AS 18 Related Party Disclosures Applicability Summary Notes PDF. In the previous article, we have given AS 17 Segment Reporting Summary Notes PDF. Today we are providing the complete details of accounting standard 18 related party disclosures I;e objective, scope, applicability, definitions, and disclosure. At the end of this article, you can also download AS 18 notes by ICAI. This notes is useful for CA Final students.
AS 18 Related Party Disclosures
The objective of this Standard Related Party Disclosures is to establish requirements for disclosure of:
- related party relationships; and
- transactions between a reporting enterprise and its related parties.
This Standard deals only with related party relationships described in (a) to (e) below:
(a) enterprises that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the reporting enterprise (this includes holding companies, subsidiaries and fellow subsidiaries);
(b) 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;
(c) individuals owning, directly or indirectly, an interest in the voting power of the reporting enterprise that gives them control or significant influence over the enterprise, and relatives of any such individual;
(d) key management personnel and relatives of such personnel; and
(e) 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.
For the purpose of this Standard, the following terms are used with the meanings specified:
1) 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.
2) Related party transaction – a transfer of resources or obligations between related parties, regardless of whether or not a price is charged.
3) Control –
- ownership, directly or indirectly, of more than one-half of the voting power of an enterprise, or
- control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise, or
- a substantial interest in voting power and the power to direct, by statute or agreement, the financial and/or operating policies of the enterprise.
4) Significant influence – participation in the financial and/or operating policy decisions of an enterprise, but not control of those policies.
5) A Joint venture – a contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control.
6) Key management personnel – those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise.
7) 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 enterprise.
8) Holding company – a company having one or more subsidiaries.
9) Subsidiary – a company:
- in which another company (the holding company) holds, either by itself and/or through one or more subsidiaries, more than one-half in nominal value of its equity share capital; or
- of which another company (the holding company) controls, either by itself and/or through one or more subsidiaries, the composition of its board of directors.
1) The statutes governing an enterprise 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 enterprise, especially their remuneration and borrowings, because of the fiduciary nature of their relationship with the enterprise.
2) Name of the related party and nature of the related party relationship where control exists should be disclosed irrespective of whether or not there have been transactions between the related parties.
3) If there have been transactions between related parties, during the existence of a related party relationship, the reporting enterprise should disclose the following:
- the name of the transacting related party;
- a description of the relationship between the parties;
- a description of the nature of transactions;
- volume of the transactions either as an amount or as an appropriate proportion;
- any other elements of the related party transactions necessary for an understanding of the financial statements;
- the amounts or appropriate proportions 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
- amounts written off or written back in the period in respect of debts due from or to related parties.
4) 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 enterprise.
5) The following are examples of the related party transactions in respect of which disclosures may be made by a reporting enterprise:
- purchases or sales of goods (finished or unfinished);
- purchases or sales of fixed assets;
- rendering or 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);
- guarantees and collaterals; and
- management contracts including for deputation of employees.
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