As 18

1. AS 18 Related Party Disclosures
Related Party Disclosures
(AS –18)
PHD Chambers of Commerce and Industry
“Corporate Financial Reporting and Changing Paradigms”
23 February 2002

2. AS 18 Related Party Disclosures
AS-18 Related Party Disclosures
Applicability
Effective in respect of accounting periods commencing on or
after 1 April 2001
Mandatory

3. AS 18 Related Party Disclosures
The standard establishes requirements for the
disclosure of:
related party relationships; and
transactions between a reporting enterprise and its related
parties.
What it entails

4. AS 18 Related Party Disclosures
Rationale
Presumption of arm’s length transactions which may not be
valid when related party relationships exist.
-Transactions may not have been entered into with unrelated
parties or may not have taken place at all;
-Terms and conditions may be different from normal
commercial terms.

5. AS 18 Related Party Disclosures
Who is a related party ?
Ability to :
Control ; or
Exercise significant influence in making financial and/or
operating decisions

6. AS 18 Related Party Disclosures
Control
Ownership, directly or indirectly, of more than one half of
the voting power
Control of composition of board of directors of a company
A substantial interest in voting power (20% or more) AND
power under statute/agreement to direct financial and/or
operating policies of the enterprise

7. AS 18 Related Party Disclosures
Significant Influence
Participation in financial and/or operating policy decisions but
not control;
May be gained by -
Share ownership
-Statute; and
-Agreement
Assumed to exist in case of holding of 20% or more voting
power directly or indirectly. This assumption is however
rebuttable.

8. AS 18 Related Party Disclosures
Common control
Enterprises that
-directly, or indirectly through one or more intermediaries
-
control,
-
are controlled by,
-
are under common control with
the reporting enterprise.
Related party relationships

9. AS 18 Related Party Disclosures
Related party relationships (continued)
 associates and j oi nt ventur es ( and vice versa)
“associates and j oi nt ventures of the reporting enterprise
and
the investing party or venturer in respect of which the reporting enterprise is an associ ate or a joint venture “

10. AS 18 Related Party Disclosures
Related party relationships (continued)
individuals owning, directly or indirectly, an interest in the voting
power of the reporting enterprise giving them “control” or
“significant influence” over the enterprise, AND relatives of such
individuals (spouse, children, parents, siblings)

11. AS 18 Related Party Disclosures
Related party relationships (continued)
key management personnel AND their relatives.

12. AS 18 Related Party Disclosures
Related party relationships (continued)
 enter pr ises over w hich any per son in ( c) or ( d) is able to exercise si gni ficant infl uence
“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”

13. AS 18 Related Party Disclosures
Relationships Covered
Control of another enterprise (parent);
Control by another enterprise (subsidiary);
Under common control (fellow subsidiary);
Associates/ joint ventures/ co-venturer;
Investor in respect of which the enterprise is an associate;
Individuals owning, directly or indirectly, voting power that gives
them control or significant influence and their relatives;
Key management personnel and their relatives; and
Enterprises over which major owners, key management personnel or
their relatives are able to exercise significant influence.

14. AS 18 Related Party Disclosures
Not Considered Related Parties
Two companies simply because they have a director in common
A single customer, supplier, franchiser, distributor or general agent
Providers of finance, trade unions, public utilities, government
departments and government agencies in the course of their
normal dealing

15. AS 18 Related Party Disclosures
Disclosures
Name of the related party and nature of the related party
relationship where control exists, even if there have been
transactions between the related parties.

16. AS 18 Related Party Disclosures
Disclosures during existence of related party
relationships
Name of transacting related party;
Description of the relationship;
Description of the nature of transactions;
Volume of transactions either as an amount or as an appropriate
proportion;
any other element of the transaction necessary for an understanding
of the financial statements;
amounts or appropriate proportions of the outstanding items
pertaining to related parties at balance sheet date and provision for
doubtful debts due for such parties; and
amounts written off or written back in the period in respect of dues
from or to related parties.

17. AS 18 Related Party Disclosures
Examples of related party transactions
purchase or sales of goods;
purchase or sale of fixed assets;
rendering or receiving services;
agency agreements;
leasing or hire purchase arrangements;
transfer of research and development;
license agreements;
financing (includes equity contributions in cash or kind);
guarantees and collaterals; and
management contracts including for deputation of employees.

18. AS 18 Related Party Disclosures
Aggregation
Items of a similar nature may be disclosed in
aggregate by type of related party.

19. AS 18 Related Party Disclosures
Disclosures
List of related parties:
Parties where control exists:
-XYZ Limited ( Holding Company)
Other related parties:
-Fellow subsidiaries:
XYZ Services Limited, Sweden
XYZ Finance Inc., USA
-Associates:
XYAB Private India Limited
-Directors:
Mr. ABC
Mr. EFG
Illustrative

20. AS 18 Related Party Disclosures
Disclosures
Transactions with related parties:
Sales, services & other income:
-Fellow subsidiaries Rs 567,789
-Associates Rs 123,456
Capital Expenditure
-Fellow subsidiaries Rs 987,654
Shares issued on amalgamation
-Holding company (equity shares)Rs 213,645
Managerial remuneration Rs 2,345
Illustrative

21. AS 18 Related Party Disclosures
Other disclosure issues
Items of a similar nature may be disclosed in aggregate
by type of related party.
XYZ Ltd.
Rs.
Sales to ABC Ltd., a subsidiary 100,000
Sales to DEF Ltd., a subsidiary 200,000
Purchases from GHI, a joint venture company300,000
Purchases from ABC Ltd., a subsidiary 400,000
Disclosure:
Sales to subsidiaries 300,000
Purchases from subsidiaries 400,000
Purchases from joint venture companies 300,000