Ind AS 24 – Related Party Disclosures

Indian Accounting Standard (Ind AS) 24 – Related Party Disclosures

A related party transaction is a transfer of resources, services or obligations between RE

(reported entity) and related party regardless of whether a price is charged or not.

Definition of related parties:

a)

Close members are those who may be expected to influence, or be influenced by, that person
including:

 That person’s children, spouse, domestic partner, brother, sister, mother, father;
 Dependent of that person’s spouse/ domestic partner;
 Children of that person’s spouse/ domestic partner.

b) Entity is related to another entity if :

i) Entity and RE are members of same group (i.e., Parent, Subsidiary, fellow subsidiary) A
Group is a parent and all its subsidiaries.

ii) Associate or JV of the entity covered under (i) (i.e., associate or JV of member of group)

iii) Both entities are JV of same third party

iv) JV and Associate of the same third party

v) Entity is post-employment benefit plan of either the RE or an entity related to RE. If RE is

itself such a plan, the sponsoring employers are also related to RE.

vi) Entity is controlled / jointly controlled by Person identified under a)

vii) Person identified in a(i) has significant influence over the entity; or Person is a member of
KMP of the entity or parent of the entity

viii) Entity (or any member of the group of entity is part) provides KMP services to RE or parent
of RE.
As per relationship covered under (b)(i), RE and subsidiary are related parties for each other.

As per relationship covered under (b)(ii), RE and Associate are related parties for each other.

And as per relationship covered under (b)(ii), Associate and subsidiary are also related parties for
each other, this relationship was not covered under AS-18.

Likewise is a case of Joint venture.

Examples on relationships:

1. P Ltd (Parent company) has three subsidiaries S1, S2 and S3. Subsidiary S2 has one Associate
A1. Whether S1 and A1 are related parties?

Yes, as per the relationship covered under (b)(ii), S1 and A1 are related parties.

2. P Ltd (Parent company) has Subsidiary S1. S1 has further one Joint Venture J1 and one
Associate A1. Whether J1 and A1 are related to P Ltd?

Yes, P Ltd has to show A1 and J1 as its related parties.

3. P Ltd has two Associates A1 and A2. Whether A1 and A2 are related parties?

No, A1 and A2 are not related to each other.

4. A has control / significant influence over ABC Ltd. And Mr A is KMP in XYZ Ltd.
Comment on the relationships.

Under AS-18:

Enterprises over which KMP exercises significant influence is covered under AS-18.

Hence, in financial statements of XYZ Ltd, ABC Ltd is related a party.

However, if talks about the financial statements of ABC Ltd, XYZ Ltd is not a related party.

Under Ind AS-24:

In financial statements of XYZ Ltd, ABC Ltd is related a party. And in financial statements of
ABC Ltd, XYZ Ltd is also a related party.

5. P Ltd has one Associate A1 and one Joint Venture J1. A1 further has one subsidiary S1 and
likewise J1 has subsidiary S2. Whether S1 and S2 are related to P Ltd?

Yes, P Ltd has to show S1 and S2 as its related parties.

Disclosures:

i) Relationship between Parent and its subsidiaries irrespective of whether there have been
transactions between them.

Name of its Parent, ultimate controlling party (if different). If neither Parent nor ultimate
controlling party produce consolidated financial statements, name of next most senior parent
shall also be disclosed.

ii) KMP Compensation categorised as:

Short term employee benefits

Post-employment benefits (pensions and other retirement benefits)

Other long term benefits (long service leave/ sabbatical leave)

Termination benefits

Share based payments

(AS 18 does not require category wise KMP compensation)

If entity obtains KMP services from another entity, the entity is not required to apply the above
category wise requirements.
iii) If there is transaction during the period with the identified related parties, following
disclosures are required:


o Nature of related party relationship
o Amount of transactions
o Amount of Outstanding balances (including commitments), terms and conditions
(including whether they are secured and the nature of consideration to be provided
in settlement)
o Amount of guarantee given or received and details thereof
o Provision for doubtful debts related to outstanding balances
o Bad debts recognised in Profit / Loss
o Amount of provision of KMP services that are provided by separate entity

iv) Disclosures shall be made for each of the following categories:


o Parent
o Entities with joint control of, significant influence over, the entity
o Subsidiaries
o Associate
o Joint ventures
o KMP of entity or its parent
o Other related parties

v) Disclose that related party transactions are made on arm’s length only if it can be
substantiated.

vi) Items of similar nature may be disclosed in aggregate. However, this is not done in such a
way as to obscure the importance of significant transactions.

vii) Participation by a parent or subsidiary in a defined benefit plan that shares risks between
group entities is a transaction between related parties (to be discussed under Ind AS 19).

Government related entities:

Government refers to government, government agencies and similar bodies whether local,
national or international.

A government-related entity is an entity that is controlled, jointly controlled or significantly

influenced by a government.

Ind AS 24 exempts RE from disclosure requirements in relation to related party transactions and
balances with:

 Government has control / joint control or significant influence over RE

  Another entity that is related party because the same government has control/joint control
or significant influence over RE and another entity.

If entity applies the above exemption, it shall disclose the following:

 Name of the government and nature of the relationship

 Following information in sufficient detail to understand the effect of related party
transactions:
o Nature and amount of each individually significant transaction
o For other transactions that are collectively significant, a qualitative quantitative
indication of their extent.

Factors for assessing individually significant transactions:

 Outside normal day-to-day business operations (purchase and sale of business)

 Carried out on non-market terms
 Disclosed to regulatory or supervisory authorities
 Reported to senior management
 Subject to shareholders approval

Other differences between Ind AS 24 and AS 18

S.
Ind AS 24 AS 18
No.
Ind AS 24 covers KMP of entity and KMP of
1 It includes KMP of entity only.
its parent entity as well.
Ind AS 24 covers close members of KMP’s
families, and close member of that person’s
2 It covers only relatives of KMP only.
family who exercises significant influence /
control over the entity.
KMP includes any director (whether executive
3 KMP excludes non-executive directors.
or otherwise).
Significant influence is the power to
Significant influence is the power to participate
participate in the financial and
in the financial and/ or operating policy
4 operating policy decisions of the
decisions of the investee but not control over
investee but is not control or joint
those policies.
control of those policies.

Key points:

1. As per definition covered under Ind AS 24, if one party is related to second party, second
party would be treated as related to first party.

2. If RE has significant influence over the two entities, then these two entities are not related to
each other.
3. Under Ind AS 24 (Para 12), it is clear that Associate includes subsidiaries of the Associate and
a Joint venture includes subsidiaries of the joint venture.

4. Under Ind AS 24, both direct / indirect JV and Associate are covered i.e., JV / Associate of
Subsidiary are related to Parent company and Subsidiary of JV / Associate are related to Parent
company.

5. Related party disclosure requirements do not apply when providing such disclosures conflict
with duty of confidentiality as specifically required in terms of a statue or by any regulator or
similar competent authority. Example: banks are obliged by law to maintain confidentiality in
respect of their customer transactions and this Standard would not override the obligation to
preserve the confidentiality of customers’ dealings.

6. Following are not related parties:

 Two entities simply because they have director or KMP in common

 Member of KMP of one entity has significant influence over the other entity
 Two JV simply because they share joint control of a JV
 Providers of finance, trade unions, public utilities, govt departments/agencies (that does
not have control/joint control or significant influence over RE) simply by virtue of their
normal dealings with an entity (even though they may affect freedom of action of an
entity or participation in decision making process)
 Customer, supplier, franchisor, distributor, agent with whom entity transacts a significant
volume of business simply by virtue of the resulting economic dependence.