Related Parties

Identification and understanding of related parties is a fundamental part of financial reporting, since these relationships can affect the company's financial position in ways that are not always obvious. Transactions with close associates can conceal genuine market conditions, causing revenue and costs not to reflect real values.

This is particularly important for assessing whether the company's results are sustainable or dependent on specific, potentially unreliable, relationships.

In the annual report, all material transactions with related parties must be reported under IFRS, but the quality of this information varies. Analysts must review the data critically in order to identify patterns indicating that pricing or terms are not market-neutral.

This includes evaluating whether loans are given on favorable terms, whether lease agreements deviate from market prices, or whether services are bought at excessive or deflated prices.

An analyst should begin by identifying all related parties stated in the notes to the accounts of the annual report. This includes not only obvious subsidiaries and parent companies, but also less obvious relationships such as key persons' close associates or jointly owned companies.

Thereafter, each transaction must be examined in detail in order to assess whether it takes place on market terms. This means comparing prices, interest rates and terms with what is accepted in the industry or with independent third-party contracts.