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CA Final · Financial Reporting · Ind AS 24 Related Party Disclosures

Meridian Textiles Ltd's financial statements are being prepared under Ind AS 24. The finance head asks why the standard requires disclosure of transactions, outstanding balances, including commitments, and relationships with related parties. Which reason is stated in the standard?

The standard requires related party disclosures because knowing about an entity's transactions, outstanding balances including commitments, and relationships with related parties may affect how users assess its operations, including the risks and opportunities it faces. It is a disclosure rationale, not a measurement or approval rule.

  1. AKnowledge of these matters may affect users' assessments of the entity's operations, including the risks and opportunities it facesCorrect
  2. BRelated party transactions must always be measured at fair value rather than the agreed price
  3. CRelated party transactions are prohibited unless the shareholders approve them
  4. DRelated party balances must be eliminated from the balance sheet of the reporting entity

Explanation

The purpose paragraph says that knowledge of transactions, outstanding balances including commitments, and relationships with related parties may affect users' assessments of operations, including risks and opportunities. The other options describe measurement, approval or elimination rules that the standard does not set out as its purpose. Option B is wrong because the standard requires disclosure, not fair value remeasurement.

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