Transactions such as the purchase of directors' houses and relocation expenses as well as deals between connected groups will have to be disclosed by companies under the Accounting Standards Board's latest standard, published today.
Financial Reporting Standard (FRS) 8 "Related Party Disclosures" is designed, in the words of ASB chairman Sir David Tweedie, to give users of financial statements "sufficient information to warn the reader when figures are not necessarily to be taken at face value".
It requires disclosure of information on "all material related-party transactions", the name of the party controlling the reporting company and, if different, that of the ultimate controlling party whether or not any transactions between the company and those parties have taken place.
Accountants believe that the new standard will not combat fraud and risks raising accounts users' expectations of auditors. "The fraudster who is undeterred by the criminal law is unlikely to be quaking in his boots at an accounting standard. It is simply another ant-hill to be trodden on," said Gerry Acher, head of audit at the accountants KPMG. But Sir David said the standard would at least require directors to tell more lies.
The primary objective is to deal with cases where public and private companies are entwined, such as Carrian Investment, the Hong Kong-based conglomerate that operated through a complex web of companies on its way to a market capitalisation of more than $1bn before collapsing in 1983. But the standard will also require more detailed information about transactions between the company and the directors of it or the ultimate owner.
Sir David said it aimed to stop people manipulating profits by selling things to themselves or directors as well as directors entering such arrangements as buying houses from the company "on the cheap".
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