PRESENTATION
ON
“RELATED PARTY DISCLOSURES”
IAS 24 Vs. AS 18
AN OVERVIEW
JULY 9, 2010
Kaushal Kishore. DRAFT FOR DISCUSSIONS
1
CONTENTS
AS 18 Vs. IAS 24: AN OVERVIEW

SPECIFIC DIFFERENCES:

BASIC DIFFERENCES IN DEFINITIONS ETC

WHEN INDIVIDUALS ARE INVOLVED AS STAKEHOLDERS

WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS

OTHER DIFFERENCES

ADDITIONAL DEFINITIONS AND CLARIFICATIONS
Kaushal Kishore. DRAFT FOR DISCUSSIONS
2
PRIMARY ACCOUNTING REFERENCES

AS 18: “RELATED PARTY DISCLOSURES”

IAS 24: “RELATED PARTY DISCLOSURES”

EXPOSURE DRAFT: “AS 18 (REVISED 20XX)
CORRESPONDING TO IAS 24”

ACCOUNTING STANDARD INTERPRETATIONS
- ASI 13 (AGGREGATION OF TRANSACTIONS)
- ASI 19 (INTERPRET THE TERM ‘INTERMEDIARIES’)
- ASI 21 (NON EXECUTIVE DIRECTORS…….)

GUIDANCE NOTE ON REMUNERATION PAID TO KEY
MANAGEMENT PERSONNEL
Kaushal Kishore. DRAFT FOR DISCUSSIONS
3
BASIC DIFFERENCES IN DEFINITIONS, ETC.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
4
EXTENDED/RELAXED
RELATIVES Vs. CLOSE FAMILY MEMBERS
AS-18
Refers to “Individual” and “relatives of individual” [paras
3(c) (d), 10]. This include brother, sister, father and mother.
IAS-24
Refers to “Person” and “close member of that person’s
family”. Definition of close member of person’s family per
IAS includes dependents of the person or of the spouse. (para 9)
Remarks

AS 18 covers parents and siblings irrespective of their status
as to dependence on the individual. It does not cover
“dependents” otherwise.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
5
EXTENDED/RELAXED
RELATIVES Vs. CLOSE FAMILY MEMBERS
AS 18: RELATIVES
IAS 24: CLOSE MEMBERS OF FAMILY

Spouse;

Spouse/domestic partner;

Son; Daughter;

Children of the person or of spouse or of
domestic partner; and

Brother; Sister;

Dependents of the person or of spouse or
of domestic partner;

Father; and Mother;
who may be expected to influence the individual/person or
be influenced by the individual/person.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
6
EXTENDED
EXTENDED DEFINITION OF KMP
IAS-24
Key management personnel are those persons having
authority and responsibility for planning, directing and
controlling the activities of the entity, directly or indirectly,
including any director (whether executive or otherwise) of that
entity.
AS-18

KMP: those persons who have the authority and
responsibility for planning, directing and controlling the
activities of the reporting enterprise

ASI-21 specifically exempted “non-executive directors”
unless authority/responsibility to …….

Also, AS 18 did not specifically mention “directly or
indirectly”. However, practically, it does not seem to create
any difference.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
7
EXTENDED
EXTENDED COVERAGE OF KMP
AS-18
Covers key management personnel of an entity [para 3(d)]
IAS-24
Covers key management personnel of an entity or of a parent
of the entity [para 9(a)(ii)]
Kaushal Kishore. DRAFT FOR DISCUSSIONS
8
EXTENDED
EXTENDED COVERAGE OF KMP
Mr. X
(KMP)
Mr. Y
(KMP)
Subsidiary
Parent
(P)
(S)
Kaushal Kishore. DRAFT FOR DISCUSSIONS
 AS 18:
S is related to Mr. X in S’
financial statements
 S is not related to Mr. Y in S’
financial statements
 IAS 24
S is related to both Mr. X and
Mr. Y in S’ financial statements
9
EXTENDED/RELAXED
DIFFERENCE IN DEFINITION OF GOVT……….
AS-18
Para 10 defines state-controlled enterprise as “an enterprise
which is under the control of the Central Government and/or
any State Government(s)”
IAS-24
As per para 9:


