The Accounting Standards Board (ASB) has today issued a Financial Reporting Exposure Draft (FRED) 41 ‘Related Party Disclosures’, which contains proposals to replace the existing UK standard (FRS 8) with a Financial Reporting Standard based on International Accounting Standard (IAS) 24.

The proposals in the FRED are designed to ensure consistency between the requirements of accounting standards and company law. In March 2007 the Government issued a consultation document ‘Implementation of Directive 2006/46/EC on Company Reporting – Amending the Accounting Directives’ which will align the definition of a related party in UK company law with that in IAS 24. Without an amendment to FRS 8 a conflict would arise between that standard and the Companies Act requirement.

The proposals will lead to improved convergence between UK and International Financial Reporting Standards (IFRS) whilst avoiding any potential conflict between the requirements of financial reporting standards and company law. The FRED also proposes to:

• incorporate the IASB’s proposals to amend IAS 24, as published in February 2007;
• provide disclosure exemptions for wholly owned subsidiaries in accordance with the DTI proposal for the UK implementation of Directive 2006/46/EC; and
• provide guidance on materiality, based on that set out in IAS 1 ‘Presentation of Financial Statements’.

The FRED also requires disclosure of transactions entered into by the company with related parties if they are material and have not been concluded under normal market conditions, as required by the Directive. The ASB notes that this is an addition to the disclosure requirements under IAS 24 and has asked both the Government and the European Commission to clarify whether this was the intention of the Directive. This proposal will be reviewed in the light of the responses.

It is anticipated that the changes proposed to UK company law above will become effective in 2009. The ASB is seeking the views of its constituents at this time so that it can make any changes required to UK FRSs simultaneously to changes in company law. The ASB encourages UK and Irish constituents to comment on its latest proposals by 19 October 2007.

1. The ASB is an operating body of the Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the ASB, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy Investigation and Discipline Board) and by the Council. The Committee on Corporate Governance, whose members are drawn from the Council, assists it in its work on corporate governance.
2. The main role of the ASB is to issue accounting standards. The ASB collaborates with accounting standard-setters from other countries and the International Accounting Standards Board (IASB) both in order to influence the development of international standards and in order to ensure that its standards are developed with due regard to international developments.
3. The ASB has eleven Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who represent a variety of interests, are part-time.
4. Copies of the FRED are available from the Publications section of the FRC’s website (http://www.frc.org.uk/asb/publications/documents.cfm). Hard copies of the amendment can be obtained, price £5.00 (post-free) from:
   FRC Publications
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   Telephone: 020 8247 1264
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5. Press enquiries should be addressed to Ian Mackintosh (Chairman) on 020 7492 2434, David Loweth (Technical Director) on 020 7492 2420 or Jennifer Guest (Project Director) 020 7492 2427.