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 “Government-Related” Companies Explode in Number
In Hong Kong and many nearby economies, it is very common for government to participate in economic activities through many different entities. You see statutory bodies fully owned by government, listed companies held through investment arms, and various funds or platform companies set up for public policy purposes.
If the reporting entity trades frequently with these parties, preparers and auditors quickly face a very realistic problem:
“Do we have to disclose every single transaction with every government-related entity as a related party transaction?”
The government-related entity exemption in HKAS 24 Related Party Disclosures (equivalent to IAS 24) exists to balance two things: useful transparency for users, and practical workload for preparers and auditors. If you understand this exemption, you will not drown in disclosure work whenever there are many government-related transactions, and at the same time, users will still see the truly important parts of the picture.
What You Should Be Able To Do After Reading?
By the end, you should be able to:
- Explain why the government-related entity exemption was introduced and what cost–benefit problem it tries to solve.
- Identify the two main groups that can benefit from the exemption and what “government-related” broadly covers.
- Describe the minimum information that must still be disclosed even when the exemption applies.
- Use examples to think through “collectively significant” and “not at arm’s length” transactions in a sensible way.
- See how HKAS 24 interacts with HKAS 20 and HKFRS 8 when government is a shareholder, customer and grant provider at the same time.
- Appreciate the debates around whether this exemption is fair and learn to think like a standard-setter, not just a rule follower.
1. Why the Government-Related Entity Exemption Exists
Start from the problem. In environments where government has a big presence, a single company may have dealings with a very large number of entities that are controlled or influenced by government. For example, the reporting entity may:
- Sign supply contracts with multiple government departments or statutory bodies.
- Borrow from public banks or policy-driven financial institutions.
- Enter long-term contracts with government-related infrastructure, transport or housing entities.
If we applied the “normal” HKAS 24 / IAS 24 related party definition strictly, many of these government-controlled bodies would qualify as related parties. That leads to two obvious problems:
- Preparers would spend huge effort identifying, tracking and disclosing every single transaction with every government-related entity.
- Users would face extremely long, fragmented related party notes, making it harder to see the truly important relationships and risks.
When HKAS 24 was revised in 2009, the standard introduced a government-related entity exemption to tackle three core concerns:
- Identification cost – in a system where government controls or influences many entities, pinpointing all government-related entities is itself challenging.
- Disclosure burden – even if you can identify them, disclosing all transactions one by one is a heavy load for both preparers and auditors.
- Information usefulness – too much detail can paradoxically reduce transparency, because key risks are buried in noise.
The exemption is designed so that, without sacrificing key information, we avoid “disclosure for disclosure’s sake” and keep HKAS 24 / IAS 24 workable in government-intensive environments.
2. Who Can Use the Exemption and What Counts as “Government-Related”?
The government-related entity exemption is not a blanket relaxation for everyone. It targets specific types of relationships. Broadly, two groups may benefit from it:
- The government that controls, jointly controls or has significant influence over the reporting entity Examples include:
- A government department or representative body directly holding a majority of the voting rights in the reporting entity.
- A government that, through policy arrangements, effectively controls the entity’s key decisions.
- A government that has significant influence over the entity’s financial and operating policies.
- Other entities controlled, jointly controlled or significantly influenced by the same government Examples include:
- Multiple statutory bodies and investment platforms controlled by one government, where the reporting entity trades with these “sister” entities.
- Several listed companies ultimately held by the same government via different holding vehicles, which trade with each other.
These are referred to as government-related entities. In simple terms:
If an entity is controlled, jointly controlled or significantly influenced by a government, and the reporting entity is also controlled or influenced by that same government, then transactions between them may fall within the exemption framework.
However, two important points:
- The exemption does not say “these are no longer related parties”.
- It only relaxes the way you disclose – you do not have to list every single government-related entity and every tiny transaction in full detail, as long as you meet the minimum disclosure requirements and separately explain significant transactions.
So, government-related entities remain related parties; the exemption is about how you present the information, not whether the relationship exists.
