The Purpose of this Policy
The purpose of this policy is to define the parameters for related party transactions and the level of disclosure and reporting required for the National Space Flight Foundation (NSFF) to achieve compliance with the Australian Accounting Standard AASB 124 - Related Party Disclosures, and the ACNC and ASIC requirements.
Context and Scope
The objective of the accounting standard is to ensure that annual financial statements contain disclosures necessary for stakeholders to draw attention to the possibility that transactions and outstanding balances may have affected the financial position and financial performance with related parties.
The NSFF recognises that related party transactions can present potential or actual conflicts of interest and may raise questions about whether they are in the best interests of the organisation.
This procedure applies to ‘Key Management Personnel (KMP)’ and Responsible Persons within the NSFF.
Policy Statement
The NSFF from time to time may undertake transactions with related people or organisations. It is important to carefully manage these transactions and ensure that they are transparent and the details of them are recorded appropriately.
Definitions
At arm’s length
To act independently and without one party influencing another party.
Financial Benefit
The legal definition of the term ‘financial benefit’ is broad. A non-exhaustive list of examples include:
• providing finance or property to a related party
• buying or leasing an asset from or selling an asset to a related party
• supplying or receiving services from the related party
• issuing securities or granting options to the related party
• taking up or releasing an obligation of the related party
Key Management Personnel (KMP)
AASB 124 defines KMP as those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly.
For the NSFF, this will apply to:
• Directors,
• Executive Directors,
• Leadership team, and
• Employees with a financial delegation
Related Party
The term 'related party' is defined by the Australian Accounting Standards Board (AASB) in AASB 124 Related Party Disclosures. The definition in AASB 124 refers to the following as related parties for a registered charity:
• a person that is connected to the charity, such as a Responsible Person that has control or joint control of the organisation, or a close member of their family
• an organisation that is connected to the charity and has control or significant influence over the charity, such as a parent entity of the charity
• an organisation that the charity has control or significant influence over, such as a subsidiary entity
• any organisation and the charity that are members of the same group (for example, fellow subsidiaries)
• a member, or a close member of their family, of the Key Management Personnel of the charity (as defined above)
Register of Related Party Transactions
A list of related party transactions that have been declared and approved. The CEO manages the register.
Responsible Person
A Responsible Person is someone who is responsible for governing the NSFF.
Generally, the NSFF’s Responsible Persons are its Board Members.
What are related party transactions?
A related party transaction is defined in AASB 124 as a transfer of resources, services or obligations between an organisation and a related party regardless of whether a price is charged. Related party transactions can include:
-
purchases, sales, donations (excluding small donations made by staff of the NSFF);
-
receipt of goods, services or property;
-
leases;
-
transfers of property including intellectual property;
-
loans;
-
guarantees; and
-
provision of employees on a paid or complementary basis.
Financial Benefit
A related party transaction is one in which a related party accrues a financial benefit as a result of the transaction. The provision of a financial benefit that may occur can be quite broad and include:
-
providing a financial benefit indirectly, for example through one or more interposed entities;
-
giving a benefit by making an informal agreement, oral agreement or an agreement that has no binding force; and
-
situations in which no money is paid, for example, where a financial advantage is provided.
The Corporations Act (2001) provides certain exemptions for related party transactions that accrue financial benefits. The giving of a benefit to or by a closely held subsidiary is one such exemption; however, this type of related transaction must still be treated in the same manner as a related party transaction that does derive a financial benefit in as far as it must be recorded in the Register of Related Party Transactions.
What do we need to do?
Registered charities must comply with th e ACNC Governance Standards to maintain their eligibility for registration. As part of this, Governance Standard 5 says that a charity must take reasonable steps to make sure its Responsible Persons meet certain duties, including:
-
to act honestly and fairly in the best interests of the charity and for its charitable purposes;
-
not to misuse their position;
-
to disclose any actual or perceived conflict of interest; and
-
ensure that the charity’s financial affairs are managed responsibly.
Conflicts of interest (whether actual or perceived) may arise where a related party has an interest that may conflict with the best interests of the charity. Where a Responsible Person has an actual or perceived interest with a related party, it may be difficult to demonstrate the duty to act in the best interests of the charity.
By having a related party transaction procedure, the NSFF reduces the risk that the interests of others may influence their decisions. This procedure also helps to ensure that related party transactions do not take place without approval of Responsible Persons.
Managing Related Party Transactions
All related party transactions and payments are to be conducted on an arm’s length basis to ensure that a financial benefit is not given to a related party without due consideration.
The process surrounding those transactions must be transparent; this includes fully documenting the transaction in a manner that can be recorded on the register of related party transactions, prior to entering into the transaction.
Related Party Transaction involving Directors (Responsible Persons)
Where a related party transaction relates to a Board Member, that Board Member has an obligation to disclose that conflict (or potential conflict) of interest the Company Secretary and the Board. The Board will discuss the perceived conflict and if required, ask that member to remove himself or herself from the discussion and decision making process. A record of the disclosure will be made on the register of related party transactions.
All related party transactions must be disclosed and registered in the register of related party transactions. The KMP approving the transaction must forward the documented evidence provided for approval to the Company Secretary as soon as possible after approval.
In all cases
(a) The Company Secretary will provide a report on related party transactions to the Board at each meeting;
(b) Related party transactions will be reported in the annual financial statements each year;
(c) Records of related party transactions will be retained for seven years before they are archived or destroyed, and be detailed enough to enable effective auditing of those records; and
(d) Related party transactions will be reported in the Annual Information Statement to the ACNC each year.
Relevant legislation or standard
-
Australian Accounting Standard AASB124 related party disclosures (AASB124)
-
Australian Accounting Standard AASB10 consolidated financial statements Corporations Act (2001)