Ind AS 24- Related Party Disclosures
Ind AS 24 describes the various disclosures to be made by the parent entity regarding its associate, subsidiaries or joint venture which are termed as related parties. Let us first understand the terms associate, subsidiaries or joint venture before getting into details of this Ind AS.
Associate Company: If for example Co ABC (parent entity or reporting entity) has significant influence i.e. control of at least 25% of total share capital or business decisions under an agreement in Co XYZ, then Co XYZ is an associate company of Co ABC.
Subsidiary Company: If for example, Co DEF (parent/reporting/holding entity) has control of at least 50% of total share capital or business decisions under an agreement in Co GHI, then Co GHI is a subsidiary co of Co DEF.
Joint Venture: It is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task.
Let us now understand the scope, definition, and disclosures required in this Ind AS.
2. Objective of Ind AS 24: The most important objective of this standard is to ensure that an entity’s financial statement contains the disclosures 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
3. Scope: This standard shall be being applied in:
related party relationships and transactions;
outstanding balances, including commitments, between an entity and its related parties;
The circumstances in which disclosure of the items in (a) and (b) is required; and
determining the disclosures to be made about those items.
Requires disclosures of related party relationships, transactions and outstanding balances, including commitments, in the consolidated financial statement, separate financial statement, individual financial statement.
In case a statute/regulator/similar competent authority governing an entity prohibits the entity to disclose certain information which is required to be disclosed as per this Ind AS then disclosure of such information is not warranted.
Related Party: Related party can be either a person or entity
Person or close member of the person is related if any of the following exists
control or joint control of the reporting entity
the significant influence of the reporting entity
Key management personnel of reporting entity or of its parent
An entity is a related party if –
both the entity belongs to the same group
an associate or joint venture or other entity or of the same third party
the entity is a post-employment benefit plan for the benefit of employees
if the person mentioned above has controlled or jointly controlled or has significant influence or is a member of key management personnel of the entity
*Close member of the family includes person’s children, spouse or domestic partner, brother, sister, father and mother, children of that person’s spouse or domestic partner and dependants of that person’s or person’s spouse or domestic partner
Related Party Transactions: A transaction of transfer of resources, services or obligations between a reporting entity and a related party regardless of whether a price is charged
Government: Government, government agencies and similar bodies whether local, national or international
Government-related entity is controlled, jointly controlled or significantly influenced by a government
5. The following are not related parties
two organisation as they have the director or other members of key management personnel in common
two joint venturers simply because they share joint control
providers of finance
public utilities departments and agencies of government that does not control, jointly control or significantly influence the reporting entity a customer supplier
6. Following disclosures are to be made
Relationships between a parent and its subsidiaries should be disclosed irrespective of whether there have been transactions between them
An entity shall disclose key management personnel compensation in total and for each of the following categories:
Short-term employee benefits
Other long-term benefits
Termination benefits and
If key management personnel services are obtained from another entity, the above requirements need not be disclosed
If an entity has had related party transactions during the periods covered by financial statements, it shall disclose the nature of the related party relationship as well as information about those transactions(i.e amount, terms and conditions, provisions, expense) and outstanding balances, including commitments.
The disclosures required above shall be made separately for each of the parent, entities with joint control or significant influence over the entity, subsidiaries, associates, joint ventures, key management personnel, other related parties Amounts incurred by the entity for the provision of key management personnel services that are provided by a separate management entity Some of the examples of transactions to be disclosed if done with related party;
Purchases or sales of goods or assets, rendering or receiving services, leases, transfer of research and development and so on
7. Government- related entities
Reporting entity is exempt from the disclosures requirements in relation to related party transactions and outstanding balances including commitments with government who has control or joint control or significant influence over the reporting entity and another entity that is related party because the same government has control or joint control of or significant influence over both the reporting and other entity
If the above exemption is applied by the reporting entity then it shall disclose the following about the transactions and related outstanding balances
Name of the government and nature of its relationship
The nature and amount of each individually significant transaction and for other transactions that are collected but not individually significant a qualitative or quantitative indication of their extent.
To disclose the above mentioned transactions the reporting entity shall consider the closeness of the related party relationship and other factors relevant to establishing the level of significance of transactions such as whether it is significant in size, outside normal day-to-day transactions, reported to senior management, subject to shareholder approval and so on