Indian Accounting Standard 24, Related Party Disclosures
The objective of Ind AS 24 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 in:
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.
Further this Standard also requires disclosure of related party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parent or investors with joint control of, or significant influence over, an investee. This Standard also applies to individual financial statements.
Intragroup related party transactions and outstanding balances are eliminated, except for those between an investment entity and its subsidiaries measured at fair value through profit or loss, in the preparation of consolidated financial statements of the group.
Related party disclosure requirements as laid down in this Standard do not apply in circumstances where providing such disclosures would conflict with the reporting entity’s duties of confidentiality as specifically required in terms of a statute or by any regulator or similar competent authority.
In case a statute or a regulator or a similar competent authority governing an entity prohibits the entity to disclose certain information which is required to be disclosed as per this Standard, disclosure of such information is not warranted. For example, banks are obliged by law to maintain confidentiality in respect of their customers’ transactions and this Standard would not override the obligation to preserve the confidentiality of customers’ dealings.
A related party is a person or entity that is related to the entity that is preparing its financial statements (referred to as the ‘reporting entity’).
A person or a close member of that person’s family is related to a reporting entity if that person:
i) has control or joint control of the reporting entity;
ii) has significant influence over the reporting entity; or
iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
An entity is related to a reporting entity if any of the following conditions applies:
(i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).
(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
(iii) Both entities are joint ventures of the same third party.
(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.
(v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.
(vi) The entity is controlled or jointly controlled by a person identified in (a).
(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.
In the definition of a related party, an associate includes subsidiaries of the associate and a joint venture includes subsidiaries of the joint venture. Therefore, for example, an associate’s subsidiary and the investor that has significant influence over the associate are related to each other.
Additionally, ‘compensation’, ‘government’ and ‘government-related entity’ are all defined in the Standard
- A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.
- Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity including:
a) that person’s children, spouse or domestic partner, brother, sister, father and mother;
b) children of that person’s spouse or domestic partner; and
c) dependants of that person or that person’s spouse or domestic partner.
- Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.
In the context of this Standard, the following are not related parties:
a) two entities simply because they have a director or other member of key management personnel in common or because a member of key management personnel of one entity has significant influence over the other entity.
b) two joint venturers simply because they share joint control of a joint venture.
c) providers of finance, trade unions, public utilities, and departments and agencies of a government that does not control, jointly control or significantly influence the reporting entity, simply by virtue of their normal dealings with an entity (even though they may affect the freedom of action of an entity or participate in its decision-making process).
d) a customer, supplier, franchisor, distributor or general agent with whom an entity transacts a significant volume of business, simply by virtue of the resulting economic dependence.
Disclosures for all entities
Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been transactions between them. An entity should disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces consolidated financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed.
Unless an entity obtains key management personnel services from another entity (the ‘management entity’), it shall disclose key management personnel compensation in total and for each of the following categories:
a) short-term employee benefits;
b) post-employment benefits;
c) other long-term benefits;
d) termination benefits; and
e) share-based payment.
If an entity has had related party transactions during the periods covered by the financial statements, it shall disclose the nature of the related party relationship as well as information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements. At a minimum, disclosures shall include:
a. the amount of the transactions;
b. the amount of outstanding balances, including commitments, and:
i. their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and
ii. details of any guarantees given or received;
c. provisions for doubtful debts related to the amount of outstanding balances; and
d. the expense recognised during the period in respect of bad or doubtful debts due from related parties.
The above disclosures shall be made separately for each of the following categories:
a) the parent;
b) entities with joint control of, or significant influence over, the entity;
e) joint ventures in which the entity is a joint venturer;
f) key management personnel of the entity or its parent; and
g) other related parties.
Amounts incurred by the entity for the provision of key management personnel services that are provided by a separate management entity shall be disclosed.
Items of a similar nature may be disclosed in aggregate except when separate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the entity.
Disclosures for government-related entities
A government-related reporting entity is exempt from the disclosure requirements of related party transactions and outstanding balances, including commitments, with:
a) a government that has control or joint control of, or significant influence over, the reporting entity; and
b) another entity that is a related party because the same government has control or joint control of, or significant influence over, both the reporting entity and the other entity.
If a reporting entity applies the above exemption, it should disclose the following about the transactions and related outstanding balances:
a) the name of the government and the nature of its relationship with the reporting entity (i.e. control, joint control or significant influence);
b) the following information in sufficient detail to enable users of the entity’s financial statements to understand the effect of related party transactions on its financial statements:
i. the nature and amount of each individually significant transaction; and
ii. for other transactions that are collectively, but not individually, significant, a qualitative or quantitative indication of their extent.