PRESENTATION ON “RELATED PARTY DISCLOSURES” IAS 24 Vs. AS 18 AN OVERVIEW JULY 9, 2010

1Kaushal Kishore. DRAFT FOR DISCUSSIONS 1

PRESENTATION

ON

“RELATED PARTY DISCLOSURES”

IAS 24 Vs. AS 18

AN OVERVIEW

JULY 9, 2010


CONTENTSAS 18 Vs. IAS 24: AN OVERVIEW

CONTENTSAS 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


PRIMARY ACCOUNTING REFERENCESPRIMARY 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


BASIC DIFFERENCES IN DEFINITIONS, ETC.BASIC DIFFERENCES IN DEFINITIONS, ETC.


AS-18AS-18 Refers to “Individual” and “relatives of individual” Refers to “Individual” and “relatives of individual” [paras [paras 3(c) (d), 10]. This include brother, sister, father and mother.3(c) (d), 10]. This include brother, sister, father and mother.

IAS-24IAS-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)

RemarksRemarks AS 18 covers parents and siblings irrespective of their status as to dependence on the individual. It does not cover “dependents” otherwise.

RELATIVES Vs. CLOSE FAMILY MEMBERS RELATIVES Vs. CLOSE FAMILY MEMBERS

EXTENDED/RELAXED


AS 18: RELATIVES

Spouse;

Son; Daughter;

Brother; Sister;

Father; and Mother;

IAS 24: CLOSE MEMBERS OF FAMILY

Spouse/domestic partner;

Children of the person or of spouse or of domestic partner; and

Dependents of the person or of spouse or of domestic partner;

RELATIVES Vs. CLOSE FAMILY MEMBERS RELATIVES Vs. CLOSE FAMILY MEMBERS

who may be expected to influence the individual/person or

be influenced by the individual/person.

EXTENDED/RELAXED


IAS-24IAS-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-18AS-18 KMP: those persons who have the authority and those persons who have the authority and responsibility for planning, directing and controlling the responsibility for planning, directing and controlling the activities of the reporting enterpriseactivities of the reporting enterprise

ASI-21 specifically ASI-21 specifically exempted “non-executive directors”exempted “non-executive directors” unless authority/responsibility to …….unless authority/responsibility to …….

Also, AS 18 Also, AS 18 did not specifically mention “directly or did not specifically mention “directly or indirectly”.indirectly”. However, practically, it does not seem to create However, practically, it does not seem to create any difference.any difference.

EXTENDED DEFINITION OF KMPEXTENDED DEFINITION OF KMP

EXTENDED


AS-18AS-18 Covers key management personnel of an entity Covers key management personnel of an entity [para 3(d)][para 3(d)]

IAS-24IAS-24 Covers key management personnel of an entity Covers key management personnel of an entity or of a parent or of a parent of the entityof the entity [para 9(a)(ii)][para 9(a)(ii)]

EXTENDED COVERAGE OF KMP EXTENDED COVERAGE OF KMP

EXTENDED

9Kaushal Kishore. DRAFT FOR DISCUSSIONS

AS 18:

S is related to Mr. X in S’ S is related to Mr. X in S’ financial statementsfinancial statements

S is not related to Mr. Y in S’ S is not related to Mr. Y in S’ financial statementsfinancial statements

IAS 24IAS 24

S is related to both Mr. X and S is related to both Mr. X and Mr. Y in S’ financial statementsMr. Y in S’ financial statements

Mr. X

(KMP)

Subsidiary

(S)

Parent

(P)

Mr. Y

(KMP)

EXTENDED COVERAGE OF KMP EXTENDED COVERAGE OF KMP

EXTENDED


DIFFERENCE IN DEFINITION OF GOVT……….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:

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.

Remarks Wider definition per IAS 24. Certain entities not exempted Wider definition per IAS 24. Certain entities not exempted per AS 18 (say having significant influence by govt.) may also per AS 18 (say having significant influence by govt.) may also avail exemption in IFRSavail exemption in IFRS

EXTENDED/RELAXED


DIFFERENCES WHEN INDIVIDUALS ARE INVOLVED AS STAKEHOLDERS

DIFFERENCES WHEN INDIVIDUALS ARE INVOLVED AS 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 slides and examples for discussions………

DIFFERENCES: WHEN INDIVIDUALS ARE STAKEHOLDERSDIFFERENCES: WHEN INDIVIDUALS ARE STAKEHOLDERS

RELAXED


IAS 24 Paras 9(a)(i)(ii)(iii) and 9(b)(vi)

