Disclosure Under AS 18

This query is : Resolved

Dipen Shah (Querist)
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11 May 2011 In one company, one legal lawyer is appointed as a director.
Before his appointment, he was paid some amount for awailing his legal services in the capacity of Lawyer for some law suits...
Is there any requirement to disclose such payment under AS 18??... if yes, then where should I disclose??...

Amol Gopal Kabra (CA,CS,DISA)

Amol Gopal Kabra (CA,CS,DISA) (Expert)
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11 May 2011 AS - 18 : Related Party Disclosures.

The above transaction has to be reported only if the above appointed person falls under any of the categories of "Related Parties" mentioned under the AS. Before the appointment, he was not the director, so no need to report. Only payments in capacity of director should be reported.

Dipen Shah

Dipen Shah (Querist)
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11 May 2011 sir actually i dont know whether such director is related party or not.... so can u tell me whether he is related party or not???...

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CS Bijoy

CS Bijoy (Expert)
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16 May 2011 Disclosure
1.
The statutes governing an enterprise often require disclosure in financial statements of transactions with certain categories of related parties. In particular, attention is focussed on transactions with the directors or similar key management personnel of an enterprise, especially their remuneration and borrowings, because of the fiduciary nature of their relationship with the enterprise.

2.
Name of the related party and nature of the related party relationship where control exists should be disclosed irrespective of whether or not there have been transactions between the related parties.

3.
Where the reporting enterprise controls, or is controlled by, another party, this information is relevant to the users of financial statements irrespective of whether or not transactions have taken place with that party. This is because the existence of control relationship may prevent the reporting enterprise from being independent in making its financial and/or operating decisions. The disclosure of the name of the related party and the nature of the related party relationship where control exists may sometimes be at least as relevant in appraising an enterprise’s prospects as are the operating results and the financial position presented in its financial statements. Such a related party may establish the enterprise’s credit standing, determine the source and price of its raw materials, and determine to whom and at what price the product is sold.

4.
If there have been transactions between related parties, during the existence of a related party relationship, the reporting enterprise should disclose the following:

the name of the transacting related party;

a description of the relationship between the parties;

a description of the nature of transactions;

volume of the transactions either as an amount or as an appropriate proportion;

any other elements of the related party transactions necessary for an understanding of the financial statements;

the amounts or appropriate proportions of outstanding items pertaining to related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date; and

amounts written off or written back in the period in respect of debts due from or to related parties.

5.
The following are examples of the related party transactions in respect of which disclosures may be made by a reporting enterprise:

purchases or sales of goods (finished or unfinished);

purchases or sales of fixed assets;

rendering or receiving of services;

agency arrangements;

leasing or hire purchase arrangements;

transfer of research and development;

licence agreements;

finance (including loans and equity contributions in cash or in kind);

guarantees and collaterals; and

management contracts including for deputation of employees.

6.
Paragraph 23 (v) requires disclosure of ‘any other elements of the related party transactions necessary for an understanding of the financial statements’. An example of such a disclosure would be an indication that the transfer of a major asset had taken place at an amount materially different from that obtainable on normal commercial terms.

7.9
Items of a similar nature may be disclosed in aggregate by type of related party except when seperate disclosure is necessary for an understanding of the effects of related party transactions on the financial statements of the reporting enterprise.