This article is for Irish company directors, finance managers, and business owners who need to understand their legal obligations around related party transactions in financial statements.
If you're unsure what counts as a related party transaction, what level of detail you need to disclose, or how inadequate disclosures can trigger audit qualifications, this guide covers the FRS 102 requirements, Companies Act 2014 obligations, and the most common disclosure failures that lead to modified audit opinions.
Key Takeaways
Related party transactions include any material dealings with directors, their family members, significant shareholders, and entities they control.
You must disclose the relationship nature, transaction amount, outstanding balance, terms, and whether conducted at arm's length.
Arm's length transactions still require disclosure; fair commercial terms don't eliminate the obligation to report the relationship.
Inadequate related party disclosures frequently trigger modified audit opinions, affecting bank financing and investor confidence.
Maintain a formal related party register and document all transactions, as FRS 102 and Companies Act requirements differ.
Laura Ryan is a practising Barrister at the Bar of Ireland. She graduated from the Honourable Society of King’s Inns in 2024, having previously qualified and practised as a Chartered Accountant in a big four accounting firm.
What exactly counts as a related party transaction?
A related party transaction is any transfer of resources, services, or obligations between your company and someone closely connected to it—whether or not money changed hands. This includes transactions with directors, their close family members, significant shareholders, parent or subsidiary companies, and any entity that a director or major shareholder controls or influences.
Do I need to disclose a transaction with a related party if it was done on normal commercial terms?
Yes, you must still disclose it. The fact that a transaction was conducted at arm's length on fair commercial terms does not eliminate the disclosure requirement—it's something you state in the disclosure itself, not a reason to omit it. The existence of the relationship and the nature of the transaction must be disclosed regardless of the terms.
What specific information must I include in a related party disclosure?
You must include the nature of the related party relationship, a description of the transaction, the transaction amount during the period, the outstanding balance at period end (including terms, conditions, and security), whether it was on normal commercial terms, and any doubtful debts recognized. Simply stating "the company had transactions with related parties" without these details is not compliant.
If I pay rent to my director's property or buy services from my director's spouse's company, do these need to be disclosed?
Yes, both of these are related party transactions that must be disclosed if they are material. Transactions involving property owned by directors or services purchased from companies owned by directors' family members are classic examples of disclosable related party transactions, regardless of how routine they feel.
Does satisfying the Companies Act 2014 disclosure requirements mean I've also satisfied FRS 102?
No, these are separate requirements that must both be addressed independently. The Companies Act 2014 has specific statutory disclosure requirements for directors' remuneration and loans, while FRS 102 has its own accounting standard requirements. Satisfying one does not automatically satisfy the other—you must comply with both in your financial statements.
What happens if my related party disclosures are inadequate?
Inadequate disclosures are one of the most common triggers for a modified audit opinion, which can be either qualified or, in serious cases, adverse. This can affect your ability to obtain bank financing, satisfy investment agreement conditions, or pass due diligence in a sale process, as acquirers and investors treat audit qualifications as red flags.
Can I avoid disclosing a related party transaction because it's immaterial?
Only if it genuinely meets the materiality threshold under FRS 102, which means it wouldn't influence the economic decisions of users of your financial statements. However, directors often apply materiality too broadly to avoid uncomfortable disclosures—the thresholds in FRS 102 and the Companies Act 2014 are lower than many assume, and any decision to omit on materiality grounds should be carefully made and documented.
What's the most common mistake companies make with related party disclosures?
The most frequent error is disclosing that a transaction occurred without stating the closing balance outstanding at period end. Other common failures include not identifying all related parties upfront (especially family members and connected companies), mentioning transactions without disclosing the terms, and failing to update disclosures when new related party relationships arise mid-year.
