1. 1 Kaushal Kishore. DRAFT FOR DISCUSSIONS 1 PRESENTATION ON “RELATED PARTY DISCLOSURES” IAS 24 Vs. AS 18 AN OVERVIEW JULY 9, 2010

2. 2 Kaushal Kishore. DRAFT FOR DISCUSSIONS 2 CONTENTS AS 18 Vs. IAS 24: AN OVERVIEW  SPECIFIC DIFFERENCES: BASIC DIFFERENCES IN DEFINITIONS ETC WHEN INDIVIDUALS ARE INVOLVED AS STAKEHOLDERS WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS  OTHER DIFFERENCES  ADDITIONAL DEFINITIONS AND CLARIFICATIONS

3. 3 Kaushal Kishore. DRAFT FOR DISCUSSIONS 3 PRIMARY ACCOUNTING REFERENCES  AS 18: “RELATED PARTY DISCLOSURES”  IAS 24: “RELATED PARTY DISCLOSURES”  EXPOSURE DRAFT: “AS 18 (REVISED 20XX) CORRESPONDING TO IAS 24”  ACCOUNTING STANDARD INTERPRETATIONS - ASI 13 (AGGREGATION OF TRANSACTIONS) - ASI 19 (INTERPRET THE TERM ‘INTERMEDIARIES’) - ASI 21 (NON EXECUTIVE DIRECTORS…….)  GUIDANCE NOTE ON REMUNERATION PAID TO KEY MANAGEMENT PERSONNEL

4. 4 Kaushal Kishore. DRAFT FOR DISCUSSIONS 4 BASIC DIFFERENCES IN DEFINITIONS, ETC.

5. 5 Kaushal Kishore. DRAFT FOR DISCUSSIONS 5 AS-18 Refers to “Individual” and “relatives of individual” [paras 3(c) (d), 10]. This include brother, sister, father and mother. IAS-24Refers to “Person” and “close member of that person’s family”. Definition of close member of person’s family per IAS includes dependents of the person or of the spouse. (para 9) Remarks  AS 18 covers parents and siblings irrespective of their status as to dependence on the individual. It does not cover “dependents” otherwise. RELATIVES Vs. CLOSE FAMILY MEMBERS EXTENDED/RELAXED

6. 6 Kaushal Kishore. DRAFT FOR DISCUSSIONS 6 AS 18: RELATIVES  Spouse;  Son; Daughter;  Brother; Sister;  Father; and Mother; IAS 24: CLOSE MEMBERS OF FAMILY  Spouse/domestic partner;  Children of the person or of spouse or of domestic partner; and  Dependents of the person or of spouse or of domestic partner; RELATIVES Vs. CLOSE FAMILY MEMBERS who may be expected to influence the individual/person or be influenced by the individual/person. EXTENDED/RELAXED

7. 7 Kaushal Kishore. DRAFT FOR DISCUSSIONS 7 IAS-24Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity. AS-18 those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise  KMP: those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise  ASI-21 specifically exempted “non-executive directors” unless authority/responsibility to …….  Also, AS 18 did not specifically mention “directly or indirectly”. However, practically, it does not seem to create any difference. EXTENDED DEFINITION OF KMP EXTENDED

8. 8 Kaushal Kishore. DRAFT FOR DISCUSSIONS 8 AS-18 Covers key management personnel of an entity [para 3(d)] IAS-24 Covers key management personnel of an entity or of a parent of the entity [para 9(a)(ii)] EXTENDED COVERAGE OF KMP EXTENDED

9. 9 Kaushal Kishore. DRAFT FOR DISCUSSIONS  AS 18: S is related to Mr. X in S’ financial statements S is related to Mr. X in S’ financial statements  S is not related to Mr. Y in S’ financial statements  IAS 24 S is related to both Mr. X and Mr. Y in S’ financial statements S is related to both Mr. X and Mr. Y in S’ financial statements Mr. X (KMP) Subsidiary (S) Parent (P) Mr. Y (KMP) EXTENDED COVERAGE OF KMP EXTENDED

