Advanced Accounting · AS 18 Related Party Disclosures

AS 18 Definitions: Related Party, Control and Significant Influence

Updated 5 October 2026 · Fact-checked

AS 18 treats parties as related if, at any time in the reporting period, one can control the other or exercise significant influence over it in financial and/or operating decisions. Fellow subsidiaries are specifically listed as related parties. Test each party for control, influence, KMP or relative status, then conclude.

Understand Definitions: Related Party, Control and Significant Influence

Accounting Standard 18 (Related Party Disclosures) exists because transactions between connected parties may not be at arm's length. A company may sell goods to its director's firm at a low price. The profit then looks different from what an independent deal would give. So the standard asks for disclosure of the relationship and the transactions. The definitions decide who is covered.

Related parties are parties where one has the ability to control the other, or to exercise significant influence over the other in making financial and/or operating decisions. The test is made at any time during the reporting period, not only on the balance sheet date. AS 18 lists the situations in which parties are considered related, and it applies only to those situations. Each one is defined through control or significant influence:

holding company and subsidiary, and fellow subsidiaries (enterprises under common control)
associates and joint ventures, and the investing party or venturer
individuals who own voting power giving them control or significant influence, and their relatives
key management personnel (KMP) and their relatives
enterprises that such individuals, KMP or relatives control or significantly influence

Do not add situations that are not on this list.

Control has two limbs. First, ownership, directly or indirectly, of more than one half of the voting power of an enterprise. Second, control of the composition of the board of directors (in a company) or of the governing body of any other enterprise, so as to obtain economic benefits from its activities. Power to appoint or remove a majority of the directors is the usual indication of board control. Exactly 50% voting power is not 'more than one half'.

Significant influence is participation in the financial and/or operating policy decisions of an enterprise, but not control of those policies. Under AS 18 it is a question of fact. You judge it from the facts, such as participation in policy decisions, and AS 18 fixes no percentage. The 20% voting power presumption belongs to AS 23, which deals with associates. Use it as a pointer: at 20% or more, significant influence is presumed unless the facts show otherwise. Control is stronger. Significant influence is a lower level of say.

Key management personnel (KMP) are persons with authority and responsibility for planning, directing and controlling the activities of the reporting enterprise. Whole-time (executive) directors are KMP. Other directors qualify only if they have such authority and responsibility. A non-executive director is not automatically KMP. A relative of 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 dealings with the reporting enterprise. The key words are 'may be expected to influence or be influenced'.

The group terms follow from control. A holding company controls another, which is its subsidiary. Fellow subsidiaries are subsidiaries of the same holding company. An associate is an enterprise in which the investing party has significant influence and which is neither a subsidiary nor a joint venture. A joint venture is a contractual arrangement where two or more parties undertake an economic activity subject to joint control.

Key rules to remember

Control: voting power: Control if voting power held (direct or indirect) > 50%; Exactly 50% is not control by this limb. Count indirect holdings through subsidiaries.
Control: board: Control if control of the composition of the board of directors (company) or governing body (other enterprise) so as to obtain economic benefits from its activities; Power to appoint or remove a majority of the directors is the usual indication of this control. At exactly 50% voting power, this is the test that can still give control.
Significant influence: Significant influence = participation in financial and/or operating policy decisions, without control (judged on facts); AS 18 gives no percentage. The 20% voting power presumption is from AS 23: at 20% or more, significant influence is presumed unless facts show otherwise. Below 20%, look at facts such as board representation or participation in policy decisions.
Related party test: Related if, at any time in the period: one party can control the other, or exercise significant influence over the other; Apply to the situations listed in AS 18: enterprises, individuals, KMP and relatives. Fellow subsidiaries are specifically listed as related parties.
Relative: Spouse, son, daughter, brother, sister, father, mother; Only those who may be expected to influence or be influenced by the individual in dealings with the reporting enterprise.
Group terms: Holding controls subsidiary; fellow subsidiaries share the same holding company; Associate = significant influence, not a subsidiary or joint venture.

How to solve Definitions: Related Party, Control and Significant Influence questions

Use the same sequence for any question asking whether a party is related or which category it falls in.

1Identify the reporting enterprise. Every relationship is tested from its viewpoint.
2List each party in the question: companies, individuals, directors, relatives, firms.
3Apply the control test: more than 50% voting power (count indirect holding) or control of the composition of the board.
4If no control, apply the significant influence test: participation in financial and/or operating policy decisions, judged on the facts. AS 18 has no percentage. The 20% voting power presumption comes from AS 23: at 20% or more, presume significant influence unless the facts show otherwise. Below 20%, look at the other facts.
5For individuals, check whether they are KMP (whole-time directors are; other directors only if they have the authority and responsibility), or relatives who may influence or be influenced by the KMP or owner.
6Check the situations listed in AS 18, such as holding and subsidiary, and fellow subsidiaries (subsidiaries of the same holding company). AS 18 applies only to these listed situations, each defined through control or significant influence.
7Name the category (holding, subsidiary, fellow subsidiary, associate, KMP, relative, joint venture) and give the reason with the percentage or fact.
8Conclude clearly: 'related' or 'not related', and then state whether the transactions need disclosure.

Quickest way: Percentage ladder and one-line reason

When to use it: For MCQs and short-answer parts where a holding percentage or relationship is given.

