Normal dealings and economic dependence

Learning objectives

• Distinguish normal dealings and economic dependence from a related party relationship (no volume-of-business threshold is set).L1, L2, L3

Normative references

• IAS 24 §11The following are not related parties in themselves: two entities simply because they have a director or other member of key management personnel in common, or because a member of key management personnel of one entity has significant influence over the other; two joint venturers simply because they share joint control of a joint venture; providers of finance, trade unions, public utilities, and departments and agencies of a government that does not control, jointly control or significantly influence the entity, simply by virtue of their normal dealings with the entity (even though they may affect its freedom of action or participate in its decision-making); a customer, supplier, franchisor, distributor or general agent with whom the entity transacts a significant volume of business, simply by virtue of the resulting economic dependence.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• Ysol SA prepares financial statements. Which of these entities are not related parties of Ysol merely because of their normal dealings with it? More than one answer is possible.L2
• Textilia SA makes 62% of its sales through the distributor Moda. Moda imposes its pricing terms and may restrict Textilia's commercial freedom of action; it holds no shares in Textilia and sits on none of its bodies. Write a note determining whether Moda is a related party of Textilia, separating case facts, rule and judgement.L3