10. 10 Kaushal Kishore. DRAFT FOR DISCUSSIONS 10 DIFFERENCE IN DEFINITION OF GOVT………. AS-18Para 10 defines state-controlled enterprise as “an enterprise which is under the control of the Central Government and/or any State Government(s)” IAS-24As per para 9:  Government refers to government, government agencies and similar bodies whether local, national or international.  A government-related entity is an entity that is controlled, jointly controlled or significantly influenced by a government. Remarks Wider definition per IAS 24. Certain entities not exempted per AS 18 (say having significant influence by govt.) may also avail exemption in IFRS EXTENDED/RELAXED

11. 11 Kaushal Kishore. DRAFT FOR DISCUSSIONS 11 DIFFERENCES WHEN INDIVIDUALS ARE INVOLVED AS STAKEHOLDERS

12. 12 Kaushal Kishore. DRAFT FOR DISCUSSIONS 12 AS-18  Related if: common individual having significant influence common individual being key management personnel IAS-24  Relaxation if:  common person having significant influence  common person being key management personnel  Normally, to start with, need control or joint control by a person in one entity to be related to the other entity RemarksRefer to the following slides and examples for discussions……… DIFFERENCES: WHEN INDIVIDUALS ARE STAKEHOLDERS RELAXED

13. 13 Kaushal Kishore. DRAFT FOR DISCUSSIONS IAS 24 Paras 9(a)(i)(ii)(iii) and 9(b)(vi) Mr. X Entity A Control or joint control or significant influence or KMP Entity B Control or joint control IAS 24: A AND B ARE RELATED TO EACH OTHER IN THEIR FINANCIAL STATEMENTS IAS 24 Paras 9(a)(i) and 9(b)(vii) Mr. X Entity A control or joint control Entity B Significant influence or KMP POSITION AS TO INDIVIDUALS AS STAKEHOLDERS IN IAS 24

14. 14 Kaushal Kishore. DRAFT FOR DISCUSSIONS AS 18 Para 3(c)(d)(e) Mr. X Entity B Control or Significant influence or KMP POSITION AS TO INDIVIDUALS AS STAKEHOLDERS IN AS 18 CONTROL AND SIGNIFICANT INFLUENCE IN AS 18 [para 3(c)] ARE PRIMARILY CONSEQUENT TO VOTING POWER. IN IAS 24, VOTING POWER IS NOT THAT RELEVANT Entity A Control or Significant influence or KMP  AS 18: A and B are related to each other in both their financial statements. A and B are related to each other in both their financial statements.

15. 15 Kaushal Kishore. DRAFT FOR DISCUSSIONS IAS 24 Para 9(b)(vi) and AS 18 Para 3(c)(d)(e) Mr. X Entity A Joint control Entity B Control or Joint control or Significant influence or KMP DIFFERENCE ON ACCOUNT OF JOINT CONTROL UNIFORMITY  IAS 24: A and B are related to each other if there is joint control in both.  AS 18: Does not use the term joint control in relation to individuals. However, by implication, joint control is generally regarded as an influence that is stronger than significant influence.

16. 16 Kaushal Kishore. DRAFT FOR DISCUSSIONS  IAS 24:  Entities over which significant influence is exercised by a common person are not related to each other.  AS 18: A and B are related to each other in both their financial statements. A and B are related to each other in both their financial statements. Mr. X Significant influence over entity A Significant influence over entity B DIFFERENCE WHEN AN INDIVIDUAL HAS SIGNIFICANT INFLUENCE .. RELAXED

17. 17 Kaushal Kishore. DRAFT FOR DISCUSSIONS  IAS 24:  Entities having common KMP are not related to each other.  AS 18: A and B are related to each other in both their financial statements. A and B are related to each other in both their financial statements. Mr. X KMP of entity AKMP of entity B DIFFERENCE WHEN AN INDIVIDUAL IS A COMMON KMP .. RELAXED

