“Unlock the insights into Ind AS 24 Related Party Disclosures. Learn its scope, identification of related parties, disclosure requirements, and the significance it holds for transparency and governance in financial reporting. Comply with Ind AS 24 for trustworthy financial statements.”
Ind AS 24 deals with the disclosure requirements for related party transactions in financial statements. It establishes guidelines for identifying related parties and mandates the disclosure of transactions, outstanding balances, and commitments between the reporting entity and its related parties. This article aims to provide an overview of Ind AS 24, its key provisions, and its significance in financial reporting.
Background and Objective of Ind AS 24:
Ind AS 24 was issued by the Institute of Chartered Accountants of India (ICAI) as part of the convergence with International Financial Reporting Standards (IFRS). The objective of this standard is to ensure that financial statements provide relevant and transparent information regarding related party transactions, which could potentially influence the decision-making of users of financial statements.
Scope and Applicability of Ind AS 24:
Ind AS 24 applies to all entities that prepare financial statements in accordance with Indian Accounting Standards. It requires the disclosure of related party relationships and transactions, regardless of whether they have had a material effect on the financial statements. The standard applies to both individual entities and consolidated financial statements.
Identification of Related Parties:
Ind AS 24 provides guidance on identifying related parties, considering relationships based on control, significant influence, joint control, and close family relationships. Related parties include entities and individuals that have the ability to control or exercise significant influence over the reporting entity or that are under the common control of the same party.
Disclosure Requirements:
a. Related Party Transactions: Ind AS 24 mandates the disclosure of related party transactions, including the nature of the relationship, a description of the transactions, the amounts involved, and any outstanding balances at the reporting date. Examples of related party transactions include sales and purchases of goods or services, loans, guarantees, and leases.
b. Key Management Personnel: The standard requires the disclosure of compensation and other benefits provided to key management personnel (KMP), including directors and executives. It also necessitates the disclosure of transactions between the reporting entity and companies in which KMP have a significant influence.
c. Parent and Subsidiary Relationships: Ind AS 24 requires the disclosure of transactions and outstanding balances between a parent entity and its subsidiaries, as well as transactions between subsidiaries of the same parent.
d. Disclosures in Consolidated Financial Statements: In consolidated financial statements, the reporting entity needs to disclose related party transactions and outstanding balances involving the reporting entity and its subsidiaries, as well as transactions among subsidiaries of the same parent.
Significance of Ind AS 24:
a. Enhanced Transparency: Ind AS 24 promotes transparency by requiring entities to disclose their related party transactions. This allows users of financial statements to understand potential conflicts of interest and assess the impact of related party relationships on the entity’s financial position and performance.
b. Improved Decision-Making: Related party disclosures enable users of financial statements to make more informed decisions regarding investments, lending, and other financial dealings with the reporting entity. By providing information on related party transactions, the standard helps users assess the reliability and fairness of the entity’s financial statements.
c. Compliance and Governance: Ind AS 24 plays a vital role in promoting good corporate governance practices. By requiring entities to disclose related party transactions, it helps prevent the abuse of related party relationships and ensures that financial transactions are conducted on an arm’s length basis.
Conclusion:
Ind AS 24, Related Party Disclosures, plays a significant role in enhancing the transparency and reliability of financial statements. By mandating the disclosure of related party transactions, the standard provides users with valuable information to assess potential conflicts of interest and make informed decisions. Compliance with Ind AS 24 is essential for entities to demonstrate good corporate governance and maintain the trust of stakeholders.
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