Applicability of as 23

AS 23 defines associate as an enterprises in which the investor has significant influence. Significant influence means the power to participate in the financial and operating decisions of the associate.

By merely holding more than 20% share in a company, the investor does not obtain significant influence. For the purpose of AS 29, significant influence can be identified by one or more of the following criteria:

a. Representation in the Board of Directors

b. Participation in the policy making body

c. Material transactions between investor and investee.

d. Inter-change of managerial personnel.

e. Provision of technical information.

If any of the above criteria is fulfilled only then the AS will be applicable. Merely by purchasing 20% or more shares by the investor, the investor & the investee do not become associates.

Hi Jay, the answer to ur query is :

if an investor holds, directly or indirectly through subsidiary(ies), 20%or more of the voting power of the investee, it is presumed that the investor has significant influence. However, in spite of holding 20% or more of voting power of associate, the investor does not enjoy significant influence, then the presumption of criteria of 20% or more of voting power is null and void.

The existence of significant influence by an investor is usually evidenced in one or more of the following ways:

(a) Representation on the board of directors or corresponding governing body of the investee;

 (b) participation in policy making processes;

(c) material transactions between the investor and the investee;

(d) interchange of managerial personnel; or

(e) provision of essential technical information.

Regards, CA Shakuntala Chhangani

Agreed to Siddharth and Shakuntanla. Presence of significant influence is required for establishing associate relationship and Presence of control is required for establishing subsidiary relationship.

Percentage holding is irrelevant for Subsidiary and Associate relationship.

Thanks

If an organisation does not prepare CFS under AS 21 is it necessary to apply AS 23 in respect of associates?

In otherwords, is as 23 applicable only when a statement as per as 21 is prepared?