Remarks
Government refers to government, government agencies
and similar bodies whether local, national or international.
A government-related entity is an entity that is controlled,
jointly controlled or significantly influenced by a government.
Wider definition per IAS 24. Certain entities not exempted
per AS 18 (say having significant influence by govt.) may also
avail exemption in IFRS
Kaushal Kishore. DRAFT FOR DISCUSSIONS
10
DIFFERENCES WHEN INDIVIDUALS ARE
INVOLVED AS STAKEHOLDERS
Kaushal Kishore. DRAFT FOR DISCUSSIONS
11
RELAXED
DIFFERENCES: WHEN INDIVIDUALS ARE STAKEHOLDERS
AS-18

Related if:
 common individual having significant influence
 common individual being key management personnel
IAS-24

Relaxation if:
 common person having significant influence
 common person being key management personnel
Normally, to start with, need control or joint control by a
person in one entity to be related to the other entity

Remarks
Refer to the following
discussions………
Kaushal Kishore. DRAFT FOR DISCUSSIONS
slides
and
examples
for
12
POSITION AS TO INDIVIDUALS AS STAKEHOLDERS IN IAS 24
IAS 24 Paras 9(a)(i)(ii)(iii) and 9(b)(vi)
Mr. X
IAS 24 Paras 9(a)(i) and 9(b)(vii)
Mr. X
Entity B
Entity A
Control
or
joint control
or
significant influence
or
KMP
Control or
joint control
Entity B
Entity A
control
or
joint control
Significant
influence
or
KMP
IAS 24: A AND B ARE RELATED TO EACH OTHER IN THEIR FINANCIAL
STATEMENTS
Kaushal Kishore. DRAFT FOR DISCUSSIONS
13
POSITION AS TO INDIVIDUALS AS STAKEHOLDERS IN AS 18
AS 18 Para 3(c)(d)(e)
Mr. X
Entity A
Entity B
Control
or
Significant influence
or
KMP
Control
or
Significant influence
or
KMP
AS 18:
A and B are related
to each other in both
their
financial
statements.
CONTROL AND SIGNIFICANT INFLUENCE IN AS 18 [para 3(c)] ARE
PRIMARILY CONSEQUENT TO VOTING POWER. IN IAS 24, VOTING POWER IS
NOT THAT RELEVANT
Kaushal Kishore. DRAFT FOR DISCUSSIONS
14
DIFFERENCE ON ACCOUNT OF JOINT CONTROL
UNIFORMITY
IAS 24 Para 9(b)(vi) and AS 18 Para 3(c)(d)(e)
Mr. X
Entity A
Joint control
Kaushal Kishore. DRAFT FOR DISCUSSIONS
Entity B
Control
or
Joint control
or
Significant influence
or
KMP
 IAS 24:
A and B are related to
each other if there is
joint control in both.
 AS 18:
Does not use the term
joint control in relation
to individuals. However,
by implication, joint
control is generally
regarded
as
an
influence
that
is
stronger
than
significant influence.
15
RELAXED
DIFFERENCE WHEN AN INDIVIDUAL HAS SIGNIFICANT
INFLUENCE
Mr. X
Significant
influence
over entity A
Significant
influence
over entity B
.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
 IAS 24:
 Entities
over
which
significant
influence
is
exercised by a common
person are not related to each
other.
 AS 18:
 A and B are related to each
other in both their financial
statements.
16
RELAXED
DIFFERENCE WHEN AN INDIVIDUAL IS A COMMON KMP
Mr. X
KMP of entity A
KMP of entity B
.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
 IAS 24:
 Entities having common
KMP are not related to each
other.
 AS 18:
 A and B are related to each
other in both their financial
statements.
17
RELAXED
DIFFERENCE WHEN AN INDIVIDUAL HAS KEY POSITION AND
SIGNIFICANT INFLUENCE
Mr. X
Significant
influence
over entity A
 IAS 24:
 An entity in which a person
has significant influence,
would not be related to other
just because that person is a
KMP of the other entity
KMP of entity B
.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
 AS 18:
 A and B are related to each
other in both their financial
statements.
18
DIFFERENCES WHEN ENTITIES ARE
INVOLVED AS STAKEHOLDERS
Kaushal Kishore. DRAFT FOR DISCUSSIONS
19
EXTENDED
DIFFERENCE WHEN ENTITIES ARE INVOLVED AS
STAKEHOLDERS
AS-18

