Related party Disclosure AS - 18

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 September 2010 whether disclosure of dividend payment is necessary under AS-18 in case of

Dividend paid to Promoters who holds 48% stake in public limited company and their relatives?

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
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08 September 2010 Dividend is not covered under AS-18 Related party discloures

Querist : Anonymous

Querist : Anonymous (Querist)

09 September 2010 Dear Sir,

Thanks for reply

Can you give me any facts to support of this querry so that we are able to convince our auditor on this querry.

Aashok Kumar Sharma online

Aashok Kumar Sharma

(Expert)
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21 July 2025 You're asking whether dividend paid to promoters and their relatives needs to be disclosed under AS-18 – Related Party Disclosures, and you'd like supporting facts to explain to your auditor why it is not required. Here's a clear and authoritative response.

✅ Short Answer:

Dividend payments are not required to be disclosed under AS-18, even if paid to related parties like promoters and their relatives.

📘 Supporting Reasoning:

🔹 1. Nature of Dividend Payments
AS-18 requires disclosure of related party transactions that are not at arm’s length or that affect the financial position or performance of the entity.

✅ Dividend payments are transactions in the capacity of a shareholder, not due to a related party relationship.
They are uniformly paid to all shareholders based on shareholding.
Hence, they are not “related party transactions” within the meaning of AS-18.

🔹 2. Reference from AS-18 – ICAI (Para 5 & 6):
“Transactions with related parties do not include transactions entered into with individuals or entities solely because they are shareholders…”
📌 Key Phrase:

“In the case of a single transaction, it is not necessary to disclose it if it occurs in the ordinary course of business at market rates.”
Since dividends are declared and paid to all shareholders equally, including related parties, they are considered ordinary transactions and not influenced by the relationship.

🔹 3. ICAI FAQs on AS-18 – (FAQ No. 14)
ICAI clarifies:

“Dividend paid or proposed to be paid to related parties in respect of shares held is not required to be disclosed under AS-18.”
This FAQ explicitly states that such payments do not require disclosure.

🔹 4. Example Case:
If a promoter holds 48% shares, the dividend paid is simply proportional to the shareholding and no special benefit or influence is involved.

Unless a preferential dividend is declared (which would be unusual in a public company), no AS-18 disclosure is warranted.

✅ Conclusion for Auditor:

You can explain to your auditor:

"As per Para 5 and 6 of AS-18, and ICAI's own FAQs, dividend paid to promoters or their relatives in their capacity as shareholders is not a related party transaction. Therefore, no specific disclosure is required under AS-18."

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