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Exposure Draft of the Accounting Standard (AS) 24, Related Party Disclosures (Comments to be received by October 31, 2017)
October, 06th 2017
                  Exposure Draft


         Accounting Standard (AS) 24


            Related Party Disclosures




   Last date for the comments: 31st October, 2017




                    Issued by
          Accounting Standards Board
The Institute of Chartered Accountants of India




                                1
                               Exposure Draft

                      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
Standards).

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
                   http://www.icai.org/comments/asb/

2. Email:          Comments can be sent at commentsasb@icai.in

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 asb@icai.in.

                                               2
(This Accounting Standard includes paragraphs set in bold type and plain type,
which have equal authority. Paragraphs in bold italic type indicate the main
principles.)

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'.

Objective
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
           parties

Scope
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
     paragraph 3A.

3A   This Standard deals only with related party relationships described in (a) to
     (e) below:

     (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
           fellow subsidiaries);

     (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;

                                                 3
     (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

                                                 4
     could have an effect on the financial position and operating results of the
     reporting entity.

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
     development.

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
     goods.

Definitions
9.   The following terms are used in this Standard with the meanings
     specified:

     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
     reporting entity.

     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
     entity.


                                                5
      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
      Government(s).

      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
      Standards.




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
      parties:

      (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
            process):

            (i) providers of finance;

            (ii) trade unions;



                                                 6
                (iii) public utilities;

                (iv) government departments and government agencies including
                     government sponsored bodies.

12        [Refer Appendix 1]

Disclosure
          All entities
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
          entity.

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
          Entities*.

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.

                                                    7
       (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);

     (i)   commitments;

                                                 8
     (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
    aggregated disclosure

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

                                                9
      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
            significant influence);

      (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.







                                              10
Appendix A
Illustration
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-
                                                                Personnel   Ment
                                                                            Personnel


Purchases of goods

Sale of goods

Purchase of property plant
& equipment & other
assets

Sale of property, plant and equipment
and other asset

Rendering of services

Receiving of services

Agency arrangements

Leasing or hire purchase
arrangements

Transfer of research and
development

License agreements Finance
(including loans and equity
contributions in cash or in
kind)


                                                  11
Commitments

Guarantees and
collaterals

Management contracts
including for deputation of
employees

Note:

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)




                                            12
Appendix 1
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.

                                                13
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.




                                              14

 
 
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