Interest party disclosure

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 September 2013 A Pvt Ltd have directors P,Q,R,S and their holding % are 35%, 35%, 20% and 10%.

B Ltd have 8 directors including P,Q,R,S and their holding % are 23%, 22%, 2% and 4%.

In addition to that A Pvt Ltd holds 12% shares in B Ltd

A gave a loan to B

What are the disclosure requirements in the accounts of A Pvt Ltd?

Ajay Mishra

Ajay Mishra (Expert)
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20 September 2013 All directors of A Pvt.Ltd. and B Ltd. will disclose their Interest under section 299 of the Companies Act, 1956.

Such discloser will be recorded in Register maintain under section 301 of the Companies Act, 19566.

A Pvt Ltd. and B. Ltd. will show in their Balance sheet to each other as related party as per AS 18.

Ajay Mishra

Ajay Mishra (Expert)
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20 September 2013

Accounting Standard
As per Accounting Standard 18-’Related Party Disclosures’ issued by the ICAI, Related party means “Parties are considered to be related if at any time during the reporting period 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” and Related Party transaction means “a transfer of resources or obligations between related parties, regardless of whether or not a price is charged. The following are the related parties as per AS-18
• Holding companies, subsidiaries and fellow subsidiaries
• Associates and joint ventures
• Individuals (incl. their relatives) – having voting power giving them control or significant influence
• Key management personnel including their relatives
• Enterprises where controlling individual or key managerial personnel has significant influence
However, disclosure is mandatory for the following categories of companies.
• Companies which are listed or are in process of listing
• Banks, financial institutions and insurance companies
• Enterprises having turnover > Rs. 50 cr.
• Enterprises having borrowings > Rs. 10 cr.
• Holding / subsidiary company of any of the above
If any company does not fall in any of these categories, after having been applicable earlier, then it shall continue to apply unless it is not covered in any category for 2 consecutive years.
Further, Auditing and Assurance Standard 23- Related Parties impose duty on auditor to identify and disclose the related party transaction in the financial statements.
If we make comparison between these two definitions, we will come to know that AS-18 is wider than Companies Act. The Companies Act requires approval only when a director and his/her relatives involve in the transaction. However it if the key management personnel, who is not a director involved in any transaction, the approvals are not required, even though interest is involved. However, AS 18 makes it mandatory to disclose the transaction with the key management personnel also.

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