In our latest blog, Charities Manager, Rory McCall, looks at identifying related party transactions in your charity:
Related party transactions, being transactions that a charity undertakes with a person or entity closely connected to it, must be disclosed in a set of charity financial statements. There are many examples of what constitutes a related party transaction, but some of the most common examples would be remuneration paid to a trustee or a transaction with a company in which one of the charity’s Trustees or one of their close family members holds a business interest.
Disclosure of these transactions is important for stewardship purposes and to ensure transparency, in that the trustees are operating in the best interests of the charity and not for private benefit. They’re one of the disclosures that users of the financial statements are most interested in, so it’s really important that you have the information available to be able to identify these transactions when they occur.
Charities can ensure they have this information to hand through completion of a declaration of interests form by Trustees to help collate potential related party relationships. This should prompt Trustees to disclose details of any financial interests that they or any close family members hold. Details from these forms should then be used to maintain a register of related parties, being a central register which holds details of all identified related party relationships.
It’s important that declarations of interests are completed by Trustees regularly, and at least annually, to ensure that any new related party relationships are identified.
Those responsible for maintaining the charity’s financial records should remain alert for transactions with any individuals or companies noted on the register of related parties and keep a list of these. Trustees can also disclose an interest in any business the charity undertakes at board meetings to help identification of these transactions.
Any transactions with related parties which have been identified should be shared with those preparing the financial statements so that appropriate disclosures can be made in the financial statements.
This blog is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not be used as a substitute for taking professional advice in any specific situation. Wbg Services LLP (and its subsidiary Wbg (Audit) Limited) will accept no responsibility for any actions taken or not taken on the basis of this blog. If you would like further advice or would like to discuss any of the issues raised in the blog then please get in touch with your regular Wbg contact or use the contact form on our website.
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