Relaxed norms if “Joint ventures”
IAS-24

Extended coverage as to “Joint ventures”
Remarks
Refer to the following slide and example for discussions
Kaushal Kishore. DRAFT FOR DISCUSSIONS
20
EXTENDED
DIFFERENCE ON ACCOUNT OF JOINT VENTURES AND
ASSOCIATES
Entity A
Entity B
Joint venture or
an associate
Kaushal Kishore. DRAFT FOR DISCUSSIONS
Entity C
Joint venture
 AS 18: [para 3(b)]
 Co ventures or co associates
are not related to each other.
(anomaly).
 IAS 24: [paras 9(b)(iii) (iv)]
 B and C are related to each
other in both their financial
statements if they are either
co ventures or one is a
venture and the other is an
associate.
 Co associates are not related
to each other (as in AS 18
also).
21
OTHER DIFFERENCES
Kaushal Kishore. DRAFT FOR DISCUSSIONS
22
REGULATORY
DISCLOSURES SUBJECT TO CONFIDENTIALITY
AS-18
Disclosures, which conflict with confidentiality requirements
in terms of statutes or regulation, are excluded (paras 5-6).
IAS-24
No such specific exemption
Remarks

A possible GAAP difference

Normally accounting rules not to override statute
Kaushal Kishore. DRAFT FOR DISCUSSIONS
23
EXTENDED
DIFFERENCE ON ACCOUNT OF POST EMPLOYMENT
BENEFIT PLANS
Entity A
Entity B
Post employment
benefit plan for
the benefit of
employees of
Entity A or entity
related to A
Kaushal Kishore. DRAFT FOR DISCUSSIONS
 AS 18:
 No specific coverage as to
entities
that
are
post
employment benefit plans, as
related parties.
 IAS 24: [para 9(b)(v)]
 A and B are related to each
other in both their financial
statements
24
EXTENDED/IMPLEMENTATION
EXTENDED DISCLOSURES OF MANAGERIAL COMPENSATION
AS-18
As per para 20, “Statutes often require disclosure of
transactions with the directors or similar key managerial
personnel….”
IAS-24
Para 17 requires specific disclosures for compensation of
KMPs under the following categories:
Remarks

short-term employee benefits;

post-employment benefits;

other long-term benefits;

termination benefits; and

share-based payment.
Implementation issue:

