Pecuniary Interest Form and AASB 124 Related Party Transaction disclosures

AASB 124 disclosures in the financial statements / Pecuniary Interest Form (schedule 3 – form of return – disclosure of interest)
Purpose of the disclosure / Disclose transactions between the Council and related parties of the Council to inform users of the financial statements / Disclose transactions that might result in the Councillor getting a gain or loss because of their position on the Council or conflicts of interest
Relevant legislation / Local Government Act
AASB 124 / Local Government Act – chapter 14
Local Government Regulation 2005 – part 8
What is included? / Transactions between the Council and related parties of the Council. / Pecuniary interest - “an interest that a person has in a matter because of a reasonable likelihood or expectation of appreciable financial gain or loss to the person”
Who needs to be considered? /
  • Key management personnel (KMP)
  • Close family members of KMP
  • Related entities of Council
/
  • The councillors
  • The general manager
  • Other senior staff of the Council
  • Person who holds the position of a designated person
  • Pecuniary interest may arise due to:
 an interest of:
Spouse / de facto
Relative – your or your spouse’s parent, grandparent, brother, sister, uncle, aunt, nephew, niece, lineal descendent or adopted child and the spouse or de facto partner of those persons.
You, a nominee, your business partner or your employer being a member of a company or other body that has a pecuniary interest.
Exemptions / Non-material transactions, including those transactions available to all members of the public on the same terms / The following are not considered pecuniary interests:
  • An interest as an elector
  • Liable to pay charge such as rates
  • Provision of a service or the supply of goods or commodities also made to the general public
  • Provision of a service or the supply of goods or services to a relative but also made to the general public
  • Member of a club or other organisation or association – unless the person holds a position
  • Representative or member of a non-profit organisation or other community or special interest group chosen to represent that group on a council committee
  • an interest relating to a contract, proposed contract or other matter if the interest arises only because of a beneficial interest in shares in a company that does not exceed 10 per cent of the voting rights in the company,
  • an interest of a person arising from the proposed making by the council of an agreement between the council and a corporation, association or partnership, being a corporation, association or partnership that has more than 25 members, if the interest arises because a relative of the person is a shareholder (but not a director) of the corporation or is a member (but not a member of the committee) of the association or is a partner of the partnership,
  • an interest of a person arising from the making by the council of a contract or agreement with a relative of the person for or in relation to any of the following, but only if the proposed contract or agreement is similar in terms and conditions to such contracts and agreements as have been made, or as are proposed to be made, by the council in respect of similar matters with other residents of the area:
  • the performance by the council at the expense of the relative of any work or service in connection with roads or sanitation,
  • security for damage to footpaths or roads,
  • any other service to be rendered, or act to be done, by the council by or under any Act conferring functions on the council or by or under any contract,
  • an interest relating to the payment of fees to councillors (including the mayor and deputy mayor),
  • an interest relating to the payment of expenses and the provision of facilities to councillors (including the mayor and deputy mayor) in accordance with a policy under section 252,
  • an interest relating to an election to the office of mayor arising from the fact that a fee for the following 12 months has been determined for the office of mayor,
  • an interest of a person arising from the passing for payment of a regular account for wages or salary of an employee who is a relative of the person,
  • an interest arising from being covered by, or a proposal to be covered by, indemnity insurance as a councillor or member of a council committee,
  • an interest arising from appointment of a councillor to a body as representative or delegate of the council, whether or not a fee or other recompense is payable to the representative or delegate

Requirement / Financial statements to include disclosures which comply with AASB 124 – lodged with OLG within 4 years of the year end. / Councillors and designated person to lodge a ‘Disclosures by Councillors and Designated Persons Return” within 3 months of the year end.
Newly elected councillors are required to lodge the return within 3 months of becoming a Councillor.
Where maintained? / Financial statements lodged with OLG and available on Council website / Lodged with Council General Manager at the Council Chambers in a register of returns available for public inspection.

