Background:
ICAI has noted in numerous instances that financial reporting disclosures does not align with statutory requirements or fails to provide stakeholders with a clear depiction. Below are some identified shortcomings in reporting practices with respect to related party disclosures (IND AS 24), with the intention of aiding preparers and presenters in recognizing and enhancing commonly observed pitfalls:
Shortcomings: IND AS 24 “Related Party Disclosures”
| S. No. | Observation(s) | Remarks |
| 1 | Companies used the term ‘Relatives of Key Management Personnel’ in related party disclosures, which does not comply with Ind AS 24. | As per the Ind AS 24, the correct terminology is ‘Close Member of Key Management Personnel’. |
| 2 | The company disclosed categories for directors but only mentioned the executive director under Key Managerial Personnel (KMP), implying non-executive directors aren’t considered KMP. | In Ind AS 24, key management personnel (KMP) are defined as individuals, including all directors, who have the authority and responsibility to plan, direct, and control the entity’s activities, whether directly or indirectly. |
| 3 | It was observed that in most cases organizations failed to give appropriate disclosures of related parties. | Appropriate (recommended) to disclose the related party relationship when control exists, irrespective of whether there have been transactions between the related parties. |
| 4 | Debentures were issued to holding company and ultimate holding company and same was disclosed as transactions entered between them during the year. Outstanding balances towards these debentures were not disclosed therefore the requirements of Ind AS 24 have not been complied with. | Companies shall disclose following: the amount of the transactions, amount of outstanding balances, including commitments,Terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement, andDetails of any guarantees given or received |
| 5 | Disclosure of remuneration paid to related parties was not made in accordance to the standards requirement. | Disclose key management personnel compensation in total and for each of the following categories: short- term employee benefits; post- employment benefits; other long-term benefits; termination benefits; and share-based payment |
| SW Point of View: Companies must adhere to the statutory requirements mentioned above and use the correct terminologies and disclosure requirements. |
