International Accounting Standard 24: Related Party Disclosures

A critique paper presented to the faculty of Accounting Department De La Salle University Taft, Manila In partial fulfillment of the requirements for the course MODFIN1

ANTENEO, Alyssa Lou ARMONIA, Ena Charleen BOLISAY, Crisha Ivett K32

INTRODUCTION All the companies that will be mentioned in our paper are publicly listed holding companies. First, A. Soriano Corporation (Anscor) is a company with diverse investments which has a number of other investments in companies engaged in a wide range of activities in the Philippines such as wireless broadband data services, aviation, real estate and manpower deployment. On the other hand, Abacus Consolidated Resources and Holdings, Inc. which was incorporated in 1981 as Piedra Negra Mining Corporation, a coal mining company, and publicly listed its shares on October 28, 1987. And at present, Abacus has interests in the leasing of gaming equipment, gold and coal mining, real estate and financial services. Aboitiz Equity Ventures (AEV) which is the third company to be talked about is a leader in the Philippine renewable generation industry with investments in geothermal and hydroelectric generation assets located throughout the Philippines. Aboitiz Power also pioneered the systematic development of small hydroelectric generation plants back in late 1980s. Meanwhile, ABS-CBN Holdings Corporation was incorporated the primary purpose of investing, purchasing and holding real and personal properties, including but not limited to, shares of stock, bonds, debentures, notes, evidences of indebtedness or other securities or obligations. For Alcorn Gold Resources Corporation, it has been involved in the acquisition, exploration, development, financing and management of various types of petroleum and mineral properties in the Philippines and abroad since 1998. Alcorn owns participating interests in various petroleum contract areas in offshore NW Palawan. Then, there is the Alliance Global Group, Inc. which is one of the Philippines' largest conglomerates, with interests in the food and beverage industry, real estate development and quick service restaurants. AGI is a holding company for a group of companies controlled by the Tan Family. In 1996, the a certain company which is known as Anglo Philippine Oil Corporation at first changed its primary purpose to that of an investments holding firm focused on infrastructure and property development, and changed its corporate name to Anglo Philippine Holdings Corporation. And since then, the Company has maintained, and will continue to maintain, investments in natural resources, property development, infrastructure and diversified businesses. Next is Asia Amalgamated Holdings Corporation (AAHC) which has made investments in various businesses, such as financial and banking services, distribution of household water filtration equipment and industrial waste water treatment, water transport services and non-life insurance brokerage. ATN Holdings, Inc. (ATN) was incorporated on February 17, 1961 as the Jabpract Mining and Industrial Corporation (JINICO), with the primary purpose of engaging in mining and oil exploration, with an initial authorized capital stock of Two Million Pesos (P2,000,000). On September 13, 1995, SEC approved the increase in authorized capital stock to Two hundred million pesos (P200,000,000) at One centavo (P0.01) per share. The last company which is Ayala Corporation which is one of the biggest, most respected, and most widely diversified conglomerates in the Philippines, with leadership positions in real estate development, banking and financial services, telecommunications, electronics and information technology, water infrastructure development and management, and other domestic and international operations.

Name Abacus Consolidated Resources and Holdings, Inc. Abacus Consolidated Resources and Holdings, Inc Aboitiz Equity Ventures, Inc. ABS-CBN Holdings Corporation Alcorn Gold Resources Corporation Anglo Philippine Holdings Corporation

Level of Compliance 86.36%

EPS (Php) 0.20

ROI 24.20%

ROA 20.78%

Auditing Firms SyCip Gorres Velayo& Co. Alba Romeo & Co., CPAs SyCip Gorres Velayo& Co. SyCip Gorres Velayo& Co. Manabat, San Agustin, & Co. SyCip Gorres Velayo& Co.

90.91%

0.266666

25.05%

14.77%

Items no Disclosed (IAS 24) 16 (d) Termination Benefits 18 (g) other related parties 16 (c) other long-term benefits 16 (d) Termination Benefits 16 (c) other long-term benefits 16 (d) Termination Benefits 16 (c) other long-term benefits 16 (d) Termination Benefits 16 (c) other long-term benefits 16 (c) other long-term benefits 17 (e) Share-based payment 21 (f) Transfers under Licensing Agreement 16 (d) Termination benefits 18 (c) Provisions for Doubtful Debts 21 (f) Transfers under Licensing Agreement 21 (e) Transfers of Research and Development 16 Key Management Personnel Compensation 16 (a) Short-term employee Benefits 16 (b) Post-employment Benefits 16 (c) Other Long-term benefits 16 (d) Termination Benefits 16 (e) Share-based payment 17 (c) Provisions for Doubtful Debts Related to the Outstanding Balances 17 (d) The expense recognized during the period in respect of Bad or Doubtful Debts from

90.91% 86.36%

1.494 N/A

2974.79% N/A

6.95% N/A

90.91% 0.00014941 86.36% 0.25

1.40%

7.83%

1.39%

5%

Alliance Global Group, Inc. Asia Amalgamated Holdings Corporation

95.45% 54.55%

0.4921 0.0608

3.74% 127.8122%

5.90% 126.956%

Punongbayan and Arraullo Alba Romeo and Company

Ayala Corporation

86.36%

2.62

9.9354%

4.6477%

SGV and Co.

ATN Holdings, Inc.

