Is this Related Party Transactio for Auditors Report to ROC
This query is : Resolved
Querist : Anonymous
Querist :
Anonymous
(Querist)
31 October 2010
Mr A is a Manager Director of X, a Pvt Ltd. Company in India and he is a major share holder of X.
Mr. B is the CEO of a Y, a private company based only in the USA and he is also a major share holder of same company Y.
Mr A is the parent of Mr B.
Mr. A does not own shares in other company Y
Mr. B does not own shares in other company X
In addition to no mutual share holding, there are no common directors between X and Y
Mr A is a citizen of India but not the USA
Mr B is a citizen of United States but not of India.
India company X provides software development services to US company Y.
Do payments from US company Y to India company X need to reported as Related Party Transactions in Notes to Accounts in the ROC annual annual filing by the Auditor ?
If yes, what should be the reason that this transaction is considered a related party transaction ? Because A is a relative of B ? (If some one can point to the portion of the regulations that would be appreciated)
One person suggests that the following language:
Export Sales of Software Development & Consultancy amounting to Rs ___ have been made to company Y in which director Sh. A is interested as parent of Sh. B, the CEO of company Y.
Questions:
Does this transaction fall under the disclosures required in the first place ?
(Given no mutual stock ownership or common directorship)
If it does, is the proposed language sufficient ?
Mr A is a Manager Director of X, a Pvt Ltd. Company in India and he is a major share holder of X.
Mr. B is the CEO of a Y, a private company based only in the USA and he is also a major share holder of same company Y.
Mr A is the parent of Mr B.
Mr. A does not own shares in other company Y
Mr. B does not own shares in other company X
In addition to no mutual share holding, there are no common directors between X and Y
Mr A is a citizen of India but not the USA
Mr B is a citizen of United States but not of India.
India company X provides software development services to US company Y.
Do payments from US company Y to India company X need to reported as Related Party Transactions in Notes to Accounts in the ROC annual annual filing by the Auditor ?
If yes, what should be the reason that this transaction is considered a related party transaction ? Because A is a relative of B ? (If some one can point to the portion of the regulations that would be appreciated)
One person suggests that the following language:
Export Sales of Software Development & Consultancy amounting to Rs ___ have been made to company Y in which director Sh. A is interested as parent of Sh. B, the CEO of company Y.
Questions:
Does this transaction fall under the disclosures required in the first place ?
(Given no mutual stock ownership or common directorship)
If it does, is the proposed language sufficient ?
31 October 2010
Key management personnel's are relatives. AS-18 applies. Necessarily disclosure is required in notes to financial statements and in e-forms.
01 November 2010
Agreed with Sir.....
The provisions of appointment of MD is not applicable to private company but disclosure relating to related party transaction is required to be given as per AS-18 to private as well as public company.
Regards
The provisions of appointment of MD is not applicable to private company but disclosure relating to related party transaction is required to be given as per AS-18 to private as well as public company.
Regards
Querist : Anonymous
Querist :
Anonymous
(Querist)
01 November 2010
Is the relative requirement coming from
1. Mr A is a major shareholder of X
2. MR A is a Director of X
3. Mr A is a Managing Director of X
Or any of the above.
For example if Mr. A was not a managing director but still a director and major shareholder does that change anything ?
Is the relative requirement coming from
1. Mr A is a major shareholder of X
2. MR A is a Director of X
3. Mr A is a Managing Director of X
Or any of the above.
For example if Mr. A was not a managing director but still a director and major shareholder does that change anything ?
01 August 2024
In the context of Indian accounting and auditing standards, related party transactions must be disclosed in the financial statements, including the Notes to Accounts, based on the relationships and definitions provided in the relevant regulations. Let's break down the situation and requirements:
### **Related Party Transactions (RPT) Disclosure**
1. **Definition of Related Parties:**
Under the Indian Accounting Standards (Ind AS) and Companies Act, 2013, related parties include:
- **Key Management Personnel (KMP):** Includes directors and their relatives.
- **Relatives of Key Management Personnel:** Specifically, a relative of a director or KMP.
- **Entities where a director or their relative has control or significant influence.**
2. **Applicability to Your Situation:**
- **Mr. A (Managing Director of X) and Mr. B (CEO of Y) are Related by Family:** Mr. A and Mr. B are related as parent and child. Even though they do not hold shares in each other’s companies and there is no mutual shareholding or common directorship, the familial relationship establishes a related party connection.
- **Transactions between X and Y:** Since Mr. A is related to Mr. B, and Mr. B is the CEO of Y, which is receiving services from X, this transaction is considered a related party transaction due to the family relationship.
3. **Regulations for Reporting:**
- **Companies Act, 2013 (Section 188):** Requires disclosure of related party transactions. Companies need to provide details of transactions with related parties in their financial statements.
