Worked Example One: KMP Compensation Disclosure

A private trading company has five KMP: the managing director, two executive directors, and two non-executive directors. During the year, the managing director received a base salary of $340,000, superannuation of $35,700, and a cash bonus of $60,000 tied to annual performance targets. The two executive directors each received a base salary of $220,000 and superannuation of $23,100. The two non-executive directors each received director fees of $45,000 with no superannuation, since their engagement is structured as a fee-for-service arrangement rather than employment.

The AASB 124 disclosure is not a list of five individual pay packets. It is compensation aggregated by category across the whole KMP population: short-term employee benefits (salaries, fees, and the cash bonus, since it is expected to be settled within twelve months) total $340,000 + $60,000 + $220,000 + $220,000 + $45,000 + $45,000 = $930,000; post-employment benefits (superannuation) total $35,700 + $23,100 + $23,100 = $81,900; and other long-term benefits and termination benefits are both nil for the year. The note discloses these category totals, not the identity-linked figures, protecting individual remuneration privacy while still giving readers the aggregate scale of KMP compensation relative to the entity’s size.

Worked Example Two: A Related Party Transaction at Non-Market Terms

The same company leases its head office from a trust of which the managing director is a beneficiary. Annual rent under the lease is $180,000. An independent valuation obtained for an unrelated purpose values market rent for a comparable property at $240,000 per year. The company continues to pay $180,000.

The related party note discloses the nature of the relationship (lease of premises from a trust in which a KMP holds a beneficial interest), the amount of the transaction ($180,000 for the year), and the outstanding balance if any exists at year end (typically nil for an operating lease with no arrears). AASB 124 does not require the note to disclose that the rent is below market, and it does not require the company to pay market rent. What it does require is enough information — the relationship, the amount, and the terms — for a reader to recognise that this is not an arm’s length transaction and to form their own view of its significance. Omitting the relationship on the basis that “the amount is not material to total expenses” misses the point: materiality for related party disclosure is assessed by reference to the nature and sensitivity of the relationship, not solely by the transaction’s size relative to the financial statements as a whole.

Worked Example Three: A Loan Between the Entity and a KMP

During the year, the company advances $50,000 to one of its executive directors as an interest-free loan to be repaid over eighteen months through payroll deductions. At year end, $32,000 remains outstanding.

This requires disclosure of the outstanding balance ($32,000), the terms and conditions (interest-free, repayable by payroll deduction over eighteen months), whether the balance is secured, and any provision for doubtful debts. A common preparer error is treating employee loans as immaterial payroll administration rather than as a related party balance requiring separate disclosure once the employee meets the KMP definition; the moment the borrower is KMP, the ordinary employee-loan treatment no longer applies and the AASB 124 disclosure obligation is triggered regardless of the loan’s size.

Practical Takeaway

Each of these three examples shares a common thread: the transaction itself would likely never appear in a general ledger review as unusual, since the amounts are recorded correctly and the cash movements are exactly as described. The related party disclosure obligation exists independently of whether the transaction was recorded correctly. Building a related party transaction log that is updated as transactions occur, rather than reconstructed from the general ledger at year end, is what prevents these disclosures from being missed.