Consider the relevant requirements of AASB 124 compared to the requirements of the Pecuniary interest form

Reference
(AASB 124 or PIF) / 1.1 Requirement / Included in financial statements / Included in the Pecuniary Interest Form (PIF)
AASB 124.17 / The entity discloses key management personnel compensation in total and for each of the following categories:
  1. shortterm employee benefits;
  2. postemployment benefits;
  3. other longterm benefits;
  4. termination benefits; and
  5. sharebased payment?
/  / X
Persons do not have to disclose a pecuniary interest if it relates only to salary as member of staff or to other conditions of employment
AASB 124.18 / If there have been transactions between related parties, the entity discloses the nature of the related party relationship and sufficient information about the transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements?
Types of Transactions:
(a) purchases or sales of goods (finished or unfinished);
(b) purchases or sales of property and other assets;
(c) rendering or receiving of services;
(d) leases;
(e) transfers of research and development;
(f) transfers under licence agreements;
(g) transfers under finance arrangements (including loans and equity contributions in cash or in kind);
(h) provision of guarantees or collateral;
(i) commitments to do something if a particular event occurs or does not occur in the future, including executory contracts1 (recognised and unrecognised); and
(j) settlement of liabilities on behalf of the related party.
The following information, at minimum is disclosed:
a.the amount of the transactions;
b.the amount of outstanding balances, including commitments, and
terms and conditions (i.e. secured or unsecured) and the nature of consideration to be provided in settlement; and
details of guarantees given or received;
c.provisions for doubtful debts related to the amount of outstanding balances; and
d.the expense recognised during the period relating to bad or doubtful debts due from related parties? /  / The name of the related party will be disclosed in the PIF but the dollar value of transactions and balances and explanations of the transactions are not included.
AASB 124.19 / The entity separately discloses all the information required by paragraph 18 at the following levels:
c.subsidiaries;
d.associates;
e.joint ventures in which the entity is a joint venturer;
f.key management personnel of the entity or its parent; and
g.other related parties? /  / Certain KMP information is provided
AASB 124.24 / The entity discloses items of a similar nature in aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity? /  / Level of aggregation not discussed
PIF section A – Real property / Address of each parcel of real property in which Councillor has an interest and description of the nature of the interest / X / 
PIF section B - Sources of income:
 /
  • If income expected to be received from an occupation:
  • description of occupation;
  • name and address of employer or description of office held;
  • name under which partnership held (if applicable)
  • If expect to earn income from a trust:
  • Name and address of settlor
  • Name and address of trustee
  • Description of any other income expected to be received.
/ X / 
PIF section C - Gifts / Description of each gift received at any time during the return period / X
No specific requirement, however if the gift was material and given due to the Councillor’s role as a Councillor then may be captured by the remuneration note. / 
PIF section D - Contributions to travel
 /
  • name and address of each person who made any financial or other contribution to any travel undertaken any at time during the return period
  • dates on which travel was undertaken
  • names of places visited
/ X / 
PIF section E – Interests and positions in corporations /
  • name and address of each corporation in which an interest or position was held
  • nature of interest
  • description of position
  • description of principal objects of corporation (except for listed company)
/ Name and value of transactions if the entity was related to Council / 
PIF section F – Positions in trade unions and professional or business associations /
  • name of trade union in which position was held
  • description of position
/ X / 
PIF Section G – debts /
  • name and address of each person to whom the Councillor was liable to pay any debt
/ X / 
PIF Section H – dispositions of property /
  • particulars of each disposition of real property as a result of which was retained, either wholly or in part, the use and benefit of the property or the right to re-acquire the property at a later time
/ X / 
PIF Section I - discretionary disclosures / Little guidance provided / 

The Pecuniary Interest form is intended to identify conflicts of interests which may affect the Councillor / Designated person’s ability to be objective in Council decisions and gains / losses which the Councillors and designated persons have incurred in their role as Councillor / designated persons.

The AASB 124 disclosures are intended to provide information to users of the financial statements about transactions which have occurred during the reporting period between the Council and their related parties.

The purpose of the two documents is different; however there is some overlap with collection of information. The AASB 124 disclosures in the financial statements include an aggregation of information rather than providing detailed information on each KMP and if this information was included on the PIF then certain personal information would be on the public record without any requirement for this to be the case.

Councils administrative collection of information could be streamlined by including a AASB 124 appendix to the PIF which does not form part of the statutory form and therefore is not included in the register of returns but is provided to the finance team for completion of the financial statements – this would mean that Councillors / designated persons would only complete one return.

AASB 124 is required for each reporting period for each Councillor / designated person that held the position during the financial year and therefore a process needs to be developed to capture the relevant information for each newly appointed Councillor or person who ceased to be a Councillor who may not be required to lodge a pecuniary interest form under s449(2) of the Act.