3. Minimum Information You Still Must Disclose
Even with the exemption, HKAS 24 / IAS 24 still requires a minimum level of disclosure so users can understand the big picture of the relationship between government and the entity. The main elements are:
- The name of the government and the nature of its relationship with the reporting entity
- For example, you should explain whether the government is the controlling party, has joint control, or has significant influence, and whether it acts through a particular ministry, fund or investment arm.
- This helps users see “who” is in the background and how government might influence decisions.
- The nature and amount of individually significant transactions
- If a single transaction with government or a government-related entity is big enough to influence users’ decisions – for example, a major asset purchase, a long-term land grant or a very large loan – it must still be disclosed separately, even under the exemption.
- You should describe both the nature and the amounts.
- Aggregated information for collectively significant transactions
- For numerous smaller transactions with government and government-related entities, the standard allows aggregated disclosure.
- However, you still need to provide enough qualitative description (for example, main types of transactions and typical terms) and quantitative information (for example, total annual amounts) so users can see how much the entity depends on government-related business.
Put differently, the exemption says:
- You do not need to name every single government-related entity and list every small transaction.
- But you do need to show whether the entity’s income, costs or financing depend heavily on government-related parties, and highlight any particularly important or unusual arrangements.
4. How to Think About “Collectively Significant” and “Not at Arm’s Length”
Two practical challenges naturally appear:
- What is “collectively significant”?
- When are terms “not at arm’s length”?
HKAS 24 / IAS 24 does not give a hard numeric rule, but you can develop a sensible way of thinking.
Collectively significant: focus on reliance and combined impact
Imagine a company whose annual sales heavily involve different government departments and public bodies. Any single contract might not be huge on its own, but the total sales to government-related entities account for 30–40% or more of total revenue.
In this case, even if no individual contract is large enough to be “individually significant”, the combined exposure is very meaningful. A reasonable disclosure approach would be to:
- Aggregate revenue, costs or financing arrangements with government and government-related entities, and present total figures.
- Add concise narrative explaining the main transaction types (for example, public works, service contracts) and typical terms (for example, tendering processes, pricing mechanisms).
- If a particular government department or body accounts for a high percentage of revenue, consider mentioning this concentration explicitly so readers see the risk.
In short, “collectively significant” is about degree of dependence and combined effect, not only about the size of each line item.
Not at arm’s length: focus on clearly favourable or unfavourable terms
Now consider another scenario:
- Government sells land or assets to the reporting entity at a price clearly below market value.
- Government provides extremely low-interest, long-dated or even interest-free loans.
Even if these arrangements are driven by policy objectives, they are highly relevant to users because they directly affect profitability, asset values and capital structure.
To think about “not at arm’s length”, ask:
- Are the terms clearly different from what an independent, commercial third party would offer for similar risk and conditions?
- Is the difference big enough to affect profit or loss, asset measurement or risk profile?
- Do you have sufficient information (market comparables, independent valuations, pricing studies) to support the judgement that terms are significantly off-market?
In disclosure, you would usually go beyond numbers and briefly describe the special features of the terms, for example:
- “The entity obtained a long-term loan from a government-related entity at below-market interest rates.”
- “The entity acquired land from government at a discount to market price to develop a specified public-purpose project.”
Such narrative helps users see that part of the entity’s apparent “competitive advantage” may come from special relationships or policy support, rather than purely from operations.
5. How HKAS 24 Interacts with HKAS 20 and HKFRS 8
Government-related disclosures do not live only inside HKAS 24 / IAS 24. When government plays multiple roles – shareholder, customer, grant provider – several standards interact:
- HKAS 20 Accounting for Government Grants and Disclosure of Government Assistance (equivalent to IAS 20)
- When government provides grants, tax relief or subsidies, HKAS 20 requires disclosure of the nature, conditions and accounting treatment.
- The same arrangement may be both a government grant and a related party transaction with a government-related entity.
- HKAS 20 focuses on how the grant is recognised in income or deferred, and how it is presented; HKAS 24 / IAS 24 focuses on the relationship and the broader pattern of government-related transactions.
