CA Intermediate · Advanced Accounting

AS 18 Related Party Disclosures: CA Intermediate Chapter Guide

AS 18 requires an enterprise to disclose related party relationships and transactions in its financial statements, so users can see how they may affect results. To solve questions, first decide who is a related party under the AS 18 definitions, then classify each transaction, then disclose the required details.

What this chapter covers

AS 18 Related Party Disclosures is a short disclosure standard. It does not tell you how to measure or recognise anything. It tells you what to reveal when an enterprise deals with parties that can control it, influence it, or be controlled or influenced by it. Such dealings may not be at arm's length, so users of the accounts need to know about them.

The chapter has a clear flow. You first learn where AS 18 applies and what it leaves out. Then you learn the key terms: related party, control and significant influence. Next you apply them to relationships such as holding and subsidiary companies, associates, joint ventures, key management personnel and relatives. Then you classify transactions, and finally you learn what to disclose.

It connects to other parts of Advanced Accounting. Consolidation, associates and joint ventures bring in the same control and influence ideas. Questions are usually short and application based, so the chapter suits both MCQs and a small written answer.

This chapter is compact, so it gives good return for the effort. Most questions ask you to identify whether parties are related, to name the relationship, or to list the disclosures, and all of these can be learned thoroughly in a short time. The same questions can appear as MCQs, where one wrong classification costs marks, or as short written answers, where a clear definition-and-application format earns step marks. Since there is no negative marking, you can attempt every MCQ, but only a firm grip on the definitions will make your answers reliable.

AS 18 Related Party Disclosures: topics in the order to study them

1AS 18 Scope, Objective and ApplicabilityStart here to know what the standard covers, what it excludes and why it exists, so later details have context.
2Definitions: Related Party, Control and Significant InfluenceEvery later topic depends on these terms, so learn them exactly before applying them.
3Related Party Relationships and Deemed Related PartiesApply the definitions to real relationships such as holding, subsidiary, associates, key management personnel and relatives.
4Related Party Transactions and TypesOnce you can spot related parties, learn which transfers of resources, services or obligations count as transactions.
5Disclosure Requirements under AS 18Finish with what to disclose, since disclosure depends on knowing the parties and transactions first.

How to prepare AS 18 Related Party Disclosures

Treat this as a definitions-and-classification chapter. Your aim is to decide quickly and correctly who is related and what to disclose.

Read the scope and objective once, and note what AS 18 does not require: disclosure of intra-group transactions in consolidated financial statements, disclosure by a state-controlled enterprise of its relationships and transactions with other state-controlled enterprises, and disclosure that would conflict with confidentiality duties specifically required by a statute, regulator or similar competent authority.
Learn the definitions of related party, control and significant influence in your own words, then check them against the ICAI text.
Make a one-page chart of relationship types, with a line on who is covered in each, including key management personnel and relatives.
List the types of related party transactions with one everyday example for each, such as purchase or sale of goods, rendering of services, leasing, loans and guarantees.
Write out the disclosure list: name of the related party, nature of relationship, nature of transactions, volume, outstanding balances and similar details, and note when disclosure is needed even without transactions.
Solve past exam and ICAI practice questions in two passes: first only classify the parties, then write the full disclosure.
For written answers, use a fixed format: state the rule, apply it to the facts, give the conclusion. For MCQs, test each party against the definitions and eliminate options that misclassify it.

Common mistakes in AS 18 Related Party Disclosures

Treating every party you deal with as a related party
Fix: Test each party against the definitions of control and significant influence. Normal business dealings alone do not create a related party relationship.
Mixing up control and significant influence
Fix: Learn the full AS 18 test for control: more than one half of the voting power (directly or indirectly), control of the composition of the board or other governing body, or a substantial interest in voting power (20% or more) together with the power to direct financial and/or operating policies by statute or agreement. Significant influence is participation in policy decisions without control.
Forgetting relatives and key management personnel
Fix: For every question, check whether an individual, their relative or an entity they influence is involved, and apply the definitions.
Writing incomplete disclosures
Fix: Use your disclosure checklist: parties, relationship, nature of transactions, volume, outstanding amounts and any other required items.
Missing that disclosure is needed even without transactions
Fix: Remember that relationships where control exists are disclosed regardless of whether any transaction took place.
Writing long theory answers with no application
Fix: State the rule in one line, apply it to the facts in the question, and end with a clear conclusion on who is related and what is disclosed.

Last-day revision: AS 18 Related Party Disclosures

AS 18 is a disclosure standard: it prescribes what to disclose, not how to measure.
Related party: one party can control the other or exercise significant influence over it in financial or operating decisions.
Control: (a) ownership, directly or indirectly, of more than one half of the voting power of an enterprise; (b) control of the composition of the board of directors of a company, or of the governing body of any other enterprise; or (c) a substantial interest in voting power together with the power to direct, by statute or agreement, the financial and/or operating policies of the enterprise. A substantial interest means ownership, directly or indirectly, of 20% or more of the voting power.
Significant influence: participation in financial or operating policy decisions, but not control.
Individuals whose voting interest gives control or significant influence, key management personnel, and the relatives of both are related parties. So are enterprises over which any of these persons has control or significant influence.
Holding company, subsidiaries and fellow subsidiaries are all related parties of one another.
As per AS 18's list of related parties, associates and joint ventures of the reporting enterprise are covered, as are investing parties and venturers. Apply the definitions of control and significant influence in each case.
Transactions include transfer of resources, services or obligations, whether or not a price is charged.
Disclose the name and relationship of the related party, the nature and volume of transactions, and outstanding balances.
Where control exists, disclose the name of the related party and the relationship irrespective of whether there have been transactions, for example between a holding company and its subsidiary.
Merely having a director in common does not by itself make two companies related, unless the director can affect the policies of both in their mutual dealings, for example as key management of both. Likewise, normal dealings as a supplier, customer, financier, trade union, public utility or government department, or economic dependence on a single customer or supplier, do not by themselves make parties related. Always test whether control or significant influence exists.
Exemptions: no disclosure is required in consolidated financial statements for intra-group transactions, and a state-controlled enterprise need not disclose relationships and transactions with other state-controlled enterprises. Disclosure is also not required where it would conflict with confidentiality duties specifically required by a statute, regulator or similar competent authority.
Check the exact wording in ICAI material for any exclusions before finalising an answer.

AS 18 Related Party Disclosures practice questions

AS 18 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.

AS 18 Related Party Disclosures: frequently asked questions

Is AS 18 Related Party Disclosures important for CA Intermediate?

Yes. It is a small chapter, but it is easy to score in because questions test definitions and classification. You can cover it quickly and use it for both MCQs and short written answers.

Does AS 18 tell me how to measure related party transactions?

No. AS 18 only deals with disclosure. Measurement and recognition follow other standards and the applicable law.

How should I answer a written question on AS 18?

Identify each party and test it against the definitions. State the relationship, classify the transaction, and then list the disclosures required. A clear rule, application and conclusion format earns step marks.

How do I handle AS 18 MCQs?

Check whether the party can control or significantly influence the enterprise, or the reverse. Eliminate options that treat ordinary dealings with a supplier, customer, financier or government department, or merely a common director, as a related party relationship on their own. A common director matters only if he can affect the policies of both companies in their mutual dealings. Since there is no negative marking, always attempt the question.