKFRS 12 / IFRS 12 and HKAS 19 / IAS 19.
- Build a basic understanding of the major revisions to HKAS 24 and the typical areas of debate in practice.
1. Why Related Party Disclosures Matter: The Core Principle and Risk Angle
On the surface, “related party disclosures” can look like admin work: list who is related to whom, and what transactions took place. But the deeper purpose is to reveal information risk – the risk that the numbers look fine, but the relationships behind them could distort those numbers.
The core idea in HKAS 24 / IAS 24 is this: whenever there is control, joint control or significant influence, that relationship can cause transactions to deviate from normal market conditions. If those relationships and transactions are not disclosed, users such as investors, lenders and auditors cannot properly judge whether the financial figures are biased by those connections.
In real life, accountants often face challenges like:
- Intra‑group service fees that are set very low, hiding the real economic benefits flowing within the group.
- Loans or guarantees between management / major shareholders and the entity, which may not be on arm’s length terms.
- Complex family or trust structures where a director’s family indirectly controls the counterparty to key transactions.
Without clear disclosure, all of these can create doubts about corporate governance and the reliability of the financial statements. HKAS 24 / IAS 24 is designed so that users can “see” these relationships instead of only seeing polished profit numbers.
2. Where HKAS 24 / IAS 24 Applies: Types of Financial Statements
HKAS 24 Related Party Disclosures (equivalent to IAS 24) applies to all financial statements prepared under HKFRS, including:
- Consolidated financial statements.
- Individual financial statements.
- Separate financial statements.
This ties in closely with:
- HKAS 27 Separate Financial Statements (equivalent to IAS 27), which sets rules on when and how to present separate financial statements.
- HKFRS 12 Disclosure of Interests in Other Entities (equivalent to IFRS 12), which focuses on disclosures about interests in subsidiaries, associates and joint arrangements.
You can think of their roles like this:
- HKAS 27 / IAS 27: deals with the presentation and content of separate financial statements.
- HKFRS 12 / IFRS 12: requires disclosures about the entity’s interests in other entities, including structure and risks.
- HKAS 24 / IAS 24: focuses on the relationships themselves and the transparency of related party transactions.
For example, suppose a parent company has management fee arrangements, intercompany loans or guarantee agreements with its subsidiaries. Even if, in the consolidated financial statements, many intra‑group amounts are eliminated, HKAS 24 / IAS 24 still expects disclosure of the underlying relationships and key related party transactions. Offsetting in consolidation does not mean you can ignore disclosure.
3. “Normal” Related Parties vs Risky Relationships
In the business world, related party relationships are very common, and not always a problem. A parent working closely with its subsidiaries, a director sitting on the board of a supplier, or collaboration between government‑backed entities – these can all be perfectly normal.
The key question is: are transactions carried out on an arm’s length basis, i.e. as if the parties were independent and acting in their own best interests? HKAS 24 / IAS 24 does not say that every related party transaction must be at fair value, but it does require enough disclosure for users to judge whether the terms look reasonable.
In practice, common disclosure points include:
- The nature of the transaction (sale of goods, provision of services, financing arrangement, lease, etc.).
- The amounts involved, outstanding balances and any commitments that have not yet been settled.
- Settlement terms and any special conditions that differ from market practice (for example, interest‑free loans, extended credit periods, unusual guarantees).
Take a very typical example: a mid‑sized company is controlled by a founder’s family, and it regularly rents office space from a property company controlled by the same family. Even if the rent seems reasonable, this is still a related party transaction and should be disclosed. If the rent is below market, the company’s profit may be overstated compared to an independent tenant; if the rent is too high, it could be a way to shift profits out of the operating company.
This is why related party disclosures are so important: they make the human and ownership connections behind the numbers visible.
4. How HKAS 24 / IAS 24 Connects to Other Key Standards
You can think of HKFRS / IFRS as a network of linked standards, and HKAS 24 / IAS 24 is the node that describes relationship transparency. It interacts with several other major standards:
- HKFRS 10 / IFRS 10 Consolidated Financial Statements
- Defines “control”, which is fundamental for identifying which parties are related.
- HKFRS 11 / IFRS 11 Joint Arrangements
- Develops the concept of “joint control”, again affecting related party identification.