- HKFRS 8 Operating Segments (equivalent to IFRS 8)
- If a reportable segment relies heavily on government-related customers, HKFRS 8 requires disclosure of revenue concentration from major customers.
- Combined with HKAS 24, this helps users see which segments are most exposed to government-related income and how that affects business risk, for example through policy changes or public spending cuts.
As a practitioner, you can think of their roles like this:
- HKAS 24 / IAS 24: transparency about relationships and related party transactions.
- HKAS 20 / IAS 20: transparency about grants and assistance and how they affect profit and equity.
- HKFRS 8 / IFRS 8: transparency about segment-level revenue and customer concentration.
Only when these three are used together do readers get a coherent picture of how government shapes the entity’s financial position and performance.
6. Debate and Criticism: Should the Exemption Be Wider?
Since the government-related entity exemption was introduced, academics and practitioners have raised fair questions. Some common points include:
- Why do only government-related entities enjoy this type of “aggregated disclosure” relief? In certain large private groups, the number of related parties is also huge and the cost of identification and disclosure is high, yet HKAS 24 / IAS 24 does not provide similar exemptions.
- Researchers such as Garnett and others have asked:
- When “large volumes of government-related transactions” are disclosed only in aggregate, do some important relationships become less transparent?
- For individually significant transactions, should the requirements be even stricter to ensure users see all major deals, even if that affects negotiation confidentiality or policy arrangements?
These debates remind us that accounting standards are not just technical rules. Behind each paragraph lies a set of trade-offs: transparency vs cost, user needs vs preparer burden, commercial confidentiality vs public interest.
For you as a learner or practitioner, you do not have to “choose a side”, but you can ask yourself:
- Without this exemption, how difficult would related party disclosure become in your environment?
- Within the current framework, are there pieces of information you feel should be disclosed even if the standard does not strictly force it?
- If you were a user (investor, lender, analyst), would you want more or less detail about government-related transactions?
Thinking in this way helps you move beyond mechanical rule-following and towards thoughtful application – deciding where extra voluntary disclosure would genuinely improve the explanatory power of the financial statements.
Turning the Exemption into “Focused Transparency”
The government-related entity exemption can look like a relaxation of requirements, but in practice it is more of a reminder of the real purpose of related party disclosures. The goal is not to dump every possible relationship into a long list; it is to make the relationships and transactions that matter most stand out.
Next time you work on a company that has extensive dealings with government and government-related entities, you can follow this simple thought process:
- Identify which entities are “government-related” and whether the exemption conditions are met.
- Separate individually significant transactions from those that are collectively significant.
- For collectively significant flows, decide how to aggregate them and what qualitative information (types of transactions, typical terms) you should add.
- Think carefully about which transactions clearly depart from market terms and deserve extra explanation.
- Check whether HKAS 20 and HKFRS 8 trigger additional disclosures on grants and major customers.
- Ask yourself: “If I were reading this as an outsider, what else would I want to know to understand the government–entity relationship?”
When you use the exemption with this mindset, it becomes a practical tool for maintaining focused transparency in highly interconnected, government‑heavy environments, instead of just another piece of abstract text in HKAS 24 / IAS 24.
Key Takeaways for Students and Junior Accountants
- Remember that government-related entities are still related parties; the exemption only relaxes how you disclose, not whether the relationship exists.
- Use the exemption to avoid drowning in detail, but always ensure users can see: who the government is, how it relates to the entity, and how important government-related transactions are in total.
- Think of “collectively significant” in terms of dependence and combined impact, and “not at arm’s length” in terms of clearly favourable or unfavourable terms compared with normal market practice.
- When government is both an owner and a grant provider or major customer, remember to connect HKAS 24, HKAS 20 and HKFRS 8 so your disclosures tell a consistent story.
- In your working papers, document your judgements: which entities were treated as government-related, how you assessed collective significance and off‑market terms, and why certain transactions were disclosed individually.
- Train yourself to ask, “As a reader, would I understand the real role of government in this business from these notes?” – that question often shows you where extra, voluntary disclosure is worth adding.
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