Ind AS 24 requires disclosure of related party relationships, transactions, and outstanding balances (including commitments) in an entity's financial statements. Related party relationships — a parent, subsidiaries, associates, key management personnel, and so on — can affect an entity's financial position and results, and transactions with related parties may not occur on the same terms as with independent parties. Ind AS 24 does not change how such transactions are measured; it requires that they, and the relationships behind them, be disclosed so users can understand their potential effect.
Objective and scope
The objective is to ensure that an entity's financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances (including commitments) with them. The standard requires disclosure; it does not deal with the recognition or measurement of related party transactions. It applies to individual and consolidated financial statements.
Who is a related party
A related party is a person or entity that is related to the entity preparing its financial statements (the reporting entity). Ind AS 24 defines this in two parts.
A person or a close member of that person's family is related to the reporting entity if that person has control or joint control of the reporting entity, has significant influence over it, or is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
An entity is related to the reporting entity if any of a number of conditions apply — for example, the entity and the reporting entity are members of the same group (parent, subsidiary, fellow subsidiary); one is an associate or joint venture of the other (or of a member of the group); both are joint ventures of the same third party; the entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or a related entity; the entity is controlled or jointly controlled by a person identified above; or a person with control/joint control over the reporting entity has significant influence over the entity or is a member of its (or its parent's) key management personnel.
Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity — including that person's children and spouse or domestic partner, children of the spouse or domestic partner, and dependants of the person or their spouse or domestic partner. Key management personnel (KMP) are those persons having authority and responsibility for planning, directing, and controlling the activities of the entity, directly or indirectly, including any director (executive or otherwise).
What must be disclosed
Relationships involving control. Relationships between a parent and its subsidiaries are disclosed irrespective of whether there have been transactions between them. An entity discloses the name of its parent and, if different, the ultimate controlling party.
Key management personnel compensation. An entity discloses KMP compensation in total and analysed by category: short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits, and share-based payment. This category-by-category breakdown of KMP compensation is a specific Ind AS 24 requirement.
Related party transactions. If there have been transactions between related parties, the entity discloses the nature of the related party relationship as well as information about those transactions and outstanding balances (including commitments) necessary for users to understand the potential effect of the relationship on the financial statements. At a minimum this includes the amount of the transactions; the amount of outstanding balances (including commitments), their terms and conditions (including whether secured) and details of any guarantees; provisions for doubtful debts related to the outstanding balances; and the expense recognised during the period in respect of bad or doubtful debts due from related parties. These disclosures are made separately for each category of related party (parent, entities with joint control or significant influence, subsidiaries, associates, joint ventures, KMP, and other related parties).
Government-related entities
Ind AS 24 provides a partial exemption for a reporting entity that is a government-related entity (one controlled, jointly controlled, or significantly influenced by a government). Such an entity is relieved from the full disclosure requirements in respect of related party transactions and outstanding balances with the government and with other entities related through the same government; instead, it gives more limited disclosures (the name of the government and the nature of the relationship, and the nature and amount of individually significant transactions, with a qualitative or quantitative indication of the extent of collectively significant transactions). This relief recognises the impracticality of full disclosure where a government controls many entities.
A brief illustration
A company is 60% owned by a parent, pays management fees to the parent, buys materials from a fellow subsidiary, and pays remuneration to its key management personnel. Under Ind AS 24, it discloses its parent and ultimate controlling party (regardless of transactions), discloses KMP compensation split into short-term benefits, post-employment benefits, other long-term benefits, termination benefits, and share-based payment, and discloses the nature and amounts of the transactions with the parent and fellow subsidiary along with outstanding balances, their terms, and any related doubtful-debt provisions — separately for each category of related party. A reader can then assess how much of the company's activity is with related parties and the terms on which it is conducted. Under AS 18, the KMP compensation would not be broken down by category and the definition of related parties would be somewhat narrower.
How Ind AS 24 compares with AS 18
Ind AS 24 and AS 18 share the same purpose and core content — both require disclosure of related party relationships and transactions, both cover control, significant influence, and KMP, and both require disclosure of controlling relationships even absent transactions. The differences: Ind AS 24 has a broader definition of related parties in certain respects (for example, in how it treats close family members, post-employment benefit plans, and certain entity relationships); it specifically requires KMP compensation disclosure broken down by category (short-term, post-employment, other long-term, termination, and share-based payment), which AS 18 does not; and it provides a partial exemption with modified disclosures for government-related entities, which AS 18 does not. So Ind AS 24 casts a slightly wider net and prescribes more granular KMP compensation disclosure.
Common pitfalls
Recurring issues include failing to disclose the parent and ultimate controlling party where there were no transactions; not breaking down KMP compensation by the required categories; overlooking related parties such as close family members of KMP or post-employment benefit plans; aggregating transactions across categories in a way that obscures their effect; and omitting the terms of outstanding balances and related doubtful-debt provisions.
Why this is cleaner on a unified system
Identifying and disclosing related party transactions requires being able to flag and total transactions with the relevant parties across the entity — far easier when all transactions are captured in one connected system where counterparties can be tagged consistently. When the ledger holds a single source of truth with related parties identified, and where KMP compensation flows through the same payroll and accounting system, extracting transaction amounts, outstanding balances, and the categorised KMP compensation for disclosure is more straightforward than searching across separate tools and reconciling the results.
This article is a detailed educational summary of Ind AS 24 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of Ind AS 24 as notified under the Companies Act before relying on it, and consult a qualified chartered accountant for application to your specific circumstances.