59.09%

0.17747

3.526%

3.088%

R. R. Tan and Associates, CPAs

related parties Joint Ventures in which the entity is a Venturer 16 Key management personnel of the entity or its parent 16 (d) Termination Benefits 17 (c) Provisions for Doubtful Debts Related to the Outstanding Balances 17 (d) The expense recognized during the period in respect of Bad or Doubtful Debts from 16 Key management personnel of the entity or its parent 16 (a) Short-term employee Benefits 16 (b) Post-employment Benefits 16 (c) Other Long-term benefits 16 (d) Termination Benefits 16 (e) Share-based payment 17 (c) Provisions for Doubtful Debts Related to the Outstanding Balances 17 (d) The expense recognized during the period in respect of Bad or Doubtful Debts from related parties 17 (d) The expense recognized during the period in respect of Bad or Doubtful Debts from related parties Joint Ventures in which the entity is a Venturer

Discussion of PAS 24 Philippine Accounting Standards number 24 talks about Related Party Disclosures. As stated by the name of the standard, it is used to make sure that the entity prepares financial statements with proper disclosure necessary to not mislead the users of the financial statements. The entity should disclose related party transactions that could have affected the profit and loss of the company and also the outstanding balances if theres any. Parties are considered related if one party has the ability to control the other, has the ability to exercise significant influence over the other or has a joint control over the entity while related party transactions is the transfer of resources or liabilities between related parties whether or not a price is charged. Some of the terms used in the standard are Control, Significant Influence and Joint Control. Control is simply having one half of the voting power in an entity. Its ownership could be direct or indirect but can still directly control the financial and operating policies of the entity. Significant Influence is just the power to participate in these financial and operating policies but not control of those policies. Joint control on the other hand is the agreed sharing of control over the entity on a contract. Examples of Related Parties are affiliates: the parent company, subsidiaries and fellow subsidiaries; Associates where in the investments are accounted for using the equity method; venturer in a joint venture; persons having authority over the company an example is the key management personnel; close family members that are expected to somehow at least influence or be influenced by an individual in connection with their transactions with the company or the entity; Individuals owning direct or indirect interests in the company; and Postemployment benefit plans for the employees of the company. All of these are Related Parties because one, they have the ability to control the other party; two, they can exercise significant influence over the other party; or three, they have joint control over the entity. Some of the Related Party Transactions mentioned in the Philippine Accounting Standards number 24 are purchase and sale of goods, property and other assets; performing or receiving services; leases; transfer of research and development; guarantees and collaterals; license agreements; settlement of obligations in behalf of the other or in behalf of the entity; and finance agreements like loans and capital contributions. The standard requires that a subsidiary entity shall disclose the name of its parent company, or its ultimate controlling company if different, whether or not there have been transactions between the two. If ever that the parent or the ultimate controlling company prepares financial statements for public use, the next most senior parent that prepares such financial statements shall be the one to be disclosed. The standard also requires that the entity shall disclose the nature of the relationship between the related parties and also important information about the transactions and the outstanding balances between the related parties involved in the transactions. Also given by the standard is the minimum disclosures for related party transactions include the amount of the transaction and the outstanding balance and its terms and conditions, whether secured or unsecured, provision used for the computation of doubtful accounts and also the doubtful accounts expense recognized during the period in respect of the outstanding balances between the two related parties. Unrelated parties include two entities having the same key director or key management personnel, public utilities, trade unions, government agencies and finance providers, a customer, supplier, franchisor or general agent which exercises economic independence on the entity and the most know two venturers who share joint control over a joint venture. The standard does not require intragroup related party transactions and their outstanding balances to be disclosed and should be eliminated in the consolidated financial statements prepared by the entity.

IMPLICATION After accomplishing the table which contains the earnings per share, rate of investment, rate of assets, level of compliance and the undisclosed requirements of the company, the group have observed that there was no company who was able to get a hundred percent for the level of compliance. All of the company had incomplete disclosures regarding their related party transactions. Of all the ten companies, Alliance Global Group, Inc. garnered the highest percentage for its level of compliance which was 95.45%. It was not able to disclose one requirement which was Transfers of Research and Development. On the other hand, Asia Amalgamated Holdings Corporation got the lowest percentage which was 54.55%. It was not able to disclose many requirements which were Key Management Personnel Compensation, Short-term employee Benefits, Post-employment Benefits, Other Long-term benefits and etc. Also, the Asia Amalgamated Holdings Corporation was the only company who had a net loss for the year 2009. For Abs-Cbn Company, its level of compliance is the same as A. Soriano Company, Anglo Philippine Holdings Corporation, and Ayala Corporation which is 86.36%. It was not able to disclose Termination Benefits, other related parties and other long-term benefits. The group was not able to determine the earnings per share of Abs-Cbn for the year 2009 because there was no given value. Also, its net income was not given so the group was not able to compute for the rate of investment and the rate of asset of Abs-Cbn Company. The group has observed that the common requirement that was not disclosed by the different companies is regarding the termination benefits and the other long-term benefits. The possible reason for this is the company might feel that if they give termination benefits to its employees then their employees would want to cease working for them since they would still get incentives from the company. Another reason for this is the company does not keep any long term employees; they keep contractual employees which are being renewed for every 5-6 months. In reference to the table, the group has observed that the Alcorn Gold Resources Corporation had the lowest earnings per share which was 0.00014941 which means that their company was not able to perform well in the year 2009 though it was attain a net income. Even though the Asia Amalgamated Holdings Corporation had a net loss, the earnings per share of the company was still higher than the Alcorn Gold Resources Corporation which means that it is performing better compared to the Alcorn Gold Corporation. Because the performance of a company is not based on how much its net income was for the year, but it is based on the earnings per share of the company. On the other hand, The Aboitiz Company was able to get the highest earnings per share of all the ten companies, which was P1.494.It just means that more people would most likely want to buy shares. The reason why no company was able to garner a hundred percent is because every company is different; they might have different structure and different policies being followed. Also, some of the requirements in the deloitte checklist might not be applicable to the company. So it does not mean that if a company was not able to get a perfect hundred percent then that company is not performing well or is not abiding by the requirements.