by The objective of Ind AS 24 is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that 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.
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.
Entity is related to another entity if:
- Entity and RE are members of same group (i.e., Parent, Subsidiary, fellow subsidiary) A Group is a parent and all its subsidiaries.
- Associate or JV of the entity covered under (i) (i.e., associate or JV of member of group)
- Both entities are JV of same third party
- JV and Associate of the same third party
- 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.
- Entity is controlled / jointly controlled by Person identified under a)
- 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
- Entity (or any member of the group of entity is part) provides KMP services to RE or parent of RE.
Related party disclosure requirements as laid down in this Standard do not apply in circumstances where providing such disclosures would conflict with the reporting entity’s duties of confidentiality as specifically required in terms of a statute or by any regulator or similar competent authority.
In case a statute or a regulator or a similar competent authority governing an entity prohibits the entity to disclose certain information which is required to be disclosed as per this Standard, disclosure of such information is not warranted. For example, banks are obliged by law to maintain confidentiality in respect of their customers’ transactions and this Standard would not override the obligation to preserve the confidentiality of customers’ dealings.
This standard shall be applied to:
- Identifying outstanding balance and commitments between the reporting entity and related parties.
- Identifying related parties and transactions with them.
- Determine the disclosures to be made.
- Recognising the circumstances in which disclosures will be required in the above-stated situations.
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 entities because they have director or other member of key management personnel in common two joint venturers simply because they share joint control providers of finance trade unions public utilities departments and agencies of government that does not control, jointly control or significantly influence the reportiing entity a customer supplier franchisor distributor general agent 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:
- Post-employment benefits
- Short-term employee benefits
- Other long-term benefits
- Termination benefits and
- Share based payment.
- 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
Disclosures to be made
- An entity must report the compensation to the key management personnel in total and each of the categories such as short term employee benefits, post-employment benefits, termination benefits, share-based payment, and other long-term benefits.
- Relationships between parent and subsidiaries should be disclosed irrespective of whether there have been any transactions or not. If the entity’s parent or the ultimate controlling party does not produce consolidated financial statements, then the next senior parent must be named in the consolidated financial statements for public use.
- If key management services are obtained from another entity, then only the amounts incurred for the provision of such services shall be disclosed.
- The above disclosures will be made separately in respect of a parent, subsidiaries, associate, entities with joint control or significant influence over the other entity, joint ventures in which the entity is the venturer, and key management personnel of the entity or parent and other related parties.
- If the entity has transactions with the related party during the financial year, then it shall disclose the nature of such transactions, and also all the details such as amount, outstanding balances including commitments, provision for doubtful debts, and the expense recognised in respect of bad and doubtful debts.
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 collectively but not individually significant a qualitative or quantitative indication of their extent.
