Exposure Draft of the Accounting Standard (AS) 24, Related Party Disclosures (Comments to be received by October 31, 2017)
October, 06th 2017
Accounting Standard (AS) 24
Related Party Disclosures
Last date for the comments: 31st October, 2017
Accounting Standards Board
The Institute of Chartered Accountants of India
Accounting Standard (AS) 24
Related Party Disclosures
(The Indian Accounting Standards (Ind AS), as notified by the Ministry of
Corporate Affairs in February, 2015, have been applicable to the specified class
of companies. For other class of companies, i.e., primarily the unlisted entities
having net worth less than Rs. 250 crores, Accounting Standards, as notified under
Companies (Accounting Standards) Rules, 2006, have been applicable. However,
the Ministry of Corporate Affairs has requested the Accounting Standards Board
of The Institute of Chartered Accountants of India (ICAI) to upgrade Accounting
Standards, as notified under Companies (Accounting Standards) Rules, 2006, to
bring them nearer to Indian Accounting Standards. Accordingly, the Accounting
Standards Board, ICAI, initiated to upgrade these standards which will be
applicable to all companies having net-worth less than Rs. 250 crores including
non-corporate entities. While formulating these Accounting Standards, the
Accounting Standards Board, ICAI, decided to maintain the consistency with the
paragraph numbers and with the numbering of Standards of the Indian Accounting
Following is the Exposure Draft of the Accounting Standard (AS) 24, Related
Party Disclosures, issued by the Accounting Standards Board of the Institute of
Chartered Accountants of India, for comments. The Board invites comments on
any aspect of this Exposure Draft. Comments are most helpful if they indicate the
specific paragraph or group of paragraphs to which they relate, contain a clear
rationale and, where applicable, provide a suggestion for alternative wording.
How to Comment
Comments can be submitted using one of the following methods so as to receive
not later than 31st October, 2017:
1. Electronically: Visit the following link
2. Email: Comments can be sent at firstname.lastname@example.org
3. Postal: Secretary, Accounting Standards Board,
The Institute of Chartered Accountants of India, ICAI Bhawan,
Post Box No. 7100, Indraprastha Marg, New Delhi 110 002
Further clarifications on any aspect of this Exposure Draft may be sought by e-
mail to email@example.com.
(This Accounting Standard includes paragraphs set in bold type and plain type,
which have equal authority. Paragraphs in bold italic type indicate the main
This Accounting Standard is not Mandatory for non-corporate entities falling in
Level III, as defined in Appendix 1 to this Compendium `Applicability of
Accounting Standards to Various Entities'.
1. The objective of this Standard is to establish requirements for disclosure of:
(a) related party relationships;
(b) transactions between a reporting entity and its related parties; and
(c) outstanding balances, including commitments, with such related
2. This Standard shall be applied in identifying & reporting related party
relationships and transactions between a reporting entity and its related
parties. The requirements of this Standard apply to the financial
statements of each reporting entity as also to consolidated financial
statements presented by a holding company.
3 This Standard applies only to related party relationships described in
3A This Standard deals only with related party relationships described in (a) to
(a) entities that directly, or indirectly through one or more intermediaries,
control, or are controlled by, or are under common control with, the
reporting entity (this includes holding companies, subsidiaries and
(b) associates and joint ventures of the reporting entity and the investing
party or venturer in respect of which the reporting entity is an associate
or a joint venture;
(c) individuals owning, directly or indirectly, an interest in the voting
power of the reporting entity that gives them control or significant
influence over the entity, and relatives of any such individual;
(d) key management personnel and relatives of such personnel; and
(e) entities over which any person described in (c) or (d) is able to exercise
significant influence. This includes entities owned by directors or
major shareholders of the reporting entity and entities that have a
member of key management in common with the reporting entity.
4 No disclosure is required in consolidated financial statements in respect of
intra-group transactions. Disclosure of transactions between members of a
group is unnecessary in consolidated financial statements because
consolidated financial statements present information about the holding and
its subsidiaries as a single reporting entity.
4A 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.
4B In case a statute or a regulator or a similar competent authority governing an
entity prohibit 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.
