Understanding IND AS 24: Related Party Disclosures

Understanding IND AS 24: Related Party Disclosures

A related party transaction is any transfer of obligations, assets, or services between a reporting entity and a related party, whether or not money is involved. 

A parent entity must disclose any transactions it has with associates, joint ventures, or subsidiaries, commonly referred to as Related parties, in accordance with Indian Accounting Standard 24. 

An organisation or individual associated with the reporting body is called a "related party."

This standard's goal is to highlight the possibility that business dealings with related parties could impact an entity's financial statements and profit or loss. 

It also requires the disclosure of any existing debts with respect to those parties.

Scope of the IND AS 24 

  1. Recognising connected parties and dealings with them.
  2. Determining the reporting entity's unpaid balance and commitments to linked parties.
  3. Understanding the conditions under which disclosures will be necessary in the instances mentioned above.
  4. Choose the disclosures that need to be made.

The standard mandates that transactions involving related parties, outstanding balances, including obligations, individual financial statements, separate financial statements, and consolidated financial statements all disclose related party relationships. 

It is not warranted to disclose specific information that is needed by this standard if a law, regulatory agency, or other comparable competent authority that governs the entity forbids disclosure of the information. 

For example, banks and stock brokerage firms are not allowed to divulge customer-related information; as a result, such information is not necessary to release.

The ICAI has released additional guidelines that businesses must abide by when declaring related party transactions in their financial statements, in addition to the obligations stated in IND AS 24. 

The following are the disclosures that need to be made:

1. Whether or not there have been transactions, the relationships between the parent and subsidiaries should be reported. The next senior parent must be identified in the consolidated financial statements for public access if the entity's parent or the ultimate controlling party fails to do so.

2. An entity is required to disclose the overall compensation as well as each category of compensation, such as short-term employee benefits, post-employment benefits, termination benefits, share-based payment, and other long-term benefits, to the key management staff.

3. Only the costs expended for the supply of such services, if key management services are obtained from another company, are required to be revealed.

4. Suppose an entity conducts business with a related party during a fiscal year. In that case, it must disclose the nature of those transactions as well as all pertinent information, including the amount, commitments, provision for doubtful debts, and expense related to bad and doubtful debts.

5. The previously mentioned disclosures will be made separately for a parent, subsidiaries, associates, entities that have joint control over or significant influence over another entity, joint ventures in which the entity is a venture, key management personnel of the entity, or parent, and other related parties.

When separate disclosure is required to comprehend the implications of related party transactions on the financial statements, disclosures for similar items cannot be given in aggregate. 

Purchase and sale of products, assets, providing or receiving of services, leasing, transfers, and other similar transactions are examples of related party transactions.

Deal with the government-related organisation.

The reporting entity is exempt from the disclosure requirements with respect to the government that has control, joint control, or significant influence over both the reporting entity and another entity that is a related party because the reporting entity and other entity are both under the control, joint control, or influence of the same government. 

As a result of this exemption, the entity is excluded from disclosing transactions between related parties and unpaid amounts, including obligations. 

An entity must disclose the following information if the exemption as mentioned above applies:

Name of the administration and the nature of the connection.

The characteristics and value of each transaction that is individually significant as well as a qualitative or quantitative indication of the size of other transactions that are collected but not individually significant.

IND AS 24's link to the Companies Act:

A financial reporting standard called IND AS 24 is based on the ideas of the Companies Act. Companies must adhere to IND AS 24's disclosure standards in order to be in compliance with the Companies Act.

Non-profit organisations:

Non-profit organisations that produce financial accounts in conformity with Indian Accounting Standards are subject to IND AS 24. In the same way, as for-profit businesses are required to report related party transactions, so must non-profit organisations.

Various definitions related to the topic:

A person or immediate family member is related to the reporting entity if they:

  • Has sole control over the reporting entity.
  • Has a considerable amount of power over the reporting entity?
  • Belongs to the reporting entity's key staff or that of the reporting entity's parent. 

A person's siblings, parents, brothers, sisters, and dependents of that person's spouse or domestic partner count as close family members.

If all of the following criteria are satisfied, an entity is connected to a reporting entity:

  • The reporting entity and entity are included in the same group.
  • A joint venture or associate of the other entity or the same third party.
  • The thing in question is a post-employment benefits program for the reporting entity or any other company connected to the reporting business.
  • The individual listed above controls or shares control of the entity, or they have significant influence over it.
  • The organisation, or any member of the group, offers key management personnel services to the reporting organisation or that organisation's parent.

Related party transactions, whether or not there is a fee involved, are transfers of assets, obligations, or services between a reporting firm and a related party.

The term "government" is used to describe all local, national, and worldwide governments as well as any associated institutions.

An organisation that is controlled, jointly controlled, or significantly influenced by the government is referred to as a "government-related entity.

All employment perks, including post-employment benefits, additional long-term employer benefits, termination benefits, and share-based payments, are included in the compensation.

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In conclusion, the ICAI's enhanced guidelines for related party transactions disclosure in financial statements mandate that businesses disclose more thorough and specific information about their related party transactions and relationships. 

This guarantees better accountability and transparency in financial reporting and aids stakeholders in making decisions regarding the financial performance and risks of the organisation.


1. What are the impacts of failing to follow IND AS 24 and its accompanying instructions?

IND AS 24 and its supplementary instructions must be followed to avoid penalties, fines, and reputational harm to the company. Additionally, businesses might be subject to regulatory inspection and costly, time-consuming legal proceedings.

2. What are the recommended procedures for adhering to IND AS 24 and its supplementary directives?

Companies should have strong systems and controls in place to identify related parties, monitor related party transactions, and guarantee that such transactions are put into on an arm's length basis in order to comply with IND AS 24 and its accompanying instructions. Additionally, businesses must keep accurate records of all related party transactions and balances and include concise and clear disclosures in their financial statements.

3. What kinds of transactions involving related parties are required to be disclosed by firms under IND AS 24?

All monetary and non-monetary transactions with related parties throughout the reporting period are considered related party transactions that firms are required to disclose under IND AS 24. This includes sales, acquisitions, loans, leases, and any other transactions that can affect the company's performance or financial status. Any outstanding amounts owed to connected parties at the conclusion of the reporting period should also be disclosed by companies. Key management professionals, their families, and the businesses they run are a few examples of connected parties.

4. Are there any particular IND AS 24 related party transaction audit requirements? 

Yes, auditors must gather sufficient, pertinent audit evidence in order to assess the financial statements related to party transaction disclosures. They must also take into account the risks connected with transactions with related parties and the efficacy of the company's procedures to mitigate such risks.

5. Can a business engage in transactions with related parties without disclosing them in accordance with IND AS 24?

No, related party transactions cannot be entered into by a company without being disclosed in accordance with IND AS 24. No matter if a transaction involves a connected party at arm's length or is deemed to be of insignificant importance, the standard mandates that corporations disclose all such transactions.

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