Advanced Accounting · AS 18 Related Party Disclosures

AS 18 Scope, Objective and Applicability for CA Inter

Updated 4 October 2026 · Fact-checked

AS 18 sets disclosure requirements for related party relationships and transactions in a reporting enterprise's financial statements. It does not prescribe pricing. It excludes intra-group transactions in consolidated statements, dealings with other state-controlled enterprises, and disclosure that conflicts with legal confidentiality. Check scope first, then test all three exclusions.

Understand AS 18 Scope, Objective and Applicability

Related parties can influence how an enterprise deals with others. A company may sell goods to its director's firm at a price no outsider would get. The profit or loss then reflects the relationship and not a market bargain. Readers of the accounts cannot see this unless it is disclosed.

The objective of AS 18 is to set the reporting and disclosure requirements for related party relationships and for transactions between a reporting enterprise and its related parties. It is a disclosure standard. It does not tell you how to measure or price these transactions. It tells you what to report.

AS 18 applies to related party relationships and transactions in the financial statements of the reporting enterprise. The word to watch is disclosure: you report the relationship, the nature of transactions and the amounts. Relationships between a parent and its subsidiaries are disclosed in the reporting enterprise's own financial statements whether or not there have been transactions. This is a separate requirement from the intra-group exclusion below, which covers only intra-group transactions.

The standard also says where it does not require disclosure. There are three exclusions:

Intra-group transactions in consolidated financial statements. No disclosure is required in the consolidated financial statements in respect of intra-group transactions. It does not remove the requirement to disclose the parent-subsidiary relationship.
State-controlled enterprises. No disclosure is required in the financial statements of a state-controlled enterprise of its related party relationships with other state-controlled enterprises and of transactions with such enterprises. The exclusion is limited to dealings with other state-controlled enterprises.
Confidentiality. No disclosure is required where it would conflict with the reporting enterprise's duties of confidentiality that are specifically required by a statute or by a regulator or similar competent authority.

Two points on conditions. The intra-group exclusion is about intra-group transactions in the consolidated financial statements. The state-control exclusion covers dealings with other state-controlled enterprises. A state-controlled enterprise's relationship with, say, its key management personnel is still a related party relationship.

On consolidation, the actual elimination of intra-group balances and transactions is a procedure under AS 21. AS 18 only says that intra-group transactions need no disclosure in the consolidated statements.

Also remember that AS 18 is one of the Accounting Standards. Whether a given entity must comply depends on its classification as a Level I, II or III entity. Certain Level II and III entities get disclosure relaxations. Check the applicability chapter for the exact relaxation.

Key rules to remember

Objective of AS 18: Disclose related party relationships and transactions between the reporting enterprise and its related parties; It is a disclosure standard. It does not prescribe recognition or measurement or arm's length pricing.
Applies to: Related party relationships and transactions in the financial statements of the reporting enterprise; The test is whether a related party relationship or transaction exists. Size or profit is not the test.
Exclusion 1: intra-group transactions in consolidated statements: No disclosure in consolidated financial statements in respect of intra-group transactions; The exclusion is for intra-group transactions. Parent-subsidiary relationships are still disclosed as related party relationships.
Exclusion 2: state-controlled enterprises: No disclosure in the financial statements of a state-controlled enterprise of relationships with, and transactions with, other state-controlled enterprises; The exclusion is limited to other state-controlled enterprises. Other relationships, such as with key management personnel, remain disclosable.
Exclusion 3: confidentiality: No disclosure where it conflicts with duties of confidentiality specifically required by a statute or by a regulator or similar competent authority; The exclusion rests on a legal or regulatory requirement. An enterprise's own wish to keep it private does not qualify.
Note: consolidation procedure: Elimination of intra-group balances and transactions on consolidation is done under AS 21; AS 21 gives the elimination procedure. AS 18 separately says intra-group transactions need no disclosure in the consolidated statements.

How to solve AS 18 Scope, Objective and Applicability questions

Use this order for any scope or applicability question on AS 18.

1Identify the reporting enterprise whose financial statements the question is about, and whether they are separate or consolidated.
2State the objective in one line: disclosure of related party relationships and transactions.
3Check whether a related party relationship exists. If the question gives a relationship, name it, for example parent, subsidiary, key management personnel or relative.
4Test each of the three exclusions in turn: intra-group transactions in consolidated statements, state-controlled enterprises, and legal confidentiality.
5Check the exact condition of the exclusion. For intra-group, the statements must be consolidated. For state control, the other party must be a state-controlled enterprise and the reporting enterprise must itself be state-controlled. For confidentiality, the duty must be required by statute or a regulator.
6If the question is about the elimination procedure on consolidation, attribute the procedure to AS 21.
7Check the entity's level (I, II or III) if the question gives size or listing details, and apply any relaxation.
8Write the conclusion: disclose or do not disclose, with the reason in one sentence.

Quickest way: Scope check in five steps

When to use it: Use it for MCQs and for short written parts when time is tight.