The Related Party Issue
5 Related party relationships are a normal feature of commerce and business.
For example, entities frequently carry on separate parts of their activities
through subsidiaries or associates and acquire interests in other entities - for
investment purposes or for trading reasons - that are of sufficient proportions
for the investing entity to be able to control or exercise significant influence
on the financial and/or operating decisions of its investee.
6 Without related party disclosures, there is a general presumption that
transactions reflected in financial statements are consummated on an arm's-
length basis between independent parties. However, that presumption may
not be valid when related party relationships exist because related parties
may enter into transactions which unrelated parties would not enter into.
Also, transactions between related parties may not be effected at the same
terms and conditions as between unrelated parties. Sometimes, no price is
charged in related party transactions, for example, free provision of
management services and the extension of free credit on a debt. In view of
the aforesaid, the resulting accounting measures may not represent what they
usually would be expected to represent. Thus, a related party relationship
could have an effect on the financial position and operating results of the
7 The operating results and financial position of an entity may be affected by a
related party relationship even if related party transactions do not occur. The
mere existence of the relationship may be sufficient to affect the transactions
of the reporting entity with other parties. For example, a subsidiary may
terminate relations with a trading partner on acquisition by the holding
company of a fellow subsidiary engaged in the same trade as the former
partner. Alternatively, one party may refrain from acting because of the
control or significant influence of another - for example, a subsidiary may be
instructed by its holding company not to engage in research and
8 Because there is an inherent difficulty for management to determine the
effect of influences which do not lead to transactions, disclosure of such
effects is not required by this Standard.
8A Sometimes, transactions would not have taken place if the related party
relationship had not existed. For example, a company that sold a large
proportion of its production to its holding company at cost might not have
found an alternative customer if the holding company had not purchased the
9. The following terms are used in this Standard with the meanings
Related party - parties are considered to be related if at any time during
the reporting period one party has the ability to control the other party
or exercise significant influence over the other party in making financial
and/or operating decisions.
Related party transaction - a transfer of resources or obligations between
related parties, regardless of whether or not a price is charged.
Key management personnel - those persons who have the authority and
responsibility for planning, directing and controlling the activities of the
Relative in relation to an individual, means the spouse, son, daughter,
brother, sister, father and mother who may be expected to influence, or
be influenced by, that individual in his/her dealings with the reporting
Holding company - a company having one or more subsidiaries.
Subsidiary as defined in AS 110, Consolidated Financial Statements
Fellow subsidiary - a company is considered to be a fellow subsidiary of
another company if both are subsidiaries of the same holding company.
State-related entity - an entity that is controlled, jointly controlled or
significantly influenced by the Central, State, and/or any local
The terms `control', `significant influence', `associate', `joint control' and
`joint-venture' are defined in relevant Accounting Standards and are
used in this Standard with the meanings specified in those Accounting
9A Key management personnel are those persons who have the authority and
responsibility for planning, directing and controlling the activities of the
reporting entity. For example, in the case of a company, the managing
director(s), whole time director(s), manager, and any person in accordance
with whose directions or instructions the board of directors of the company is
accustomed to act, are usually considered key management personnel.
10 In considering each possible related party relationship, attention is directed
to the substance of the relationship and not merely the legal form.
11. In the context of this Standard, the following are deemed not to be related
(a) two companies simply because they have a director in common,
notwithstanding paragraph 3(d) or (e) above (unless the director is able
to affect the policies of both companies in their mutual dealings);
(b) a single customer, supplier, franchiser, distributor, or general agent
with whom an entity transacts a significant volume of business merely
by virtue of the resulting economic dependence; and
(c) the parties listed below, in the course of their normal dealings with an
entity by virtue only of those dealings (although they may circumscribe
the freedom of action of the entity or participate in its decision-making
(i) providers of finance;
(ii) trade unions;
(iii) public utilities;
(iv) government departments and government agencies including
government sponsored bodies.
12 [Refer Appendix 1]
13 The statutes governing an entity often require disclosure in financial
statements of transactions with certain categories of related parties. In
particular, attention is focused on transactions with the directors or similar
key management personnel of an entity, especially their remuneration and
borrowings, because of the fiduciary nature of their relationship with the
14 Name of the related party and nature of the related party relationship
where control exists shall be disclosed irrespective of whether or not
there have been transactions between the related parties.
