The
following information was described in a note of Cruton Packing Co., a public
company that follows IFRS: "During August, Bigelow Products Corporation
purchased 212,450 shares of the Company's common shares, which constitutes
approximately 35% of the shares outstanding. Bigelow has since obtained
representation on the Board of Directors. An affiliate of Bigelow Products
Corporation acts as a food broker for Cruton Packing in the Toronto marketing
area. The commissions for such services after August amounted to approximately
$33,000." Why is this information disclosed?
Cruton and Bigelow are
related parties. Transactions between related parties are disclosed to insure
that the users of the financial statements understand the basic nature of some
of the transactions. Because it is often difficult to separate the economic
substance from the legal form in related party transactions, disclosure is used
extensively in this area. Purchase of a substantial block of the company’s
common shares by Bigelow, coupled with the use of a Bigelow affiliate to act as
food broker, suggests that disclosure is needed.