MCQ: look for the words that match an exclusion: intra-group in consolidated statements, state-controlled, or confidentiality.
MCQ: if none appears and a related party exists, the answer is almost always disclosure required.
MCQ: reject options that say AS 18 prescribes pricing or measurement. It prescribes disclosure only.
Written: a suggested format is Provision, Facts, Conclusion. State the AS 18 rule, apply it to the given facts, then conclude.
Written: name the relationship type and the exclusion tested, as each earns a mark.

Common mistakes in AS 18 Scope, Objective and Applicability

Saying AS 18 requires related party transactions to be at arm's length.
Students link related party rules with transfer pricing or company law approvals.
Fix: Remember that AS 18 only requires disclosure. It does not set prices or approve transactions.
Treating all state-controlled enterprises as exempt from all disclosure.
Students remember the exclusion but drop its conditions.
Fix: The exclusion covers relationships with, and transactions with, other state-controlled enterprises. Other relationships, such as with key management personnel, are still related party relationships and remain disclosable.
Using confidentiality as a reason whenever management prefers privacy.
The word confidentiality sounds broad.
Fix: The exclusion applies only where a statute or a regulator or similar competent authority specifically requires confidentiality. Write 'required by law' in your answer.
Stretching the intra-group exclusion to the parent-subsidiary relationship itself.
Students remember that intra-group transactions need no disclosure in consolidated statements and apply it to everything about a group.
Fix: The exclusion covers intra-group transactions in the consolidated financial statements. The parent-subsidiary relationship is still disclosed as a related party relationship.
Assuming no disclosure is needed when there were no transactions.
Students link disclosure only with transactions.
Fix: Parent-subsidiary relationships must be disclosed in the reporting enterprise's financial statements whether or not there were transactions.
Applying AS 18 without checking the entity's level.
Students skip the applicability chapter.
Fix: Check whether the entity is Level I, II or III and apply any relaxation the Accounting Standards give to that level.

Worked examples

Example 1

State the objective of AS 18 and state whether it prescribes how related party transactions should be priced. Also state whether disclosure is needed for a parent and subsidiary that did no business with each other during the year.

Show the solution

Objective: AS 18 sets the reporting and disclosure requirements for related party relationships and for transactions between a reporting enterprise and its related parties.
Pricing: AS 18 is a disclosure standard. It does not prescribe measurement, pricing or arm's length conditions.
Parent and subsidiary: the standard requires parent-subsidiary relationships to be disclosed in the reporting enterprise's own financial statements irrespective of whether there have been transactions. The consolidated exclusion covers only intra-group transactions, not this relationship.
Conclusion: disclose the relationship even though no transactions occurred.

Answer: AS 18 aims at disclosure of related party relationships and transactions. It does not prescribe pricing. The parent-subsidiary relationship must be disclosed in the reporting enterprise's own financial statements even with no transactions.

Example 2

Alpha Ltd and Beta Ltd are both state-controlled enterprises. During the year Alpha sold goods to Beta in the ordinary course of business. The only link between them is common state control. Must Alpha disclose this as a related party transaction under AS 18?

Show the solution

Provision: AS 18 does not require a state-controlled enterprise to disclose its related party relationships with other state-controlled enterprises or its transactions with such enterprises.
Facts: Alpha and Beta are both state-controlled, and the only link is common state control.
Check for another relationship, such as common key management personnel. None is given.
Conclusion: the exclusion applies.

Answer: Alpha need not disclose the sale to Beta under AS 18, as Beta is another state-controlled enterprise and the only link is common state control. If another related party relationship existed, for example through key management personnel, it would need separate consideration.

Exam tips

Write the objective in one line first. It is an easy mark in theory questions.
In scope questions, list the three exclusions and state each condition exactly: intra-group transactions in consolidated statements, other state-controlled enterprises, and confidentiality required by law.
If a question brings in consolidation, say that intra-group transactions need no disclosure in the consolidated statements, and attribute the elimination procedure to AS 21.
In case-based questions, a good format is Provision, Facts, Conclusion. Do not leave the conclusion implicit.
In MCQs, rule out options that claim AS 18 prescribes measurement or pricing.
If the question gives size or listing details, mention the entity's level and any relaxation.

Practice questions from AS 18 Related Party Disclosures

AS 18 Scope, Objective and Applicability 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 Scope, Objective and Applicability: frequently asked questions

What is the objective of AS 18?

The objective is to set the reporting and disclosure requirements for related party relationships and transactions between a reporting enterprise and its related parties. It helps users see how such dealings may affect the financial statements.

When does AS 18 not require disclosure?

It does not require disclosure of intra-group transactions in consolidated financial statements. It does not require a state-controlled enterprise to disclose relationships and transactions with other state-controlled enterprises. It also does not require disclosure that conflicts with confidentiality specifically required by a statute or a regulator.

Are intra-group transactions disclosed in consolidated statements under AS 18?

No. AS 18 does not require disclosure of intra-group transactions in the consolidated financial statements. The elimination of intra-group balances and transactions on consolidation is carried out under AS 21. In the parent's separate financial statements, transactions with subsidiaries are still disclosed.

Do all entities follow AS 18 in full?

Not always. Applicability depends on whether the entity is Level I, II or III under the Accounting Standards, and some relaxations may apply to Level II and III entities. Check the applicability chapter for the exact relaxation.