14A Where the reporting entity controls, or is controlled by, another party, this
information is relevant to the users of financial statements irrespective of
whether or not transactions have taken place with that party. This is because
the existence of control relationship may prevent the reporting entity from
being independent in making its financial and/or operating decisions. The
disclosure of the name of the related party and the nature of the related party
relationship where control exists may sometimes be at least as relevant in
appraising an entity's prospects as are the operating results and the financial
position presented in its financial statements. Such a related party may
establish the entity's credit standing, determine the source and price of its
raw materials, and determine to whom and at what price the product is sold.
15 The requirements to disclose related party relationships between a parent and
its subsidiaries is in addition to the disclosure requirements in AS 27,
Separate Financial Statements, and AS 112, Disclosure of Interests in Other
16-17A [Refer Appendix 1]
18. If there have been transactions between related parties, during the
existence of a related party relationship, the reporting entity shall
disclose the following:
AS 27 and AS 112 is under formulation.
(i) the name of the transacting related party;
(ii) a description of the relationship between the parties;
(iii) a description of the nature of transactions;
(iv) amount of the transactions ;
(v) any other elements of the related party transactions necessary for an
understanding of the financial statements;
(vi) the amounts of outstanding items pertaining to related parties at the
balance sheet date and provisions for doubtful debts due from such
parties at that date; and
(vii) amounts written off or written back in the period in respect of debts
due from or to related parties.
18A Paragraph 18(v) requires disclosure of `any other elements of the related
party transactions necessary for an understanding of the financial
statements'. An example of such a disclosure would be an indication that the
transfer of a major asset had taken place at an amount materially different
from that obtainable on normal commercial terms.
19-20 [Refer Appendix 1]
21 The following are examples of the related party transactions in respect of
which disclosures may be made by a reporting entity:
(a) purchases or sales of goods (finished or unfinished);
(b) purchases or sales of property, plant & equipment & other assets;
(c) rendering or receiving of services;
(d) agency arrangements;
(e) leasing or hire purchase arrangements;
(f) transfer of research and development;
(g) licence agreements;
(h) finance (including loans and equity contributions in cash or in kind);
(j) guarantees and collaterals; and
(k) management contracts including for deputation of employees.
22 Participation by a parent or subsidiary in a defined benefit plan that shares
risk between group entities is a transaction between related parties (see
paragraph 42 of AS 19, Employee Benefits).
23 [Refer Appendix 1]
24 Items of a similar nature may be disclosed in aggregate by type of
related party except when separate disclosure is necessary for an
understanding of the effects of related party transactions on the
financial statements of the reporting entity. Type of related party means
each related party relationship described in paragraph 3A.
24A Disclosure of details of particular transactions with individual related parties
would frequently be too voluminous to be easily understood. Accordingly,
items of a similar nature may be disclosed in aggregate by type of related
party. However, this is not done in such a way as to obscure the importance
of significant transactions. Hence, purchases or sales of goods are not
aggregated with purchases or sales of property, plant and equipment. Nor a
material related party transaction with an individual party is clubbed in an
24B (a) Materiality primarily depends on the facts and circumstances of each case.
In deciding whether an item or an aggregate of items is material, the nature
and the size of the item(s) are evaluated together. Depending on the
circumstances, either the nature or the size of the item could be the
determining factor. As regards size, for the purpose of applying the test of
materiality as per this paragraph, ordinarily a related party transaction, the
amount of which is in excess of 10% of the total related party transactions of
the same type (such as purchase of goods), is considered material, unless on
the basis of facts and circumstances of the case it can be concluded that even
a transaction of less than 10% is material. As regards nature, ordinarily the
related party transactions which are not entered into in the normal course of
the business of the reporting entity are considered material subject to the
facts and circumstances of the case.
(b) The manner of disclosure required by paragraph 18, read with paragraph
24, is illustrated in the Appendix A to the Standard.
State related entities
25 A reporting entity is exempt from the disclosure requirements of
paragraph 18 in relation to related party transactions and outstanding
balances, including commitments with:
(a) State-related entity that has control or joint control of, or
significant influence over, the reporting entity; and
(b) Another entity that is a related party because the state-related
entity has control or joint control of, or significant influence over,
both the reporting entity and the other entity.