- HKFRS 12 / IFRS 12 Disclosure of Interests in Other Entities
- Requires detailed disclosure about the group structure and interests in other entities, including structured entities.
- HKAS 19 / IAS 19 Employee Benefits
- Brings in key management personnel (KMP) and their close family members as related parties, and links to how KMP benefits are accounted for.
- HKAS 20 / IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
- Government relationships and assistance may interact with related party disclosures, especially for government‑related entities.
- HKAS 1 / IAS 1 Presentation of Financial Statements
- Sets the overall requirement for fair presentation; related party information supports that overall objective.
- HKFRS 8 / IFRS 8 Operating Segments
- Information about operating segments can also be influenced by related party transactions, especially when segments trade heavily with related parties.
With this “map” in mind, you can see that HKAS 24 / IAS 24 is not a stand‑alone disclosure checklist. It is part of the broader disclosure system that helps users understand not only what transactions occurred, but who they are with and why they may look the way they do.
5. HKAS 24 Revisions and Ongoing Practical Debates
HKAS 24 has gone through several revisions since it was first issued, with the 2009 amendments being especially important. Two major themes from that revision are particularly relevant for students and junior staff:
- A simplified and clarified definition of related parties, including a clearer definition of key management personnel (KMP), to reduce confusion in complex cross‑holding structures.
- Specific reliefs for government‑related entities, recognising that in large public sector groups it can be extremely difficult to track every single transaction with other government‑controlled entities.
In practice, some issues keep coming up in discussions between preparers, auditors and regulators:
- Transparency of KMP compensation
- For listed companies in particular, users care about how senior management is rewarded.
- Classification of different components and whether the total disclosure really reflects the economic incentive structure is often debated.
- Identifying government‑related entities
- In large public sector or state‑influenced groups, it is not always easy to draw the line on what counts as “controlled by government”.
- Balancing investor expectations and commercial sensitivity
- Disclose too much, and management worry about revealing sensitive commercial information.
- Disclose too little, and investors and regulators may question whether the entity is hiding something.
For practitioners, understanding these debates and the history behind the revisions helps you judge what a “reasonable minimum” level of disclosure looks like. It also makes it easier to explain your judgments during audits or reviews, which strengthens both transparency and professional credibility.
6. Building Real Insight: Looking Beyond the Numbers
HKAS 24 / IAS 24 is a reminder that understanding financial statements is not just about reading the numbers; it is also about understanding the relationships behind those numbers. Once you understand the logic of related party disclosures, you will be able to:
- Quickly spot high‑risk transactions that may not be on arm’s length terms.
- Draw a clear group relationship map that supports your analysis under HKFRS 10 / IFRS 10 and HKFRS 12 / IFRS 12.
- Review and prepare note disclosures with more confidence about what really matters to users.
Your next step could be to dive deeper into the detailed definition of related parties in HKAS 24 / IAS 24 and the specific disclosure requirements for key management personnel compensation. You can also practise by reviewing real audit working papers or annual reports to check whether related party disclosures look complete and consistent with what you know about the group. When you can read “who is related to whom” between the lines of a set of financial statements, you are much closer to the core of professional accounting transparency.
Key Takeaways for Students and Junior Accountants
- When reading a set of financial statements, always ask first: “Who controls whom, who has significant influence, and where might personal or family relationships affect decisions?” Then check whether HKAS 24 / IAS 24 disclosures line up with that picture.
- In exams, clearly distinguish between normal commercial transactions and those where relationships could distort terms; use HKFRS 10 / IFRS 10, HKFRS 11 / IFRS 11 and HKAS 24 / IAS 24 together when analysing group structures and related parties.
- When drafting journal entries or preparing working papers, tag related party transactions early (for example, by using separate GL codes or flags) so you do not miss them at year‑end when preparing note disclosures.
- Pay special attention to KMP compensation, intra‑group funding and transactions with entities controlled by directors’ families or trusts – these are frequent hot spots in both exams and real audits.
- When reviewing contracts (loans, leases, service agreements), always ask: “Is the counterparty a related party under HKAS 24 / IAS 24?” If yes, consider what additional disclosures or approvals (e.g. board or shareholder) might be needed.
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