Where Australia Diverges From IAS 24

IAS 24, the international standard AASB 124 is based on, exempts government-related entities from disclosing transactions with other entities controlled or significantly influenced by the same government, subject to certain reduced disclosures, and it has never applied to not-for-profit public sector entities as a mandatory reporting obligation in the first place in most jurisdictions. The AASB took a different path. Effective from reporting periods beginning on or after 1 July 2016, AASB 124 disclosure requirements were extended to not-for-profit public sector entities, including government departments, statutory authorities, local councils, and public sector controlled entities that had, in many cases, never previously prepared related party disclosures of this kind.

The policy reasoning was transparency-driven: public sector entities transact heavily with other parts of government, and without related party disclosure, a reader of a department’s financial statements would have no visibility into transactions with related government entities or into the compensation of the senior public servants directing that department’s activities. The extension closed that gap, but it also imposed a substantially new compliance obligation on entities that had no established related party reporting infrastructure.

KMP in a Public Sector Context

Identifying KMP in a public sector or NFP entity raises questions that rarely arise in private companies. A government department’s KMP typically includes the responsible Minister, the department secretary or chief executive, and members of the senior executive team who direct the department’s activities. Whether a Minister is KMP of a specific department is assessed by reference to whether the Minister has authority and responsibility for planning, directing, and controlling that department’s activities — a test the AASB has confirmed is generally met for the portfolio Minister, even though the Minister is not an employee of the department and is separately compensated through parliamentary entitlements disclosed elsewhere.

For NFP entities such as charities and government-controlled not-for-profits, the KMP population typically includes the board or committee of management and the chief executive, and, as in the private sector, extends to anyone functionally directing the entity’s activities regardless of formal title.

Government-to-Government Transactions

A significant practical relief exists for transactions between government-related entities. Where a reporting entity is controlled or jointly controlled by government, or is significantly influenced by government, AASB 124 permits reduced disclosure for transactions with other entities related to it only because they are both related to the same government, sometimes called the “government-related entity exemption.” Instead of disclosing the details of every transaction with every other government entity, the reporting entity may instead disclose the nature and extent of its transactions with government collectively, and provide more detail only for individually significant transactions.

This exemption applies specifically to the government-related entity population; it does not extend related party relief to KMP disclosures, transactions with entities significantly influenced by an individual KMP, or transactions with the government body’s own close family member relationships. Preparers sometimes over-apply the exemption, treating it as a general “public sector related party discount” rather than the narrowly scoped relief it actually is.

A Practical Sequence for First-Time Public Sector Preparers

Entities applying AASB 124 for the first time under the public sector extension benefit from a structured build-out rather than attempting to compile the disclosure retrospectively at year end. Confirm the KMP population first, including the responsible Minister where relevant, and document the basis for including or excluding each individual. Map related entities through the whole-of-government structure, not just the immediate department or agency, since common control through a central government extends the related party population further than a private group structure typically would. Identify which transactions with government-related entities qualify for the collective disclosure relief and which are individually significant enough to require separate disclosure. Finally, build the KMP compensation disclosure using the same category structure as a private sector entity, aggregating rather than naming individuals.

Practical Takeaway

The extension of AASB 124 to the NFP and public sector space is one of the more consequential Australian departures from IFRS, and it catches entities that reasonably assume related party disclosure is a private sector, for-profit concern. Confirming scope early, rather than assuming exemption, is the first and most important step for any public sector or NFP entity preparing its first AASB 124 note.