Ind AS-24: Related Party Disclosures (By incorporating Changes as per Companies (Indian Accounting Standards) Amendments Rules 2021).
Each Accounting Standard offers wide variety of practical applications to the stakeholders in respect of full disclosure and transparency. Therefore, I hereby try to summarize various dimensions with regard to the Accounting Standard related with IndAS-24: Related Party Disclosures (By incorporating Changes as per Companies (Indian Accounting Standards) Amendments Rules 2021).
1. The Accounting Standards related with “Related Party Disclosures.”
A. Ind AS -24
B. IAS-24
2. Differences between IAS 24 and INDAS 24
| INDAS-24 | IAS -24 |
| 1. Paragraph 24A has been included. | 1. Not included |
| 2. Paragraph 14 has been modified to explain the rationale for disclosing related party relationship when control exists | 2. No such explanation. |
| 3. Relevant terms are Statement of profit and loss and balance sheet | 3. Relevant terms are Statement of Comprehensive Income and Statement of Financial Position |
| 4. In paragraph No 21,” management contracts including for deputation or employees” has been included as point Number(k) | 4. Such a reference is not included |
No Major differences between INDAS 24 and INDAS 24 except the above. Therefore, the following paragraphs relate to both INDAS 24and IAS 24.
3. Objective
To ensure that entity financial statements contains disclosure about related parties and by transactions and outstanding balances, including commitments, with such parties.
4. Scope
I. 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.
II. This standard requires disclosures 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 presented in accordance with Ind AS 110,Consolidated Financial Statements, or Ind AS 27, Separate Financial Statements .This standard also applies to individual financial statements .
5. Definitions.
a. A related party
A related party is a person or entity that is related to the entity that is preparing its financial statements (in this Standard referred to as the ‘reporting entity’).
b. 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.
c. 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.
d. 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.
e. 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
f. Disclosures.
I. Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been transactions between them.
II. An entity 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.
III. If an entity obtains key management personnel services from another entity (the management entity),the entity is not required to apply the requirements in the above mentioned point (II ) to the compensation paid or payable by the management entity to the management entity’s employee or directors.
IV. The 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.
V.The disclosures required 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;
(c) subsidiaries;
(d) associates;
(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.
VI The following are examples of transactions that are disclosed if they are related with the above mentioned parties (The list is not exhaustive)
(a) purchases or sales of goods (finished or unfinished);
(b) purchases or sales of property and other assets;
(c) rendering or receiving of services;
(d) leases;
(e) transfers of research and development;
(f) transfers under licence agreements;
(g) transfers under finance arrangements (including loans and equity contributions in cash or in kind);
(h) provision of guarantees or collateral;
(i) commitments to do something if a particular event occurs or does not occur in the future, including executory contracts (recognized and unrecognized); and
(j) settlement of liabilities on behalf of the entity or by the entity on behalf of that related party. Participation by a parent or subsidiary in a defined benefit plan that shares
(K) Management contracts including for deputation of employees
VII. Government Related Entities will get partial exemption with respect to the above disclosures.
A reporting entity is exempt from the disclosure requirements in relation to 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 exemption above , it shall disclose the following about the transactions and related outstanding balances referred to the above :
(a) the name of the government and the nature of its relationship with the reporting entity (ie 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.
(Article was originally published on 28.09.2020 and republished with further updates on 14.08.2021)
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