Ind AS 24 Related Party Disclosures: CA Final Financial Reporting Chapter Guide

What this chapter covers

Ind AS 24 Related Party Disclosures: topics in the order to study them

1. 1Objective, Scope and Purpose of Ind AS 24Start here to learn what the standard is trying to achieve and where it applies, so the later rules make sense.
2. 2Definition of Related Party and Related Party RelationshipsThis is the core of the chapter and the most tested part, so study it before any disclosure rules.
3. 3Key Management Personnel and Compensation DisclosureKMP is a defined term used inside the related party definition, and its compensation has its own separate disclosure.
4. 4Related Party Transactions and Disclosure RequirementsStudy this last, because you need the definitions first to know whose transactions and balances to disclose.

How to prepare Ind AS 24 Related Party Disclosures

1. Read the objective and scope once, and note that the standard is about disclosure, not measurement.
2. Write the definition of a related party for a person and for an entity as two short lists in your own words, one limb per line.
3. Draw a small diagram for each practice case showing the reporting entity, its parent, subsidiaries, associates, joint ventures and individuals. Mark each link before you decide anything.
4. Learn the KMP definition and the categories of compensation disclosure, such as short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits and share-based payment. Also note that when a separate management entity provides KMP services to the reporting entity, the amounts incurred for those services are disclosed as a related party transaction.
5. List what to disclose for transactions: the nature of the related party relationship, the amount of the transactions, and information on outstanding balances including commitments. For the balances, give the terms and conditions, whether they are secured, the form of settlement, and any guarantees given or received. Also disclose provisions for doubtful debts and the expense recognised in the period for bad or doubtful debts due from related parties.
6. Solve case scenarios where you must decide who is related and then state the disclosure. Write each answer in the form: rule, facts, conclusion.
7. Revise by redrawing two or three group diagrams from memory and re-testing each relationship.

Common mistakes in Ind AS 24 Related Party Disclosures

• Treating two entities as related just because they share a director.

  Fix: Go back to the definition and find the exact limb that applies. A shared director is a point to test, not a conclusion.

• Testing relationships from the wrong entity's point of view.

  Fix: Write the name of the reporting entity at the top of your diagram. Test every other party only against it.

• Leaving out close family members of individuals who control or influence the entity.

  Fix: For every individual in a case, ask what the family members' connection is, and apply the close member test.

• Disclosing only transactions and ignoring the nature of the relationship, outstanding balances, commitments and terms.

  Fix: Use a checklist: nature of the relationship, transaction amounts, outstanding balances including commitments, terms and conditions, whether secured, form of settlement, guarantees given or received, provisions for doubtful debts and the bad or doubtful debt expense.

• Skipping disclosure when the parent and the ultimate controlling party have no transactions with the entity.

  Fix: Remember that the parent and ultimate controlling party relationship is disclosed whether or not there were transactions.

• Writing the answer as a general discussion instead of rule, facts and conclusion.

  Fix: For each case, state the rule, apply it to the facts and write a clear conclusion about who is related and what is disclosed.

Last-day revision: Ind AS 24 Related Party Disclosures

• ✓Ind AS 24 is a disclosure standard. It does not deal with recognition or measurement.
• ✓Related party relationships are tested from the reporting entity's point of view.
• ✓A person or a close member of that person's family can be related if the person controls, jointly controls or significantly influences the entity, or is KMP of the entity or its parent.
• ✓Close family members are those who may be expected to influence, or be influenced by, the person in dealing with the entity. They include the person's spouse or domestic partner and children, the children of the spouse or domestic partner, and dependants of the person or of the spouse or domestic partner.
• ✓An entity is also related to the reporting entity if it is controlled or jointly controlled by a person identified as related, or if such a person has significant influence over it or is KMP of it (or of its parent).
• ✓Entities in the same group, such as parent, subsidiary and fellow subsidiary, are related to each other.
• ✓Two entities are related if one entity is an associate or joint venture of the other entity, or of a member of a group of which the other entity is a member.
• ✓Two entities are related if both are joint ventures of the same third entity.
• ✓Two entities are related if one is a joint venture of a third entity and the other is an associate of that third entity.
• ✓Post-employment benefit plans for the employees of the reporting entity or a related entity are related parties.
• ✓KMP are those with authority and responsibility for planning, directing and controlling the entity's activities, directly or indirectly, including directors.
• ✓Disclose KMP compensation in total and for each of five categories: short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits and share-based payment.
• ✓Relationships between a parent and its subsidiaries are disclosed irrespective of whether there have been transactions between them. Name the parent and, if different, the ultimate controlling party. If neither produces consolidated financial statements for public use, name the next most senior parent that does.
• ✓Related party transactions are transfers of resources, services or obligations, whether or not a price is charged.
• ✓Two entities are not related merely because they have a common director or other KMP, or because two venturers share joint control over a joint venture. A common director can still create a relationship through the KMP or significant influence limbs, so check the specific limb.

Ind AS 24 Related Party Disclosures practice questions

• Himalaya Power Ltd has seconded several employees to its subsidiary, Himalaya Hydro Ltd, under an arrangement where Himalaya Hydro reimburse…
• Ganga Pharma Ltd has a wholly owned subsidiary that carried out no transactions with it during the year. The CFO proposes to skip all disclo…
• Sagar Textiles Ltd's management is preparing its related party note. A statute governing one of its regulated dealings prohibits the company…
• Arjun Pharma Ltd sold goods to its joint venture, Bharat Meds Ltd, in a number of small transactions during the year, as follows: Rs 40 lakh…
• Vindhya Power Ltd has many small, similar transactions with an associate. The finance head proposes combining them into one figure per categ…
• Ind AS 24 states a reason why related party disclosures are required. Which statement best reflects that reason as given in the standard tex…
• Konkan Ports Ltd is controlled by Arya Holdings Ltd. Konkan had no transactions with Arya during the year. The accountant says no disclosure…
• Gomti Pharma Ltd's audit committee asks why Ind AS 24 requires disclosure of transactions, outstanding balances including commitments, and r…

Ind AS 24 Related Party Disclosures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

• CA IntermediateAS 18 Related Party Disclosures
• CS ProfessionalProcess of M&A Transactions
• CMA IntermediateBorrowing Costs (AS 16)
• CS ExecutiveListing Obligations and Disclosure Requirements