Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

IAS 24 - Related Party Disclosures

Indian equivalent: Ind AS 24 - Related Party Disclosures

Objective and scope

IAS 24 requires companies to disclose their dealings with 'related parties' - people or entities closely connected to the company (owners, directors, group companies, key managers and their families) - so readers can judge whether transactions were at arm's length or potentially self-serving.

Core principle

A company might do deals with its own directors or sister companies on unusually favourable terms, quietly moving value around. IAS 24 does not ban such deals - it forces transparency: reveal who the related parties are, what transactions occurred, and the amounts, so readers can spot potential conflicts of interest.

Defined terms and technical terminology

Term	Technical meaning
Related party	A person or entity connected to the reporting entity - controlling owners, key management, group companies, associates, and close family members of those people.
Key management personnel (KMP)	Those with authority and responsibility for planning, directing and controlling the entity (directors, senior executives).
Related party transaction	A transfer of resources, services or obligations between related parties, whether or not a price is charged.
Control / significant influence	The power that makes a party 'related' - control (>50% typically) or significant influence (usually 20–50%).
Arm's length	A transaction on the same terms as with an unrelated party - the benchmark readers care about.

Application and worked illustrations

Who is a related party

The web includes: the entity's parent, subsidiaries and fellow subsidiaries; its associates and joint ventures; key management personnel and their close family members; and entities controlled or significantly influenced by those people. A supplier or customer is not related just from doing business - the link must be through control, significant influence, or being key management/family.

What must be disclosed

Regardless of whether transactions occurred, parent–subsidiary control relationships must be disclosed. Key management personnel compensation is disclosed in total and by category (short-term benefits, post-employment benefits, share-based payments, etc.). For each category of related party, disclose the nature of the relationship, the amount of transactions, outstanding balances, terms, and any bad-debt provisions.

Worked example

ParentCo sells goods worth ₹2 crore to its subsidiary SubCo at a 40% discount not offered to any other customer, and lends the managing director ₹50 lakh interest-free. Neither deal is illegal, but IAS 24 requires disclosure: the ₹2 crore sale to a subsidiary on special terms, and the ₹50 lakh interest-free loan to a key management person. Now investors can see that reported profit was affected by non-arm's-length dealings and judge accordingly.

Common mistake: disclosing only priced transactions. Even free or no-charge transfers between related parties must be disclosed.

IND AS LINK

Ind AS 24 aligns with IAS 24 but is reinforced in India by Section 188 of the Companies Act, 2013 and SEBI LODR rules, which add approval requirements (audit committee, board, sometimes shareholders) for related-party transactions on top of the disclosure requirement.

Further worked illustrations

Extra numeric example - director's loan

A company lends its finance director ₹40,00,000 interest-free, repayable in 3 years. Even though it's a simple loan, the director is key management personnel, so IAS 24 requires disclosure of: the amount (₹40,00,000), the terms (interest-free, 3-year), and any provision for irrecoverability. Readers can then see that company funds are financing an insider on non-commercial terms.

INDIAN REGULATORY CONTEXT

In India, disclosure alone isn't enough. Section 188 of the Companies Act and SEBI LODR require related-party transactions to be approved by the audit committee, board, and sometimes shareholders (for material ones), with an arm's-length and ordinary-course test. So Ind AS 24 disclosure sits on top of a whole approval and governance regime unique to India.

TECHNICAL EDGE CASE

Company A and Company B share one common director but are otherwise unconnected. Are they related parties? Generally no - merely having a director in common does not automatically make two entities related under IAS 24, unless that person is key management of one and has control or significant influence over the other. The relationship must run through control, joint control, significant influence, or KMP - not just an overlapping board seat.