26. If a reporting entity applies the exemption in paragraph 25, it shall
disclose the following about the transactions and related outstanding
balances & commitments referred to in paragraph 25:
(a) the name of the state-related entity and the nature of its
relationship with the reporting entity(i.e., control, joint control or
(b) the nature and amount of transaction on aggregate basis to
enable users of the entity's financial statements to understand the
effect of related party transactions on its financial statements.
Note: This illustration does not form part of the Accounting Standard. Its purpose
is to assist in clarifying the meaning of the Accounting Standard.
The manner or disclosures required by paragraphs 18 and 24 of AS 24 is
illustrated as below. It may be noted that the format given below is merely
illustrative in nature and is not exhaustive.
Holding Subs- Fellow Assoc- Key Relatives Total
Company diaries Subsi- iates Manag- of Key
diaries ement Manage-
Purchases of goods
Sale of goods
Purchase of property plant
& equipment & other
Sale of property, plant and equipment
and other asset
Rendering of services
Receiving of services
Leasing or hire purchase
Transfer of research and
License agreements Finance
(including loans and equity
contributions in cash or in
including for deputation of
Name of related parties and description of relationship:
1. Holding Company A Ltd.
2. Subsidiaries B Ltd. and C (P) Ltd.
3. Fellow Subsidiaries D Ltd. and Q Ltd.
X Ltd., Y Ltd. and Z (P)
4. Associates Ltd.
5. Key Management Personnel Mr. Y and Mr. Z
6. Relatives of Key Management Mrs. Y (wife of Mr. Y),
Personnel Mr. F (father of Mr. Z)
Note: This Appendix is not a part of the Indian Accounting Standard. The
purpose of this Appendix is only to bring out the major differences, if any, between
Indian Accounting Standard (Ind AS) 24, Related Party Disclosures and the
Accounting Standard (AS) 24, Related Party Disclosures.
Comparison with Ind AS 24, Related Party Disclosures
1. The definition of `related party' is much wider in Ind AS 24 as compared to
AS 24. Ind AS 24 defined Government-related entity and AS 24 defines State-
related entity. Accordingly, paragraphs 25 and 26 and related heading have
been modified in AS 24.
2. Ind AS 24 covers key management personnel (KMP) of the parent. Ind AS 24
also covers the entity, or any member of a group of which it is a part,
providing key management personnel services to the reporting entity or to the
parent of the reporting entity. AS 24 covers KMP of the entity only.
3. AS 24 specifically mention that because there is an inherent difficulty for
management to determine the effect of influences which do not lead to
transactions, disclosure of such effects is not required. This is not specifically
mention in Ind AS. Paragraph 8A is added in AS 24 to explain this which is
not there in Ind AS 24,
4. Paragraph 9A is added in AS 24 to explain key management personnel which
is not there in Ind AS 24.
5. Under Ind AS 24 there is extended coverage in case of joint ventures. Two
entities are related to each other in both their financial statements, if they are
either co-venturers or one is a venturer and the other is an associate. Whereas
as per AS 24, co-venturers or co-associates are not related to each other.
Accordingly, related paragraph 12 is not included in AS 24. However,
paragraph number is retained in AS 24 in order to maintain the consistency
with the paragraph numbers of the Ind AS 24.
6. AS 24, as compared to Ind AS 24, does not include additional disclosure as to
the name of the next most senior parent which produces consolidated financial
statements for public use since it is felt that it is not relevant for non-Ind AS
compliant companies. Accordingly, paragraph 16 of Ind AS 24 with reference
to next most senior parent is not included in AS 24. However, paragraph
number is retained in AS 24 in order to maintain the consistency with the
paragraph numbers of the Ind AS 24.
7. Ind AS 24 requires extended disclosures for compensation of KMP under
different categories. AS 24 does not specifically require so. Accordingly,
paragraphs 17 and 17A are not included in AS 24.
8. Paragraph 19 of Ind AS 24 requires disclosure of related party transactions for
different categories separately. Such disclosure is not required in AS 24 and,
accordingly, paragraph 19 and 20 are not included in AS 24.
9. Ind AS requires disclosure of transactions made on terms equivalent to those in
arm's length transactions if such terms can be substantiated. AS 24 does not
require such disclosure. Accordingly, paragraph 23 is not included in AS 24.
10. Appendix A has been included in AS 24 to describe the manner of disclosures
required by paragraph 18 read with paragraph 24.