As 18

AS 18 Related Party Disclosures

Related Party Disclosures

(AS –18)

PHD Chambers of Commerce and Industry

“Corporate Financial Reporting and Changing Paradigms”

23 February 2002


AS-18 Related Party Disclosures

Applicability Effective in respect of accounting periods commencing

on or after 1 April 2001 Mandatory


The standard establishes requirements for the disclosure of:

related party relationships; andtransactions between a reporting enterprise and its

related parties.

What it entails


Rationale

Presumption of arm’s length transactions which may not be valid when related party relationships exist.

- Transactions may not have been entered into with unrelated parties or may not have taken place at all;

- Terms and conditions may be different from normal commercial terms.


Who is a related party ?

Ability to :

Control ; or

Exercise significant influence in making financial and/or operating decisions


Control

Ownership, directly or indirectly, of more than one half of the voting power

Control of composition of board of directors of a company

A substantial interest in voting power (20% or more) AND power under statute/agreement to direct financial and/or operating policies of the

enterprise


Significant Influence

Participation in financial and/or operating policy decisions but not control;

May be gained by - Share ownership

- Statute; and

- Agreement Assumed to exist in case of holding of 20% or more voting power directly or indirectly. This assumption is

however rebuttable.


Common controlEnterprises that

directly, or indirectly through one or more intermediaries

control,

are controlled by,

are under common control with

the reporting enterprise.

Related party relationships


Related party relationships (continued)

associates and joint ventures (and vice versa)

“associates and joint ventures of the reporting enterprise

and

the investing party or venturer in respect of which the reporting enterprise is an associate or a joint venture “



individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise giving them “control” or “significant influence” over the enterprise,

AND relatives of such individuals (spouse, children, parents, siblings)



key management personnel AND their relatives.



enterprises over which any person in (c) or (d) is able to exercise significant influence

“enterprises over which any person described in (c) or (d) is able to exercise significant influence. This includes

enterprises owned by directors or major shareholders of the reporting enterprise and enterprises that have a

member of key management in common with the reporting enterprise”


Relationships Covered

Control of another enterprise (parent); Control by another enterprise (subsidiary); Under common control (fellow subsidiary);

Associates/ joint ventures/ co-venturer; Investor in respect of which the enterprise is an associate; Individuals owning, directly or indirectly, voting power that

gives them control or significant influence and their relatives;

Key management personnel and their relatives; and Enterprises over which major owners, key management personnel or their relatives are able to exercise significant

influence.


Not Considered Related Parties

Two companies simply because they have a director in common

A single customer, supplier, franchiser, distributor or general agent

Providers of finance, trade unions, public utilities, government departments and government agencies in the

course of their normal dealing


Disclosures

Name of the related party and nature of the related party relationship where control exists, even if there have been transactions between the related parties.


Disclosures during existence of related party relationships

Name of transacting related party; Description of the relationship;

Description of the nature of transactions; Volume of transactions either as an amount or as an

appropriate proportion; any other element of the transaction necessary for an

understanding of the financial statements; amounts or appropriate proportions of the outstanding items

pertaining to related parties at balance sheet date and provision for doubtful debts due for such parties; and

amounts written off or written back in the period in respect of dues from or to related parties.


Examples of related party transactions

purchase or sales of goods; purchase or sale of fixed assets; rendering or receiving services;

agency agreements; leasing or hire purchase arrangements; transfer of research and development;

license agreements; financing (includes equity contributions in cash or kind); guarantees and collaterals; and management contracts including for deputation of

employees.


Aggregation

Items of a similar nature may be disclosed in aggregate by type of related party.


Disclosures

List of related parties:Parties where control exists:

XYZ Limited ( Holding Company)Other related parties:

Fellow subsidiaries:XYZ Services Limited, Sweden

XYZ Finance Inc., USAAssociates:

XYAB Private India LimitedDirectors:

Mr. ABCMr. EFG

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Disclosures

Transactions with related parties:

Sales, services & other income:Fellow subsidiaries Rs 567,789

Associates Rs 123,456

Capital ExpenditureFellow subsidiaries Rs 987,654

Shares issued on amalgamationHolding company (equity shares) Rs 213,645

Managerial remuneration Rs 2,345

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Other disclosure issues

Items of a similar nature may be disclosed in aggregate by type of related party.

XYZ Ltd. Rs.

Sales to ABC Ltd., a subsidiary 100,000Sales to DEF Ltd., a subsidiary 200,000Purchases from GHI, a joint venture company 300,000Purchases from ABC Ltd., a subsidiary 400,000

Disclosure:Sales to subsidiaries 300,000Purchases from subsidiaries 400,000Purchases from joint venture companies 300,000

As 18

Economy & Finance

Transcript of As 18