- **Ind AS 24:** Requires disclosure of related party transactions and relationships in the Notes to Accounts.
4. **Disclosure Requirement:**
- **Nature of Relationship:** The transaction should be disclosed with a note on the relationship between the parties involved.
- **Details of Transactions:** The nature, volume, and terms of transactions must be disclosed.
- **Disclosure Language:** The proposed language is appropriate. It clarifies the relationship and the nature of the transactions.
**Example Language for Disclosure:**
```
Export Sales of Software Development & Consultancy amounting to Rs ___ have been made to company Y, in which Director Mr. A has an interest as the parent of Mr. B, the CEO of company Y. This transaction is disclosed in accordance with the related party transaction requirements under the Companies Act, 2013 and applicable accounting standards.
```
### **To Address Specific Points:**
1. **Does the Transaction Fall Under Disclosure Requirements?**
Yes, this transaction should be disclosed due to the familial relationship between Mr. A and Mr. B, even though there is no mutual shareholding or directorship between X and Y.
2. **Is the Proposed Language Sufficient?**
The proposed language is sufficient as it clearly states the relationship and the nature of the transaction. Ensure that the amounts and nature of the services are accurately reflected in the Notes to Accounts.
3. **Relative Requirement and Positions:**
- **Mr. A's Positions:** The requirement for disclosure is primarily due to the familial relationship, not solely based on Mr. A's position as Managing Director. Even if Mr. A were a director but not a Managing Director, the familial relationship would still necessitate disclosure.
- **Key Management Personnel (KMP):** The primary reason for disclosure is Mr. A’s role as KMP (Managing Director) and the familial link, not his specific role.
In summary, the transaction between X and Y should indeed be reported as a related party transaction due to the familial relationship between Mr. A and Mr. B. The disclosure in the Notes to Accounts should include the nature of the relationship and the transaction details, as per the applicable regulations and standards.
### **Related Party Transactions (RPT) Disclosure**
1. **Definition of Related Parties:**
Under the Indian Accounting Standards (Ind AS) and Companies Act, 2013, related parties include:
- **Key Management Personnel (KMP):** Includes directors and their relatives.
- **Relatives of Key Management Personnel:** Specifically, a relative of a director or KMP.
- **Entities where a director or their relative has control or significant influence.**
2. **Applicability to Your Situation:**
- **Mr. A (Managing Director of X) and Mr. B (CEO of Y) are Related by Family:** Mr. A and Mr. B are related as parent and child. Even though they do not hold shares in each other’s companies and there is no mutual shareholding or common directorship, the familial relationship establishes a related party connection.
- **Transactions between X and Y:** Since Mr. A is related to Mr. B, and Mr. B is the CEO of Y, which is receiving services from X, this transaction is considered a related party transaction due to the family relationship.
3. **Regulations for Reporting:**
- **Companies Act, 2013 (Section 188):** Requires disclosure of related party transactions. Companies need to provide details of transactions with related parties in their financial statements.
- **Ind AS 24:** Requires disclosure of related party transactions and relationships in the Notes to Accounts.
4. **Disclosure Requirement:**
- **Nature of Relationship:** The transaction should be disclosed with a note on the relationship between the parties involved.
- **Details of Transactions:** The nature, volume, and terms of transactions must be disclosed.
- **Disclosure Language:** The proposed language is appropriate. It clarifies the relationship and the nature of the transactions.
**Example Language for Disclosure:**
```
Export Sales of Software Development & Consultancy amounting to Rs ___ have been made to company Y, in which Director Mr. A has an interest as the parent of Mr. B, the CEO of company Y. This transaction is disclosed in accordance with the related party transaction requirements under the Companies Act, 2013 and applicable accounting standards.
```
### **To Address Specific Points:**
1. **Does the Transaction Fall Under Disclosure Requirements?**
Yes, this transaction should be disclosed due to the familial relationship between Mr. A and Mr. B, even though there is no mutual shareholding or directorship between X and Y.
2. **Is the Proposed Language Sufficient?**
The proposed language is sufficient as it clearly states the relationship and the nature of the transaction. Ensure that the amounts and nature of the services are accurately reflected in the Notes to Accounts.
3. **Relative Requirement and Positions:**
- **Mr. A's Positions:** The requirement for disclosure is primarily due to the familial relationship, not solely based on Mr. A's position as Managing Director. Even if Mr. A were a director but not a Managing Director, the familial relationship would still necessitate disclosure.
- **Key Management Personnel (KMP):** The primary reason for disclosure is Mr. A’s role as KMP (Managing Director) and the familial link, not his specific role.
In summary, the transaction between X and Y should indeed be reported as a related party transaction due to the familial relationship between Mr. A and Mr. B. The disclosure in the Notes to Accounts should include the nature of the relationship and the transaction details, as per the applicable regulations and standards.
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