Ind - AS 24 RELATED PARTY DISCLOSURE

Ind - AS 24 RELATED PARTY DISCLOSURE

Key Issues

Objectives

Objectives Contd.

SCOPE

Scope Continued

Related Parties - Person A related party is a person or entity that is related to the entity that is preparing its financial statements (referred to as the reporting entity) A person or a close member of that person s family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

Entities is related if :- (i)the entity and the reporting entity are members of the same group (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

Entities is related if :- (vi)the entity is controlled or jointly controlled by a person identified in (a)( all those three categories ) (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.

Who Are Related Parties? Joint Control Control Significant Influence Non executive Directors are also deemed as KMP

Same Mean ing as in Ind- AS 27, 28, 31

Close Members of Family Ind- AS Close members of the family of a person are the persons specified within meaning of relative under the Companies Act 1956 and that person s domestic partner, children of that person s domestic partner and dependants of that person s domestic partner.

Related Parties Ind-AS 24 Close members of family of an individual are family members who may be expected to influence, or be influenced by that individual in their dealings with the entity. Examples of close family members include the individual s domestic partner and any dependants of the individual or of his or her partner.

Control Can Be Achieved :-

SUBSTANCE OVER FORM In identifying a related party relationship, attention should be directed or the substances of the relationship rather than focusing on its legal form.

Following not considered as Related parties. Two entities that have a common director. Nor are two venturers purely because they share joint venture. Significant volumes of business with a customer or supplier do not necessarily create a related party relationship with them.

Following not considered as Related parties. Providers of Finance, trade union, Public Utilities & Government departments although they may circumscribe the freedom of action of the enterprise or participate in its decision making process. Customer, supplier, franchiser, distributor or general agent who enter into dealing with the reported enterprise by virtue of economic independence.

ILLUSTRATIONS 1 Mint is an entity that complies with minimum requirements of Ind-AS 24. The following relationships have been identified: (1) Toffee is a separate entity in which one of Mint s junior managers owns 10% of the share capital. This is not a related party. A junior manager is unlikely to be a member of key management personnel in Mint and with only a 10% holding in toffee is unlikely to have significant influence over it. (2) The daughter of a director of Mint. The daughter is a related party. The director is a related party as a member of key management personnel and his or her daughter falls within the definition of close family members.

Illustrations (3) Miss Butterscotch owns 25% of the Share capital of Mint. Miss Butterscotch is probably a related party since a 25% shareholding is likely to provide her with the ability to exert significant influence. This will depend, however on who owns the remaining 75% holding.

Illustrations (4) A director of Mint is also a director of Sugar ( which is independent company of Mint) but is not a shareholder in either entity. If the director is one amongst many on the board of Sugar and there are no others who are directors of Mint and Sugar, then it is unlikely that there is common control or influence. The act of merely being a director on both boards does not mean that the second entity is automatically a related party of the first entity. There is a probably no related party relationship.

Illustrations (5) Cream is an entity owned by the Niece of the finance director of Mint. The niece is not a sufficient close relative of Mint s finance director for Cream to constitute a related party.

What are RELATED PARTY TRANSACTIONS? A related party transactions is defined as a transfer of resources, services or obligations between related parties, regardless of whether a price is charged. Means even if transactions take place at a full arm s length price, ie a market price.

Having Discovered related party relation next question is what to disclose? Disclose the nature of the related party relationship as well as information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements.

Examples of Related party Transactions 1. Purchase or sale of Goods Finished or Unfinished 2. Purchase or sale of Property and Other Assets 3. Rendering or Receiving of Services 4. Agency Arrangements 5. Leasing or Hire Purchase Arrangements 6. Transfer of Research & Developments 7. Transfer of License Agreement 8. Transfer under Finance. 9. Guarantees & Collaterals 10. Settlement of Liabilites.

Government-related entities A reporting entity is exempt from the disclosure requirements in relation to related party transactions and outstanding balances, including commitments, with: (a) a government that has control, joint control or significant influence over the reporting entity; and (b) another entity that is a related party because the same government has control, joint control or significant influence over both the reporting entity and the other entity.

At Minimum, entities claiming Exemption Should disclose followings: (a) the name of the government and the nature of its relationship with the reporting entity (ie control, joint control or significant influence); (b) the following information in sufficient detail to enable users of the entity s financial statements to understand the effect of related party transactions on its financial statements: (i) the nature and amount of each individually significant transaction; And (ii) for other transactions that are collectively, but not individually, significant, a qualitative or quantitative indication of their extent.

DISCLOSURES

DISCLOSURES KMP s Compensation.

DISCLOSURES Transactions

Disclosure These disclosure should be presented separately for different categories of related parties, although items of a similar nature may be disclosed in aggregate. Where aggregation would result in key information necessary to understand the effect of the transactions on the financial statements being unavailable, separate disclosure should be made.

Disclosure The different categories for which separate disclosure are required are identified as: The parent Entities with joint control, or significant influence, over the entity Subsidiaries Associates Joint venture in which the entity is a venturer Key management personnel of the entity or its parent Other related parties Although information is required about nature of related parties there is no requirements to identify them specifically by name