companies would need to get separate valuations for
components of compensation of KMPs.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
25
OPTION/EXTENDED
OPTION AS TO DISCLOSURE OF VOLUME OF TRANSACTIONS
AS-18
As per para 23(iv) “Volume of the transactions either as an
amount or as an appropriate proportion”
IAS-24
As per para 18(a) “the amount of the transactions” need to be
disclosed.
Remarks
No option available in IAS 24.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
26
EXTENDED
ADDED DISCLOSURES FOR GOVT RELATED ENTITIES……….
AS-18
As per para 9 “No disclosure is required in the financial
statements of state-controlled enterprises as regards related
party relationships with other state-controlled enterprises and
transactions with such enterprises.”
IAS-24
As per para 25, following disclosures:
 Name of the government and nature of relationship…..
 For each individually significant transaction: nature and
amount
 For other transactions: a qualitative or quantitative indication
of their extent.
Remarks
Wider disclosure requirements per IAS 24.
Possible implementation issue:
 PSUs would require to collate large information for
disclosure, while they had exemption available earlier.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
27
ADDITIONAL DEFINITIONS IN AS-18
Kaushal Kishore. DRAFT FOR DISCUSSIONS
28
CLARIFICATORY
ADDITIONAL DEFINITIONS IN AS 18, THOUGH NOT IN IAS 24
AS-18
AS-18 provides definitions of the following items:
 Associate and Joint venture
 Holding company, Subsidiary, Fellow subsidiary
IAS-24
IAS 24 does not include these definitions and allow respective
standards to deal with
Remarks
Seems logical not to keep multiple definitions
Kaushal Kishore. DRAFT FOR DISCUSSIONS
29
CLARIFICATIONS IN AS-18
Kaushal Kishore. DRAFT FOR DISCUSSIONS
30
CLARIFICATORY
CLARIFICATORY TEXT IN AS-18, THOUGH NOT IN IAS 24
AS-18
AS includes clarificatory text primarily w.r.t the following:
 Control
 Substantial interest (including 20% threshold)
 Significant influence (including 20% threshold)
IAS-24
IAS does not include clarificatory text and allows respective
standards to deal with
Remarks
Possibly ICAI would need to issue implementation guidance to avoid
diversity.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
31
CLARIFICATORY
CLARIFICATION REGARDING AGGREGATION OF
TRANSACTIONS
AS-18, ASI 13
IAS-24

Para 27 states “Disclosure of details of particular
transactions with individual related parties would frequently
be too voluminous to be easily understood. Accordingly, items
of a similar nature may be disclosed in aggregate by type of
related party……………………..”.

ASI 13 allows a rebuttable presumption of 10% of the total
related party transactions of the same type (say purchase of
goods) being material.
IAS does not include any such item, including threshold of
10% as materiality.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
32
RECAP…….
Kaushal Kishore. DRAFT FOR DISCUSSIONS
33
RECAP……….

DIFFERENCES: IAS 24 Vs. AS 18
-
BASIC DIFFERENCES IN DEFINITIONS ETC
-
WHEN INDIVIDUALS ARE INVOLVED AS STAKEHOLDERS
-
WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS
-
OTHER DIFFERENCES
-
ADDITIONAL DEFINITIONS AND CLARIFICATIONS
Kaushal Kishore. DRAFT FOR DISCUSSIONS
34
THANK YOU FOR YOUR KIND ATTENTION
The information contained herein is of general nature and is for discussions only
Kaushal Kishore. DRAFT FOR DISCUSSIONS
35
CONTACT DETAILS:
KAUSHAL KISHORE
+91-9811103133
kaushalkishore@kpmg.com
Kaushal Kishore. DRAFT FOR DISCUSSIONS
36
Kaushal Kishore. DRAFT FOR DISCUSSIONS
37
CLARIFICATORY
COVERAGE OF COMMITMENTS
AS-18
Disclosures do not specifically cover “commitments” between
an entity and its related parties.
IAS-24
Disclosures include “commitments, i.e., to do something if
particular event occurs or does not occur in future, including
executory contracts” [para 2(a)]
Remarks

In substance, there seems to be no difference, since
commitments are one type of transaction

Possible implementation difference
Kaushal Kishore. DRAFT FOR DISCUSSIONS
38
CLARIFICATORY
CLARIFICATION REGARDING REGULATORY DISCLOSURES
AS-18
AS-18 Para 20 states “The statutes governing an enterprise
often require disclosure in financial statements of transactions
with
certain
categories
of
related
parties.
In
particular,……………transactions with the directors…… or
similar key management personnel…………. because of the
fiduciary nature of their relationship with the enterprise.”
IAS-24
IAS does not include any such item
Remarks

Does not seem to be any GAAP difference and only
clarificatory remark with respect to regulatory
requirements.
Kaushal Kishore. DRAFT FOR DISCUSSIONS
39