AS 18 – Related Party Disclosures

Objective

The Objective of this Statement is to establish requirements for disclosure of:

• related party relationships; and
• transactions between a reporting enterprise and its related parties.

Applicability: This statement is mandatory for accounting periods beginning on or after 1st April, 2001

Scope: The requirements of this statement has to be complied with the preparation of financial statements of each reporting enterprise and consolidated financial statements of holding companies.

Definitions

• Related Party: Parties are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions.
• Control:
1. ownership, directly or indirectly, of more than one half of the voting power of an enterprise, or
2. control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in the case of any other enterprise, or
3. a substantial interest in voting power and the power to direct, by statute or agreement, the financial and/or operating policies of the enterprise.
• Significant Influence: implies participation in the financial and/or operating policy decisions of an enterprise, but not control of those policies.
• Associate: an enterprise in which an investing reporting party has significant influence and which is neither a subsidiary nor a joint venture of that party.
• Joint Venutre: a contractual arrangement whereby two or more parties undertake an economic activity, which is subject to joint control.
• Joint Control: the contractually agreed sharing of power to govern the financial and operating policies of an economic activity so as to obtain benefits from it.
• Key Management Personnel: those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise.
• Relative: in relation to 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 his/her dealings with the reporting enterprise.
• Holding Company a company having one or more subsidiaries.
• Subsidiary: a company -
1. in which another company (the holding company) holds, either by itself and/or through one or more subsidiaries, more than one-half in nominal value of its equity share capital; or
2. of which another company (the holding company) controls, either by itself and/or through one or more subsidiaries, the composition of its board of directors.
• Fellow Subsidiary a company is considered to be a fellow subsidiary of another company if both are subsidiaries of the same holding company.
• State-controlled Enterprise: an enterprise, which is under the control of the Central Government and/or any State Government(s).

Explanation to Related Party

A party is considered to be related if at any time during the reporting period, one party has the capacity to control the other party or exercise significant influence over the other party in making and or operating decisions.

This statement is applicable to:

1. enterprises that directly, or indirectly are under the control of the reporting enterprise;
2. associates and joint ventures of the reporting enterprise and the investing party or venturer in respect of which the reporting enterprise is an associate or a joint venture;
3. individuals and their relatives owning an interest in the voting power of the reporting enterprise;
4. key management personnel and relatives of such personnel; and
5. enterprises over which any person described in (c) or (d) is able to exercise significant influence.

This includes enterprises owned by directors or major shareholders of the reporting enterprise and enterprises that have a member of key management in common with the reporting enterprise.

Related party disclosure requirements does not apply in the following circumstances:

1. where providing such disclosures would be incompatible with the reporting enterprise's duties as required by a statute or by any regulator or similar competent authority.
2. in consolidated financial statements in respect of intra-group transactions.
3. in the financial statements of state-controlled enterprises as regards related party relationships with other state-controlled enterprises and transactions with such enterprises.

Disclosures

1. Name and nature of the related party relationship where control exists, the following should be disclosed by the reporting enterprise:
1. the name of the transacting related party,
2. a description of the nature of transactions and relationship between the parties,
3. volume of the transactions either as an amount or as an appropriate proportion,
4. any other elements of the related party transactions necessary for an understanding of the financial statements,
5. outstanding items and provisions pertaining to related parties at the balance sheet date,
6. amounts written off in respect of debts due from or to related parties.
2. Items of a similar nature may be consolidated and disclosed by type of related party.