Ind AS 24 Indian accounting standard: Related party disclosure

While presenting their financial statements, corporates are also liable to provide disclosures regarding the transactions with their various associates, joint ventures and subsidiaries. The Indian accounting standard 24 (Ind AS 24) prescribes norms to make such disclosure, which are known as the related-party disclosures in accounting.

Table of Contents

See also: All about Indian accounting standards (Ind AS)

What is an associate company?

When a company controls at least 25% of the total share capital or business decisions under an agreement with another company, the latter is its associate company.

What is a subsidiary?

When a company holds at least a 50% stake in another company, the latter qualifies to be its subsidiary.

What is a joint venture?

A joint venture involves a business arrangement where two or more companies pool their resources, to achieve specific goals.

What is a related party transaction?

A related party transaction refers to a transfer of services, resources or obligations, between a reporting entity and a related party, irrespective of whether a price is charged.

What associations do not qualify as related parties?

The following are not known as related parties:

Two companies that share a director or any other member in their top management
Two joint ventures, because they share joint control
Lenders
Trade unions
Public utilities
Government departments and agencies
Customers
Suppliers
Franchisors
Distributors
Agents

See also: Indian accounting standard 113 (Ind AS 113): Fair value of assets

Objectives and scope of Ind AS 24

The objective of the Ins AS 24, is to ensure that a company’s financial statements contain the essential disclosures, to draw attention to the possibility that its financial position and profit or loss, may have been impacted by the existence of related parties and by the transactions / outstanding balances / commitments with such parties.

The provisions of the standard are applied in:

a) Identifying related-party relationships and the transactions between them.

b) Identifying the outstanding balances, including commitments, between a business and its related parties.

c) Identifying the circumstances under which disclosure of the items in (a) and (b) is required.

d) Determining the disclosures that are required for those items.

This standard requires disclosure of related-party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of the parent entity, venturer or investor, presented in accordance with the Indian Accounting Standard 27 (Ind AS 27). This standard is also applicable to individual financial statements.

Disclosures under Ind AS 24

Associations between a parent and its subsidiaries should be disclosed, irrespective of any transactions between them. To allow the users of financial statements, to form opinions about the effects of related parties on an entity, it is appropriate to disclose such related-party relationships wherever control exists, irrespective of the existence of any transactions between the related parties. It should also provide information about:

Interests in joint ventures
Key management personnel compensation in total
Employee benefits
Post-employment benefits
Other long-term benefits
Termination benefits
Share-based payment

The disclosures should be made separately for each of the following categories:

The parent
Subsidiaries
Entities with joint control or significant influence over the entity
Associates
Key management personnel of the entity or its parent
Joint ventures in which the entity is a venturer

Here are some examples of related party transactions that are disclosed:

Purchases or sales of goods
Rendering or receiving of services
Sales or purchases of property and other assets
Leases
Transfers under licence agreements
Transfers of research and development
Transfers under finance arrangements (including loans or equity contributions in cash or in kind)
Management contracts including those for deputation of employees

Government-related entities

Companies are exempt from the disclosure requirements pertaining to related party transactions and outstanding balances, including commitments, with a government that has control / joint control / significant influence over the reporting entity and another entity that is a related party because the same government has control / joint control / significant influence over both, the reporting entity and the other entity.

The company will, however, have to report the following, even then:

The government’s name and nature of its relationship with the reporting entity.
The nature and amount of each significant transaction.

See also: Know about Indian overseas bank IFSC code

FAQ

What is IAS 24?

The objective of Ind As 24 is to ensure that an entity's financial statements contain disclosures pertaining to related parties, such that it allows one to ascertain how the financial position of an entity may be affected by such related parties.

Who are related parties Ind AS 24?

Associates, joint ventures or subsidiaries, are collectively referred to as related parties under Ind As 24.

Was this article useful?

😃 (0)
😐 (0)
😔 (0)

Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
[email protected]