List of Accounting Standards

AS 18 or Accounting Standard 18 on "Related Party Disclosures" is a standard issued by the Institute of Chartered Accountants of India (ICAI) that requires companies to disclose the nature and extent of their related party transactions in their financial statements.

Related parties are defined as individuals or entities that are closely connected to the company, such as its owners, directors, key management personnel, subsidiaries, associates, and joint ventures. The purpose of related party disclosures is to ensure transparency and prevent any potential conflicts of interest that may arise from such transactions.

Under AS 18, companies are required to disclose the following in their financial statements:

1. The name of the related party and its relationship with the company.
2. The nature of the related party transaction, including the amount involved and any terms and conditions of the transaction.
3. The amounts of outstanding balances, including any advances, loans, or guarantees provided by the company to the related party.
4. The amounts of income, expenses, gains, or losses arising from related party transactions.

It is important to note that related party transactions must be disclosed even if they are conducted on normal commercial terms and conditions. Companies are also required to disclose any changes in the nature and extent of their related party transactions from the previous year.

AS 18 applies to all companies in India that prepare financial statements in accordance with Indian Accounting Standards (Ind AS). It is important for companies to comply with AS 18 to ensure transparency and avoid any potential legal or regulatory issues related to related party transactions.

10 examples of related party transactions that would require disclosure under AS 18 in India:

1. The company sells goods or services to a subsidiary or associate company at a price that is lower or higher than the prevailing market rate.

2. The company provides a loan or advance to a director or key management personnel at a lower rate of interest than the market rate.

3. The company enters into a lease agreement with a related party for a property or asset.

4. The company provides a guarantee or security for a loan taken by a related party.

5. The company purchases goods or services from a related party at a price that is higher than the prevailing market rate.

6. The company enters into a joint venture or partnership agreement with a related party.

7. The company provides a loan or advance to a subsidiary or associate company at a lower rate of interest than the market rate.

8. The company provides services to a related party at a price that is lower than the prevailing market rate.

9. The company sells an asset to a related party at a price that is lower or higher than the prevailing market rate.

10. The company enters into a licensing or royalty agreement with a related party for the use of intellectual property.

In each of these cases, the company must disclose the nature and extent of the related party transaction, including the name of the related party, the amount involved, any terms and conditions, and any outstanding balances or income/expenses arising from the transaction, in their financial statements.

10 questions and answers related to AS 18 and related party disclosures in India:

1. Q: What is the definition of a related party under AS 18?

A: Related parties are individuals or entities that are closely connected to the company, such as its owners, directors, key management personnel, subsidiaries, associates, and joint ventures.

2. Q: Do related party transactions need to be disclosed in the financial statements even if they are conducted on normal commercial terms and conditions?

A: Yes, related party transactions must be disclosed even if they are conducted on normal commercial terms and conditions.

3. Q: What are some examples of related party transactions that would require disclosure under AS 18?

A: Examples include sales of goods or services to a subsidiary or associate company, loans to directors or key management personnel, leasing agreements, joint ventures, and royalty agreements.

4. Q: What information needs to be disclosed in the financial statements regarding related party transactions?

A: The name of the related party, the nature of the transaction, the amount involved, any outstanding balances, and any income/expenses arising from the transaction must be disclosed.

5. Q: What is the purpose of related party disclosures under AS 18?

A: The purpose of related party disclosures is to ensure transparency and prevent any potential conflicts of interest that may arise from related party transactions.

6. Q: Are there any exemptions to the related party disclosure requirements under AS 18?

A: No, there are no exemptions to the related party disclosure requirements under AS 18.

7. Q: Do the related party disclosure requirements under AS 18 apply to all companies in India?

A: Yes, the related party disclosure requirements under AS 18 apply to all companies in India that prepare financial statements in accordance with Indian Accounting Standards (Ind AS).

8. Q: What are some potential legal or regulatory issues that companies may face if they fail to comply with AS 18?

A: Companies may face legal or regulatory issues such as penalties or fines for failing to comply with AS 18, as well as reputational damage.

9. Q: Is there any guidance provided by the ICAI on how to prepare related party disclosures?

A: Yes, the ICAI has issued guidance in the form of the Accounting Standard and related implementation guidance documents.

10. Q: How often do companies need to update their related party disclosures in the financial statements?

A: Companies need to update their related party disclosures in the financial statements annually to reflect any changes in the nature and extent of their related party transactions from the previous year.