Mr. X

Entity A

Controlor

joint controlor

significant influenceor

KMP

Entity B

Control or joint control

IAS 24: A AND B ARE RELATED TO EACH OTHER IN THEIR FINANCIAL STATEMENTS

IAS 24 Paras 9(a)(i) and 9(b)(vii)

Mr. X

Entity A

control or

joint control

Entity B

Significant influence

orKMP

POSITION AS TO INDIVIDUALS AS STAKEHOLDERS IN IAS 24POSITION AS TO INDIVIDUALS AS STAKEHOLDERS IN IAS 24


AS 18 Para 3(c)(d)(e)

Mr. X

Entity B

Control or

Significant influenceor

KMP

POSITION AS TO INDIVIDUALS AS STAKEHOLDERS IN AS 18POSITION AS TO INDIVIDUALS AS STAKEHOLDERS IN AS 18

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

Entity A

Control or

Significant influenceor

KMP

AS 18:

A and B are related A and B are related to each other in both to each other in both their financial their financial statements.statements.


IAS 24 Para 9(b)(vi) and AS 18 Para 3(c)(d)(e)

Mr. X

Entity A

Joint control

Entity BControl

orJoint control

orSignificant influence

orKMP

DIFFERENCE ON ACCOUNT OF JOINT CONTROLDIFFERENCE ON ACCOUNT OF JOINT CONTROLUNIFORMITY

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.


IAS 24:

Entities over which Entities over which significant influence is significant influence is exercised by a common exercised by a common person are not related to each person are not related to each other.other.

AS 18:

A and B are related to each A and B are related to each other in both their financial other in both their financial statements.statements.

Mr. X


over entity A


over entity B

DIFFERENCE WHEN AN INDIVIDUAL HAS SIGNIFICANT INFLUENCEDIFFERENCE WHEN AN INDIVIDUAL HAS SIGNIFICANT INFLUENCE

.

RELAXED


IAS 24:

Entities having common Entities having common KMP are not related to each KMP are not related to each other.other.

AS 18:


Mr. X

KMP of entity A KMP of entity B

DIFFERENCE WHEN AN INDIVIDUAL IS A COMMON KMPDIFFERENCE WHEN AN INDIVIDUAL IS A COMMON KMP

.

RELAXED


IAS 24:

An entity in which a person An entity in which a person has significant influence, has significant influence, would not be related to other would not be related to other just because that person is a just because that person is a KMP of the other entityKMP of the other entity

AS 18:


Mr. X


over entity A

KMP of entity B

DIFFERENCE WHEN AN INDIVIDUAL HAS KEY POSITION AND SIGNIFICANT INFLUENCEDIFFERENCE WHEN AN INDIVIDUAL HAS KEY POSITION AND SIGNIFICANT INFLUENCE

.

RELAXED


DIFFERENCES WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS

DIFFERENCES 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

DIFFERENCE WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERSDIFFERENCE WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS

EXTENDED


AS 18: [para 3(b)]

Co ventures or co associates are not Co ventures or co associates are not related to each other.related to each other.

(anomaly)(anomaly)..

IAS 24: [paras 9(b)(iii) (iv)]

B and C are related to each other in B and C are related to each other in both their financial statements if both their financial statements if they are either co ventures or one is they are either co ventures or one is a venture and the other is an a venture and the other is an associate.associate.

Co associates are not relatedCo associates are not related to to each other (as in AS 18 also).each other (as in AS 18 also).

Entity A

Entity B

Joint venture or an associate

DIFFERENCE ON ACCOUNT OF JOINT VENTURES AND ASSOCIATESDIFFERENCE ON ACCOUNT OF JOINT VENTURES AND ASSOCIATES

Entity C

Joint venture

EXTENDED


OTHER DIFFERENCESOTHER DIFFERENCES


AS-18AS-18 Disclosures, which conflict with confidentiality requirements Disclosures, which conflict with confidentiality requirements in terms of statutes or regulation, are excluded (paras 5-6).in terms of statutes or regulation, are excluded (paras 5-6).

IAS-24IAS-24 No such specific exemption

RemarksRemarks A possible GAAP difference

Normally accounting rules not to override statute

DISCLOSURES SUBJECT TO CONFIDENTIALITYDISCLOSURES SUBJECT TO CONFIDENTIALITY

REGULATORY


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

Entity A

Entity B

Post employment benefit plan for

the benefit of employees of

Entity A or entity related to A

DIFFERENCE ON ACCOUNT OF POST EMPLOYMENT BENEFIT PLANSDIFFERENCE ON ACCOUNT OF POST EMPLOYMENT BENEFIT PLANS

EXTENDED


AS-18AS-18 As per para 20, “As per para 20, “Statutes often require disclosure of Statutes often require disclosure of transactions with the directors or similar key managerial transactions with the directors or similar key managerial personnel….”personnel….”

