Indian Accounting Standard (Ind AS) 24, Related Party Disclosures, Important Material
Ind AS 24: Related Party Disclosures
Business transactions between related parties do not have the feature and character of the arm’s length transactions. It affects the volume and decision of one entity for the benefit of the other entities.
Related party relationship may have an effect on the profit or loss and financial position of an entity. Related parties may also enter into transactions that unrelated parties would not. It is required to disclose the related party transaction for proper understanding of financial performance and financial position of entity.
Related Party means any party that controls or can significantly influence the management or operating policies of the company during the reporting period.
The criteria for related party relationship are as follows:
- Common control;
- Joint control;
- Significant influence.
Ind AS 24 requires transactions between reporting entity and its related parties to be disclosed in the reporting entity’s financial statements.
The objective of this Standard is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties.
This Standard shall be applied for the following purposes:
(a) Identifying related party relationships and transactions;
(b) Identifying outstanding balances, including commitments, between an entity and its related parties;
(c) Identifying the circumstances in which disclosure of the items in (a) and (b) is required; and
(d) Determining the disclosures to be made about those items.