Crux of AS - 18:
1. The objective of the accounting standard is greater transparency and disclosures with regard to related party relationship by the reporting entity.
2. Related Party relationships arise on either of the two below:
a) Under Control
b) Under Significant Influence
3. The difference between the two is that control relationship must be reported or disclosed whether or not there have been transactions during the reporting period. SI relationships are disclosed only if there have been transactions during the reporting period.
4. The definition of a control relationship is same as under AS – 21, Holding – Subsidiary Relationship (4 Points)
a) Holding more than 20% of Voting Powers
b) Controlling the composition of the governing body
c) Subsidiary of Subsidiaries
d) Group Subsidiary
5. Under SI, holding 20% or more of the voting power and KMP with their relatives.
6. The definition of relative is limited to the immediate nucleolus of a family. It includes spouse, children, brother, sister, father and mother.
7. Even if less than 20% is held SI can be inferred if the facts and circumstances so demonstrate.
List of Clarifications Issued by the ICAI:
1. Merely because of common director or common chairman, S.I. cannot be assumed.
2. Directors appointed because of professional competency may not attract S.I.
3. Any disclosure in AS -18 must not conflict with the confidentiality cost prescribed in any other law or statue i.e. ‘Law supersedes accounting standard’
4. State control enterprises are exempt under AS -18
5. Suppliers, trade unions, financers in the normal course of business and market dynamics do not created related party relationship.
6. Members of LAB (Local Advisory Boards) do not constitute related party relationship.
7. Fellow subsidiaries by the letter of AS -18 do not constitute a related party relationship. The ICAI has however encouraged report.
8. An associate of an associate is not a related party
A-----------------> B -------------- > C, In given case A & C are not related to each other
9. Co-Associates are not related parties
A holding 30% in B & 40% in C , In given case B & C are not related to each other
I have shared what I learned from classes. Simple way to remember important points.
Chirag M. Haraniya