18. 18 Kaushal Kishore. DRAFT FOR DISCUSSIONS  IAS 24:  An entity in which a person has significant influence, would not be related to other just because that person is a KMP of the other entity  AS 18: A and B are related to each other in both their financial statements. A and B are related to each other in both their financial statements. Mr. X Significant influence over entity A KMP of entity B DIFFERENCE WHEN AN INDIVIDUAL HAS KEY POSITION AND SIGNIFICANT INFLUENCE .. RELAXED

19. 19 Kaushal Kishore. DRAFT FOR DISCUSSIONS 19 DIFFERENCES WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS

20. 20 Kaushal Kishore. DRAFT FOR DISCUSSIONS 20 AS-18  Relaxed norms if “Joint ventures” IAS-24  Extended coverage as to “Joint ventures” RemarksRefer to the following slide and example for discussions DIFFERENCE WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS EXTENDED

21. 21 Kaushal Kishore. DRAFT FOR DISCUSSIONS  AS 18: [para 3(b)]  Co ventures or co associates are not related to each other. (anomaly). (anomaly).  IAS 24: [paras 9(b)(iii) (iv)] B and C are related to each other in both their financial statements if they are either co ventures or one is a venture and the other is an associate. B and C are related to each other in both their financial statements if they are either co ventures or one is a venture and the other is an associate.  Co associates are not related to each other (as in AS 18 also). Entity A Entity B Joint venture or an associate DIFFERENCE ON ACCOUNT OF JOINT VENTURES AND ASSOCIATES Entity C Joint venture EXTENDED

22. 22 Kaushal Kishore. DRAFT FOR DISCUSSIONS 22 OTHER DIFFERENCES

23. 23 Kaushal Kishore. DRAFT FOR DISCUSSIONS 23 AS-18 Disclosures, which conflict with confidentiality requirements in terms of statutes or regulation, are excluded (paras 5-6). IAS-24No such specific exemption Remarks A possible GAAP difference Normally accounting rules not to override statute DISCLOSURES SUBJECT TO CONFIDENTIALITY REGULATORY

24. 24 Kaushal Kishore. DRAFT FOR DISCUSSIONS  AS 18:  No specific coverage as to entities that are post employment benefit plans, as related parties.  IAS 24: [para 9(b)(v)] A and B are related to each other in both their financial statements Entity A Entity B Post employment benefit plan for the benefit of employees of Entity A or entity related to A DIFFERENCE ON ACCOUNT OF POST EMPLOYMENT BENEFIT PLANS EXTENDED

25. 25 Kaushal Kishore. DRAFT FOR DISCUSSIONS 25 AS-18 As per para 20, “Statutes often require disclosure of transactions with the directors or similar key managerial personnel….” IAS-24Para 17 requires specific disclosures for compensation of KMPs under the following categories:  short-term employee benefits;  post-employment benefits;  other long-term benefits;  termination benefits; and  share-based payment. RemarksImplementation issue: companies would need to get separate valuations for components of compensation of KMPs. EXTENDED DISCLOSURES OF MANAGERIAL COMPENSATION EXTENDED/IMPLEMENTATION

26. 26 Kaushal Kishore. DRAFT FOR DISCUSSIONS 26 AS-18As per para 23(iv) “Volume of the transactions either as an amount or as an appropriate proportion” IAS-24As per para 18(a) “the amount of the transactions” need to be disclosed. RemarksNo option available in IAS 24. OPTION AS TO DISCLOSURE OF VOLUME OF TRANSACTIONS OPTION/EXTENDED

27. 27 Kaushal Kishore. DRAFT FOR DISCUSSIONS 27 ADDED DISCLOSURES FOR GOVT RELATED ENTITIES………. AS-18As per para 9 “No disclosure is required in the financial statements of state-controlled enterprises as regards related party relationships with other state-controlled enterprises and transactions with such enterprises.” IAS-24 25, following disclosures: As per para 25, following disclosures:  Name of the government and nature of relationship…..  For each individually significant transaction: nature and amount  For other transactions: a qualitative or quantitative indication of their extent. RemarksWider disclosure requirements per IAS 24. Possible implementation issue: PSUs would require to collate large information for disclosure, while they had exemption available earlier. EXTENDED

