All about Ind AS 24 and related party disclosures

[ecis2016.org] The Indian accounting standard 24 (Ind AS 24) prescribes norms to make disclosure about the arms and subsidiaries of a company

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.

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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.

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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.

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