IAS-24IAS-24 Para 17 requires specific disclosures for compensation of KMPs under the following categories:

short-term employee benefits;

post-employment benefits;

other long-term benefits;

termination benefits; and

share-based payment.

RemarksRemarks Implementation issue:

companies would need to get separate valuations for components of compensation of KMPs.

EXTENDED DISCLOSURES OF MANAGERIAL COMPENSATIONEXTENDED DISCLOSURES OF MANAGERIAL COMPENSATION

EXTENDED/IMPLEMENTATION


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.

OPTION AS TO DISCLOSURE OF VOLUME OF TRANSACTIONSOPTION AS TO DISCLOSURE OF VOLUME OF TRANSACTIONS

OPTION/EXTENDED


ADDED DISCLOSURES FOR GOVT RELATED ENTITIES……….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, 25, following disclosuresfollowing disclosures:: Name of the government and nature of relationship…..Name of the government and nature of relationship….. For each individually significant transaction: nature and For each individually significant transaction: nature and

amountamount For other transactions: a qualitative or quantitative For other transactions: a qualitative or quantitative

indication of their extent.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.

EXTENDED


ADDITIONAL DEFINITIONS IN AS-18ADDITIONAL DEFINITIONS IN AS-18


ADDITIONAL DEFINITIONS IN AS 18, THOUGH NOT IN IAS 24ADDITIONAL DEFINITIONS IN AS 18, THOUGH NOT IN IAS 24

AS-18 AS-18 provides definitions of the following items:AS-18 provides definitions of the following items: Associate and Joint ventureAssociate and Joint venture Holding company, Subsidiary, Fellow subsidiaryHolding 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

CLARIFICATORY


CLARIFICATIONS IN AS-18CLARIFICATIONS IN AS-18


CLARIFICATORY TEXT IN AS-18, THOUGH NOT IN IAS 24CLARIFICATORY 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.

CLARIFICATORY


CLARIFICATION REGARDING AGGREGATION OF TRANSACTIONSCLARIFICATION REGARDING AGGREGATION OF TRANSACTIONS

AS-18, ASI 13 Para 27 states “Para 27 states “Disclosure of details of particular Disclosure of details of particular transactions with individual related parties would frequently transactions with individual related parties would frequently be too voluminous to be easily understood. Accordingly, items be too voluminous to be easily understood. Accordingly, items of a similar nature may be disclosed in aggregate by type of of a similar nature may be disclosed in aggregate by type of related party……………………..”.related party……………………..”.

ASI 13 allows a rebuttable presumption of 10% of the total ASI 13 allows a rebuttable presumption of 10% of the total related party transactions of the same type (say purchase of related party transactions of the same type (say purchase of goods) being material.goods) being material.

IAS-24 IAS does not include any such item, including threshold of 10% as materiality.

CLARIFICATORY


RECAP…….RECAP…….


RECAP……….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


The information contained herein is of general nature and is for discussions only

THANK YOU FOR YOUR KIND ATTENTIONTHANK YOU FOR YOUR KIND ATTENTION


CONTACT DETAILS:

KAUSHAL KISHORE

+91-9811103133

[email protected]



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

COVERAGE OF COMMITMENTSCOVERAGE OF COMMITMENTS

CLARIFICATORY


CLARIFICATION REGARDING REGULATORY DISCLOSURESCLARIFICATION REGARDING REGULATORY DISCLOSURES

AS-18 AS-18 Para 20 states “AS-18 Para 20 states “The statutes governing an enterprise The statutes governing an enterprise often require disclosure in financial statements of transactions often require disclosure in financial statements of transactions with certain categories of related parties. In particular,with certain categories of related parties. In particular,……………transactions with the directors…… or similar key ……………transactions with the directors…… or similar key management personnel…………. because of the fiduciary management personnel…………. because of the fiduciary nature of their relationship with the enterprise.”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 Does not seem to be any GAAP difference and only clarificatory remark with respect to regulatory clarificatory remark with respect to regulatory requirements.requirements.

CLARIFICATORY

Documents

PRESENTATION ON “RELATED PARTY DISCLOSURES” IAS 24 Vs. AS 18 AN OVERVIEW JULY 9, 2010