28. 28 Kaushal Kishore. DRAFT FOR DISCUSSIONS 28 ADDITIONAL DEFINITIONS IN AS-18

29. 29 Kaushal Kishore. DRAFT FOR DISCUSSIONS 29 ADDITIONAL DEFINITIONS IN AS 18, THOUGH NOT IN IAS 24 AS-18 AS-18 provides definitions of the following items:  Associate and Joint venture  Holding company, Subsidiary, Fellow subsidiary IAS-24IAS 24 does not include these definitions and allow respective standards to deal with RemarksSeems logical not to keep multiple definitions CLARIFICATORY

30. 30 Kaushal Kishore. DRAFT FOR DISCUSSIONS 30 CLARIFICATIONS IN AS-18

31. 31 Kaushal Kishore. DRAFT FOR DISCUSSIONS 31 CLARIFICATORY TEXT IN AS-18, THOUGH NOT IN IAS 24 AS-18AS includes clarificatory text primarily w.r.t the following:  Control  Substantial interest (including 20% threshold)  Significant influence (including 20% threshold) IAS-24IAS does not include clarificatory text and allows respective standards to deal with RemarksPossibly ICAI would need to issue implementation guidance to avoid diversity. CLARIFICATORY

32. 32 Kaushal Kishore. DRAFT FOR DISCUSSIONS 32 CLARIFICATION REGARDING AGGREGATION OF TRANSACTIONS AS-18, ASI 13  Para 27 states “Disclosure of details of particular transactions with individual related parties would frequently be too voluminous to be easily understood. Accordingly, items of a similar nature may be disclosed in aggregate by type of related party……………………..”.  ASI 13 allows a rebuttable presumption of 10% of the total related party transactions of the same type (say purchase of goods) being material. IAS-24IAS does not include any such item, including threshold of 10% as materiality. CLARIFICATORY

33. 33 Kaushal Kishore. DRAFT FOR DISCUSSIONS 33 RECAP…….

34. 34 Kaushal Kishore. DRAFT FOR DISCUSSIONS 34 RECAP……….  DIFFERENCES: IAS 24 Vs. AS 18 - BASIC DIFFERENCES IN DEFINITIONS ETC - WHEN INDIVIDUALS ARE INVOLVED AS STAKEHOLDERS - WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS - OTHER DIFFERENCES - ADDITIONAL DEFINITIONS AND CLARIFICATIONS

35. 35 Kaushal Kishore. DRAFT FOR DISCUSSIONS 35 The information contained herein is of general nature and is for discussions only THANK YOU FOR YOUR KIND ATTENTION

36. 36 Kaushal Kishore. DRAFT FOR DISCUSSIONS 36 CONTACT DETAILS: KAUSHAL KISHORE +91-9811103133 kaushalkishore@kpmg.com

37. 37 Kaushal Kishore. DRAFT FOR DISCUSSIONS

38. 38 Kaushal Kishore. DRAFT FOR DISCUSSIONS 38 AS-18Disclosures do not specifically cover “commitments” between an entity and its related parties. IAS-24Disclosures include “commitments, i.e., to do something if particular event occurs or does not occur in future, including executory contracts” [para 2(a)] Remarks  In substance, there seems to be no difference, since commitments are one type of transaction  Possible implementation difference COVERAGE OF COMMITMENTS CLARIFICATORY

39. 39 Kaushal Kishore. DRAFT FOR DISCUSSIONS 39 CLARIFICATION REGARDING REGULATORY DISCLOSURES AS-18 AS-18 Para 20 states “The statutes governing an enterprise often require disclosure in financial statements of transactions with certain categories of related parties. In particular,……………transactions with the directors…… or similar key management personnel…………. because of the fiduciary nature of their relationship with the enterprise.” IAS-24IAS does not include any such item Remarks  Does not seem to be any GAAP difference and only clarificatory remark with respect to regulatory requirements. CLARIFICATORY