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Arm's length statement
Learning objectives
- Justify that a statement that transactions were made on terms equivalent to an arm's length transaction is made only if such terms can be substantiated.L2, L3, L4
Normative references
- IAS 24 §23The Standard does not require disclosure that related party transactions were made on terms equivalent to those that prevail in arm's length transactions; such a statement is made only if those terms can be substantiated.
Original summaries of the paragraphs (reference register), never a quotation of the standard.
2 questions
- Every entity must state in its note that its transactions with related parties were made on terms equivalent to those of an arm's length transaction.L2
- The management of Pivoine SA wants to write in the note: "All transactions with related parties were made on normal market terms." Its only basis is that prices were set by management using its knowledge of the market. In addition, the margin earned on sales to a subsidiary is 4 points lower than on sales to third parties, with no documented explanation. Write a note concluding on whether this sentence is appropriate, separating case facts, rule and judgement.L4
Practical cases
- Transactions, balances and allowances with an associate and a subsidiary: content of the note, totals by category and arm's lengthL2
- Group file: close family, entities controlled by a manager, post-employment plan, management entity, arm's length, aggregation and public fundL4
- Related party file of a group: mapping, key management compensation, transactions and balances, State (IAS 24)L4