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As 18 Jpku

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As 18 Jpku

  1. 1. ACCOUNTING STANDARD - 18 RELATED PARTY DISCLOSURES J.P., KAPUR & UBERAI
  2. 2. WHAT IT ENTAILS <ul><li>The standard establishes requirements for the disclosure of: </li></ul><ul><li>-Related party relationships; and </li></ul><ul><li>- Transactions between a reporting enterprise and its related parties. </li></ul>J.P., KAPUR & UBERAI
  3. 3. RATIONALE <ul><li>Presumption of arm’s length transactions which may not be valid when related party relationships exist. </li></ul><ul><ul><li>Transactions may not have been entered into with unrelated parties or may not have taken place at all; </li></ul></ul><ul><ul><li>Terms and conditions may be different from normal commercial terms. </li></ul></ul>J.P., KAPUR & UBERAI
  4. 4. WHO IS A RELATED PARTY? <ul><li>Ability to : </li></ul><ul><li>Control ; or </li></ul><ul><li>Exercise significant influence in making financial and/or operating decisions </li></ul>J.P., KAPUR & UBERAI
  5. 5. CONTROL <ul><li>Ownership, directly or indirectly, of more than one half of the voting power </li></ul><ul><li>Control of composition of board of directors of a company </li></ul><ul><li>A substantial interest in voting power (20% or more) AND power under statute/agreement to direct financial and/or operating policies of the enterprise </li></ul>J.P., KAPUR & UBERAI
  6. 6. SIGNIFICANT INFLUENCE <ul><li>Participation in financial and/or operating policy decisions but not control; </li></ul><ul><li>May be gained by - </li></ul><ul><li>Share ownership </li></ul><ul><ul><li>Statute; and </li></ul></ul><ul><ul><li>Agreement </li></ul></ul><ul><li>Assumed to exist in case of holding of 20% or more voting power directly or indirectly. </li></ul>J.P., KAPUR & UBERAI
  7. 7. RELATED PARTY RELATIONSHIPS <ul><li>Common control </li></ul><ul><li>Enterprises that </li></ul><ul><ul><li>directly, or indirectly through one or more intermediaries </li></ul></ul><ul><ul><ul><li>control, </li></ul></ul></ul><ul><ul><ul><li>are controlled by, </li></ul></ul></ul><ul><ul><ul><li>are under common control with the reporting enterprise. </li></ul></ul></ul>J.P., KAPUR & UBERAI
  8. 8. RELATED PARTY RELATION SHIPS(CONTD.) <ul><li>“ 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 “ </li></ul><ul><li>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). </li></ul><ul><li>key management personnel AND their relatives. </li></ul>J.P., KAPUR & UBERAI
  9. 9. RELATED PARTY RELATIONSHIPS(CONTD.) <ul><li>“ Enterprises over which any person described in point no. (4) or (5) 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” </li></ul>J.P., KAPUR & UBERAI
  10. 10. RELATIONSHIPS COVERED <ul><li>Control of another enterprise (parent); </li></ul><ul><li>Control by another enterprise (subsidiary); </li></ul><ul><li>Under common control (fellow subsidiary); </li></ul><ul><li>Associates/ joint ventures/ co-venturer; </li></ul><ul><li>Investor in respect of which the enterprise is an associate; </li></ul><ul><li>Individuals owning, directly or indirectly, voting power that gives them control or significant influence and their relatives; </li></ul><ul><li>Key management personnel and their relatives; and </li></ul><ul><li>Enterprises over which individuals, key management personnel or their relatives have significant influence. </li></ul>J.P., KAPUR & UBERAI
  11. 11. NOT CONSIDERED RELATED PARTIES <ul><li>Two companies simply because they have a director in common. </li></ul><ul><li>A single customer, supplier, franchiser, distributor or general agent. </li></ul><ul><li>Providers of finance, trade unions, public utilities, government departments and government agencies in the course of their normal dealing. </li></ul>J.P., KAPUR & UBERAI
  12. 12. DISCLOSURES <ul><li>Name of the related party and nature of the related party relationship where control exists, even if there have been no transactions between the related parties. </li></ul>J.P., KAPUR & UBERAI
  13. 13. DISCLOSURE DURING EXISTENCE OF RELATED PARTY TRANSACTIONS <ul><li>Name of transacting related party; </li></ul><ul><li>Description of the relationship; </li></ul><ul><li>Description of the nature of transactions; </li></ul><ul><li>Volume of transactions either as an amount or as an appropriate proportion; </li></ul><ul><li>Any other element of the transaction necessary for an understanding of the financial statements; </li></ul><ul><li>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 </li></ul><ul><li>Amounts written off or written back in the period in respect of dues from or to related parties. </li></ul>J.P., KAPUR & UBERAI
  14. 14. EXAMPLES OF RELATED PARTY TRANSACTIONS <ul><li>Purchase or sales of goods; </li></ul><ul><li>Purchase or sale of fixed assets; </li></ul><ul><li>Rendering or receiving services; </li></ul><ul><li>Agency agreements; </li></ul><ul><li>Leasing or hire purchase arrangements; </li></ul><ul><li>Transfer of research and development; </li></ul><ul><li>License agreements; </li></ul><ul><li>Financing (includes equity contributions in cash or kind); </li></ul><ul><li>Guarantees and collaterals; and </li></ul><ul><li>Management contracts including contracts for deputation of employees. </li></ul>J.P., KAPUR & UBERAI
  15. 15. OTHER DISCLOSURE ISSUES <ul><li>Items of a similar nature may be disclosed in aggregate by type of related party . </li></ul><ul><li>XYZ Ltd. </li></ul><ul><li> Rs. </li></ul><ul><li>Sales to ABC Ltd., a subsidiary 100,000 </li></ul><ul><li>Sales to DEF Ltd., a subsidiary 200,000 </li></ul><ul><li>Purchases from GHI, a joint venture company 300,000 </li></ul><ul><li>Purchases from ABC Ltd., a subsidiary 400,000 </li></ul><ul><li>Disclosure: </li></ul><ul><li>Sales to subsidiaries 300,000 </li></ul><ul><li>Purchases from subsidiaries 400,000 </li></ul><ul><li>Purchases from joint venture companies 300,000 </li></ul>J.P., KAPUR & UBERAI

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