Response on IAS 24 Related Party Disclosures—State-Controlled
Entities and the Definition of
Related Party.
Distinguished Board,
Recently，we know that the International Accounting Standards proposal to
amend IAS 24 Relationships with the State, then, we welcome any helpful
amendments and simplifications in this standard.
Our response to the specific questions about State-controlled Entities and the
Definition of a Related Party in the comments are set out below.
Question 1—State-controlled entities
We agree the proposed exempt, and strongly support to simplify the
disclosures that entities must provide when the exemption applies. Our
reasons are as follows;
(ⅰ) Potential risks of incomplete disclosures are prone to happen under
current standard. In such instance with large number of State-controlled
entities, because of the complexity of stock right structure of those
state-controlled entities and industry dispersion covering all fields within their
domestic economy, different accountants will make various judgements for the
same transaction entities and even confuse about whose relative parties they
should belong to by themselves. Furthermore, lacking of concrete standards
for judgement and consideration for commercial secrets also make it difficult to
acquire the information between transaction entities. Under current standard,
any small transactions between state-controlled entities need to be disclosed,
which will not only results in disunity of the disclosures, but importantly the
risk of incomplete disclosure due to lacks of unite professional standard of the
reporting entity.
(ⅱ) The listed company is independent and equal with others existing as the
same state-controlled entity. Requirement for these entities to disclose as
related parties will cause huge cost while limited value, and also difficult to
understand considering logistic. In the listed company, director board is the
decision-makers and acts the significant part in the operation of the company.
Under current supervision, any independent director and the director board of
the listed company can not permit any negative influence to company’s
operation and strategy just because of belonging to the state-controlled or
state-important influenced entities. In other words, it will not bring any influence
to the operation and strategy within a company which possesses good
corporate governance and efficient operation.
(ⅲ) With the improvement of market economy mechanism, the state exerting
more controls over the macro-economic policies while weakening the controls
and influence over single entities. The so-called state-controlled entity is only
a formally property right connection. Various state-controlled entities can
equally and freely choose their transaction item, transaction mode, price and
way of payment under certain market competing context and the fairness of
these transaction is also restricted by government code, securities
transactions and supervising regulations. For the investors, the vast
information and complicated businesses among state-controlled entities are
nearly the same as what have been disclosed in the financial statements, thus
the valuable and essential information are always hidden. The investors can
not find real valuable information in a short time, and may even result cost over
benefit in the searching of information.
So, we can believe that it will solve the problems above through amending the
requirement for state-controlled entity disclosure, considering the specific
exemption for transactions among entities controlled or significantly influenced
by the state, amending the disclosure requirement of the state controlled
entities, enhancing the maneuverability of distinguishing the related parties
and . This will guarantee the disclosures of the related party transactions more
veritably and integrated.
Question 2 —Definition of a related party
We agree with the amendment of the wording and the content about the
definition of related party and the definition of related party transactions by the
Board, which will provide an explicit standard in the disclosure of transactions
between related parties. However，if we follow the unmodified standard with
expanded definition, we need not only to disclosure the vast information about
the related parties but their transactions. In such situation, financial statement
users are very difficult to identify the valuable information which has been
hidden.
We hope our comments will be helpful to the amendments on IAS 24 Related
Party Disclosures—State-controlled Entities and the Definition of a Related
Party.
Thank you.
Aluminum Corporation of China Limited
March,12th,2009