Related party relationships are a common feature of commercial life. The objective of IAS24 Related Party Disclosures is to ensure that financial statements contain the necessary disclosures to make users aware of the possibility that financial statements may have been affected by the existence of related parties.

Hideaway is a public listed company that owns two subsidiary company investments. It owns 100% of the equity shares of Benedict and 55% of the equity shares of Depret. During the year ended 30 September 2018 Depret made several sales of goods to Benedict. These sales totalled £15 million and had cost Depret £14 million to manufacture. Depret made these sales on the instruction of the Board of Hideaway. It is known that one of the directors of Depret, who is not a director of Hideaway, is unhappy with the parent company’s instruction as he believes the goods could have been sold to other companies outside the group at the far higher price of £20 million. All directors within the group benefit from a profit sharing scheme.

Required:

(a) Describe the main circumstances that give rise to related parties.

(b) Explain why the disclosure of related party relationships and transactions may be important.

(c) Describe the financial effect that Hideaway’s instruction may have on the financial statements of the companies within the group and the implications this may have for other interested parties. 

(ACCA)