- Accounting Standard 18 relates to related party disclosures in financial statements. It requires disclosure of relationships and transactions between a reporting company and its related parties. - Related parties include entities that control or exercise significant influence over the reporting company, associates, joint ventures, key management personnel, and their relatives. - Disclosures must include the names and relationships of related parties, as well as details of transactions like volume, amounts owed, and terms if they are not conducted at arm's length. The standard aims to provide transparency about transactions that could affect a company's financial position.

1. Accounting Standard - 18
Related Party Disclosures
Presented by
Paresh Shah

2. Requirements
• Related party relationships arise on the basis of control/significant influence.
• If it is based on control, disclosures about relationship (name & nature of
relationship) be given even if there is no transaction with the related party.
• If it is based on significant influence, disclosures need to be given only if
transactions are there with the related party.

3. Scope
• Related party relationships; and
• Transactions between a reporting enterprise and its related parties.

4. Why related party disclosures
• Normal feature of business: It is common for enterprises to carry on separate parts of
their activities through subsidiaries/associates/joint venture enterprises.
• To reflect the reality that transaction may not be at arms-length: If related party
disclosures are not given, users of financial statements would presume that transactions
reflected in financial statements are at arm’s length between independent parties.
• Existence of related parties affects financial position and operating results: The mere
existence of the relationship may be sufficient to affect the transactions of the reporting
enterprise with other parties.
• Transactions would not have otherwise taken place: Some of the transactions may not
have taken place if the related party relationship had not existed.
• Statutory requirement to disclose: e.g. Transactions with the directors or similar key
management personnel, their remuneration and borrowings.

5. Exemption from disclosure requirement
• To enterprises who have statutory obligation of confidentiality
• Intra-group transactions in consolidated financial statements
• State-controlled enterprises

6. Who is Related Party
• If at any time during the year 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.

7. Related party relationships to which AS- 18 applies
1. Enterprises that directly or indirectly through intermediaries, control the
reporting enterprise.
 Enterprise that directly or indirectly through one or more intermediaries, are
controlled by the reporting enterprise
 Enterprise that directly or indirectly through one or more intermediaries, are under
the common control of the reporting enterprise
2. Associates and joint ventures of the reporting enterprise and the
investing party or venture in respect of which reporting enterprise is an
associate or a joint venture.
3. Individuals owning, directly or indirectly, an interest in the voting power
of the reporting enterprise and relatives of such individual.
4. Key management personnel and relatives of such personnel.
5. Enterprises over which any person described in 3 & 4 above is able to
exercise significant influence.

8. Control means …
• Control through intermediaries mean ownership, directly or indirectly,
of more than one half (> 50%). Indirectly means through subsidiaries
• Control of composition of the board of directors
• A substantial interest in voting power and the power to direct, by
statute or agreement, the financial and / or operating policies of the
enterprise.

9. Significant Influence
The following amounts to significant influence:
• Participation in only financial policy decisions of an enterprise.
• Participation in only operating policy decisions of an enterprise.
• Participation in financial and operating policy decisions of an enterprise.
Significant influence may be exercised in several ways, for example,
- By representation on the board of directors,
- Participation in the policy making process,
- Material inter-company transactions,
- Interchange of managerial personnel,
- Dependence on technical information.
Significant influence may be gained by share ownership, statute or agreement.
If an investing party holds, directly or indirectly through intermediaries 20 % or more of the voting
power of the enterprise, it is presumed that investing party has significant influence, unless the
contrary be clearly demonstrated.

10. Key Management Personnel and Relative
• Key management persons are those persons who have the authority
and responsibility for planning, directing and controlling the activities
of the reporting enterprise. For ex. Following are KMP:
• Managing Director,
• Whole time director
• Manager
• Any person in accordance with whose directions or instructions the BOD of
the company is accustomed to act.
• Relative in relation to an individual means the spouse, son, daughter,
brother, sister, father and mother who may be expected to influence
and be influenced by that individual in his dealing with the reporting
enterprise.

11. Disclosures
Particulars Control Exists between related
parties
Control does not exists between
related parties
There have been transactions
between the related parties during
the period
Name of the party and relationship
to be disclosed and transactions
are to be disclosed
Transaction between parties to be
disclosed. Disclosure in respect of
relationship is also required.
There were no transactions
between the related parties during
the period
Only name of the party and
relationship to be disclosed
No disclosure is required.

12. The name of the transacting related party
• Description of the relationship between the parties
• Description of the nature of transactions
• Volume of the transactions
• Any other information for better understanding
• Outstanding amounts of related parties

13. Examples of the related party transactions in respect of
which disclosures has to be made by a reporting
enterprise:
• Purchases or sale of goods (finished or unfinished);
• Purchases or sale of fixed assets;
• Rendering or receiving of services;
• Agency arrangements;
• Leasing or hire purchase arrangements;
• Transfer of research and development;
• License agreements;
• Finance including loans and equity contributions in cash or in kind;
• Guarantees and collaterals;
• Management contracts including for deputation of employees.

14. Case Study 1
• X Ltd. sold to Y Ltd. goods having a sales value of Rs. 25 lakhs during
the F. Y. 31.03.2013. Mr. A the Managing Director and Chief Executive
of X Ltd. owns nearly 100% of the Capital of Y Ltd. The sales were
made to Y Ltd. at nominal selling price of X Ltd. The Chief Accountant
of X Ltd. does not consider that these sales should be treated any
differently from any other sales made by the Company despite being
made to Controlled Company, because the sales were made at normal
and too, at arm’s length prices.

15. Solution 1
• A transfer of resources of obligation between related parties is related
party transaction irrespective of whether a price is charged or not.
Also it does not matter what is the basis of pricing. Hence, these
transactions should be distinctly disclosed as per AS – 18.

16. Case Study 2
• P Ltd. owns 70% of the voting power of Q Ltd. Q Ltd. in turn owns
50% of the voting interest in R Ltd. Further, P Ltd. also directly owns
15% of the voting interest in R Ltd. Would P Ltd. be deemed to have
control over R Ltd. or would it only be considered as exercising
significant influence?

17. Solution 2
• P Ltd. would be considered to control R Ltd. The definition of control
of AS-18, includes ownership directly or indirectly, of more than half
of the voting power of another enterprise. As P Ltd. is a majority
shareholder in Q Ltd., it has control over it. Further, as P Ltd. and Q
Ltd. together are majority shareholders (i.e. 15% + 50%) in R Ltd.. P
Ltd. has indirect control over it. Accordingly, P Ltd. has the ability to
control R Ltd., indirectly, via the share ownership in Q Ltd. apart from
its individual shareholding in R Ltd.