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

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

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

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.

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

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

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.

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

AS 18 Related Party Disclosures Related party relationships (continued) associates and joint ventures (and vice versa) “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 “

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)

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

AS 18 Related Party Disclosures Related party relationships (continued) enterprises over which any person in (c) or (d) is able to exercise significant influence “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”

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.

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

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.

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.

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.

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

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

AS 18 Related Party Disclosures Disclosures Transactions with related parties: Sales, services & other income:  Fellow subsidiariesRs 567,789  AssociatesRs 123,456 Capital Expenditure  Fellow subsidiariesRs 987,654 Shares issued on amalgamation  Holding company (equity shares)Rs 213,645 Managerial remunerationRs 2,345 Illustrative

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 subsidiary100,000 Sales to DEF Ltd., a subsidiary200,000 Purchases from GHI, a joint venture company300,000 Purchases from ABC Ltd., a subsidiary400,000 Disclosure: Sales to subsidiaries300,000 Purchases from subsidiaries400,000 Purchases from joint venture companies300,000