AASB 124 Common Pitfalls: Missed Related Parties and Incomplete Disclosures
The recurring failure patterns behind incomplete AASB 124 notes, and a pre-finalisation checklist to catch them before audit.
Where Related Party Disclosures Break Down
Across engagements, AASB 124 failures cluster around a small number of recurring causes rather than a broad spread of unrelated errors. Reviewing a related party disclosure against this pattern, rather than against the standard’s text line by line, tends to surface the actual gaps faster.
Missed Related Parties
| Common Miss | Why It Happens | How to Catch It |
|---|---|---|
| Entities under common control via a family trust structure | The connection sits above the immediate corporate group and is not visible from a standard organisational chart | Map the ultimate controlling party and every entity beneath it, not just entities directly owned by the reporting entity |
| A KMP’s close family member’s business | The business has a different name and no obvious link to the KMP | Ask each KMP directly, in writing, to disclose their close family members’ business interests annually |
| A former KMP who resigned mid-year | Assumed to fall out of scope once they resign | Include related party transactions for the portion of the year the person was KMP, even if they left before year end |
| An entity significantly influenced, not controlled, by a KMP | Preparers often only check for control relationships and skip the lower significant-influence threshold | Apply the same related party test to significant influence holdings as to control holdings |
Incomplete Disclosure of Transactions That Were Identified
A second, separate failure pattern occurs even after the related party is correctly identified: the transaction disclosure itself is incomplete. The most frequent gaps are omitting the outstanding balance at year end (only the flow for the year is disclosed, not the closing position), omitting whether a balance is secured, and omitting the terms of settlement. A related party balance disclosed without its terms — is it interest-bearing, is it repayable on demand, is there a fixed maturity — gives the reader a number without the context needed to assess it.
The “No Related Party Transactions” Trap
As covered in Part 1 of this series, silence is not an acceptable substitute for an explicit disclosure that no related party transactions occurred. A related but distinct pitfall is disclosing “no related party transactions during the period” while still failing to disclose KMP compensation, on the mistaken assumption that KMP compensation is itself a related party transaction requiring the same triggering condition. KMP compensation disclosure is unconditional; it is required every period regardless of whether any other related party transaction occurred.
Treating Immateriality as an Exemption
Unlike many other disclosure areas, related party disclosure is not primarily a quantitative materiality test. A transaction at a materially below-market price with a related party can be disclosure-significant even where the dollar amount is small relative to the financial statements as a whole, because the qualitative nature of the relationship, not just the size of the transaction, is what a reader needs to assess. Preparers who apply a standard quantitative materiality threshold to related party transactions systematically under-disclose.
A Pre-Finalisation Checklist
Before financial statements are finalised, running through a fixed sequence catches most of the pitfalls above: confirm the KMP population as at year end and for any part-year changes; confirm every close family member and every entity each KMP controls, jointly controls, or significantly influences has been identified; confirm every identified related party transaction discloses the relationship, the amount, the outstanding balance, the terms, and any provision for doubtful debts; and confirm the KMP compensation note is present and categorised correctly even if no other related party transactions occurred during the period.
Practical Takeaway
Related party disclosure failures are rarely a misunderstanding of the recognition or measurement rules, because AASB 124 does not change recognition or measurement at all. They are almost always a completeness failure in the underlying related party register. Maintaining that register continuously through the year, rather than reconstructing it at year end from memory and the general ledger, is the single change that prevents most of the pitfalls this series has covered.
Part 1: FundamentalsPart 2: Worked ExamplesPart 3: The NFP and Public Sector Extension