Write the percentage next to each party. Above 50%: control. 20% to 50% (up to and including 50): the AS 23 presumption of significant influence applies unless facts show otherwise, and board control would make it control. Below 20%: shareholding alone does not show a relationship, so look for other facts such as board seats or policy participation.
Add indirect holdings before deciding. For example, if A holds 60% of B (a subsidiary) and B holds 30% of C, A's indirect holding in C is 30%. That is 20% or more, so A has significant influence over C and C is an associate of A.
Spot the trap words: 'exactly 50%', 'only a relative who is a cousin or uncle', 'ordinary employee', 'non-executive director'.
In MCQs, eliminate options that call a 50% holder a controller or treat any relative as automatically related.
In written answers, use the format: Provision (definition), Facts (percentage or relationship), Conclusion (related or not, which category). This earns step marks.

Common mistakes in Definitions: Related Party, Control and Significant Influence

Treating exactly 50% voting power as control.
Students remember '50%' and skip the words 'more than one half'.
Fix: Control by shareholding needs more than 50%. At exactly 50% check board control; otherwise it may still be significant influence, depending on the facts.
Treating every relative as a related party.
The relative list looks like a fixed list of persons.
Fix: A relative counts only if they may be expected to influence, or be influenced by, the individual in dealings with the reporting enterprise. Judge by the facts.
Calling any employee, manager or director a KMP.
Students confuse seniority or a title with authority.
Fix: KMP have authority and responsibility for planning, directing and controlling activities. Whole-time directors are KMP. Other directors are KMP only if they meet this test. Ordinary staff are not KMP.
Mixing up control and significant influence.
Both involve voting power and both affect decisions.
Fix: Control means power to govern (above 50% or board control). Significant influence is participation in policy decisions without control, judged on facts. The AS 23 guide of 20% voting power may point towards it, but it is not an AS 18 threshold.
Ignoring indirect holdings and fellow subsidiaries.
Students only look at the direct line between two parties.
Fix: Count indirect holdings through subsidiaries. Two subsidiaries of the same holding company are related to each other as fellow subsidiaries.
Testing relationship only at the year end.
Balance sheet items are measured at the year end, so students assume the test is too.
Fix: The relationship is tested at any time during the reporting period. A party that was related for part of the year can still require disclosure.

Worked examples

Example 1

X Ltd holds 55% of the voting power in Y Ltd and 30% of the voting power in Z Ltd. Y Ltd holds 10% of Z Ltd. W Ltd holds 15% in Z Ltd and has no board representation. Identify the relationship of X Ltd with Y Ltd and Z Ltd, and say whether W Ltd is related to Z Ltd by shareholding alone.

Show the solution

X Ltd and Y Ltd: X holds 55%, which is more than one half, so X has control. X is the holding company and Y is its subsidiary.
X Ltd and Z Ltd: X holds 30% directly. The 10% held by subsidiary Y is also an indirect holding of X, so the total is 30% + 10% = 40%. This is not more than 50%, so there is no control by voting power. It is above the 20% presumption of AS 23, so X has significant influence over Z. Z is an associate of X.
Y Ltd and Z Ltd: a fellow subsidiary relationship needs Z to be a subsidiary of X. Z is only an associate, so Y and Z are not fellow subsidiaries. Y's own 10% holding in Z is below the 20% guide, so check other facts. No other facts of control or significant influence between Y and Z are given. On the given facts, Y and Z are not related.
W Ltd: holds 15%, below the 20% guide, and has no board representation or other participation in policy decisions. Shareholding alone does not make W related to Z.

Answer: X Ltd controls Y Ltd (holding and subsidiary). With 40% total voting power in Z Ltd, X Ltd has significant influence over Z, so Z is an associate of X. Y Ltd and Z Ltd are not related on the given facts. W Ltd is not related to Z Ltd by shareholding alone.

Exam tips

Write the definition first, then the facts and the conclusion. This provision-facts-conclusion layout earns marks even if your final label is debatable.
Always check the wording 'more than one half'. Questions often use exactly 50% or 20% to test the boundary.
For relatives, state the 'may be expected to influence or be influenced by' condition in your answer. Examiners look for it.
In MCQs, no reasoning is needed, but quickly count indirect holdings before choosing. There is no negative marking, so always attempt every MCQ.
Link the definition to the next step: once a party is related, say that the relationship and the transactions need disclosure.

Practice questions from AS 18 Related Party Disclosures

Definitions: Related Party, Control and Significant Influence in other exams

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

Definitions: Related Party, Control and Significant Influence: frequently asked questions

What is the difference between control and significant influence under AS 18?

Control is ownership of more than one half of voting power, or control of the composition of the board to obtain economic benefits. Significant influence is participation in financial and/or operating policy decisions without controlling them, and it is judged on facts. AS 18 gives no percentage for it. The 20% voting power presumption belongs to AS 23 and is a pointer, not an AS 18 test.

Who is key management personnel under AS 18?

KMP are persons with authority and responsibility for planning, directing and controlling the activities of the reporting enterprise. Whole-time (executive) directors are KMP. Other directors are KMP only if they have such authority and responsibility. A person is not KMP merely because of a senior-sounding title.

Who is a relative under AS 18?

A relative of an individual is the spouse, son, daughter, brother, sister, father or mother who may be expected to influence, or be influenced by, that individual in dealings with the reporting enterprise. Not every family member on the list is automatically a related party.

Is a party with exactly 50% voting power in control?

Not by the voting power limb, because control needs more than one half. Check whether the party controls the composition of the board. If not, check the facts to see whether it has significant influence.

What are fellow subsidiaries?

They are subsidiaries of the same holding company. AS 18 specifically lists fellow subsidiaries as related parties, so they are related to each other. Enterprises that merely share an investor are not related by that fact alone. Check whether one of the situations listed in AS 18 applies.