Question 1

What is the primary objective of Ind AS 24, and why are related party disclosures important in financial statements?

Accepted Answer

The primary objective of Ind AS 24 is to ensure that financial statements provide relevant information about related party relationships, transactions, and outstanding balances. These disclosures are important because they enhance transparency, allow stakeholders to assess the potential impact of such relationships on the financial position and performance of the entity, and help prevent conflicts of interest.

Question 2

How does Ind AS 24 define a “related party”? Provide examples.

Accepted Answer

Ind AS 24 defines a 'related party' as a person or entity that is related to the reporting entity. This includes entities that control or are controlled by the reporting entity, or entities under common control. Examples include subsidiaries, associates, joint ventures, and key management personnel. Transactions with these parties must be disclosed due to the potential for conflicts of interest and the need for transparency in financial reporting.

Question 3

Which relationships are explicitly excluded from being related parties under Ind AS 24?

Accepted Answer

Under Ind AS 24, relationships explicitly excluded from being classified as related parties include relationships between two entities that are both controlled by the same third party, as well as relationships between an entity and its post-employment benefit plans.

Question 4

Why must relationships be disclosed even if no transactions occur between the parties involved?

Accepted Answer

Relationships must be disclosed to ensure transparency and maintain trust in financial reporting. This disclosure helps identify potential conflicts of interest and ensures compliance with regulatory standards, fostering informed decision-making by stakeholders.

Question 5

What are the exemptions for government-related entities under Ind AS 24?

Accepted Answer

Ind AS 24 provides exemptions from certain disclosure requirements for government-related entities, allowing them to omit disclosures regarding related party transactions with other government-related entities, as these transactions are typically conducted on terms that are not significantly different from those available to non-government entities.

Question 6

Who qualifies as Key Management Personnel (KMP) under Ind AS 24? Give practical examples.

Accepted Answer

Key Management Personnel (KMP) under Ind AS 24 includes individuals who have the authority and responsibility for planning, directing, and controlling the activities of the entity. This typically includes the company's board of directors, chief executive officer, chief financial officer, and other senior executives. For example, the CEO and CFO are often involved in strategic decision-making and financial oversight, making them KMP.

Question 7

Should immediate family members of KMP be treated as related parties? Why?

Accepted Answer

Yes, immediate family members of Key Management Personnel (KMP) should be treated as related parties because they can influence, or be influenced by, the KMP's decisions. This relationship is significant for ensuring transparency and compliance with accounting standards and regulations regarding related party transactions.

Question 8

How does Ind AS 24 distinguish related parties under control, joint control, or significant influence?

Accepted Answer

Ind AS 24 distinguishes related parties based on the nature of the relationship. Control refers to the power to govern financial and operating policies, joint control involves shared control over an arrangement, and significant influence is the ability to participate in financial and operating policy decisions without control.

Question 9

Does control or influence alone trigger disclosure, even in absence of transactions? Explain.

Accepted Answer

Control or influence alone does not trigger disclosure without transactions. Disclosure is generally required when a company has control over another entity or significant influence, but actual transactions must occur to necessitate reporting obligations.

Question 10

What disclosures are needed for relationships in consolidated and separate financial statements?

Accepted Answer

In consolidated financial statements, disclosures must include the nature of relationships, transactions, and outstanding balances with related parties. In separate financial statements, similar disclosures are required, focusing on the impact of these relationships on the financial position and performance, ensuring transparency and compliance with accounting standards.

Question 11

What must be disclosed about related party relationships, transactions, and outstanding balances?

Accepted Answer

Disclosures regarding related party relationships must include the nature of the relationships, the types of transactions undertaken, and any outstanding balances at the reporting date. This ensures transparency and informs users of potential conflicts of interest.

Question 12

Which categories require separate disclosure (e.g., parent, subsidiaries, associates, KMP)?

Accepted Answer

Separate disclosures are required for parent entities, subsidiaries, associates, and Key Management Personnel (KMP) to provide clarity on the financial position and performance of the organization, ensuring transparency and compliance with accounting standards.

Question 13

Why must separate disclosure be made even if no transactions occurred in the reporting period?

Accepted Answer

Separate disclosure is required even if no transactions occurred to maintain transparency and compliance with accounting standards. This ensures stakeholders are informed about the entity's ongoing commitments and potential future impacts, fostering trust and accountability.

Question 14

What details must be provided about outstanding balances and commitments with related parties?

Accepted Answer

Details about outstanding balances and commitments with related parties must include the nature of the relationship, the terms and conditions of the transactions, and the amounts involved. This ensures transparency and compliance with accounting standards.

Question 15

How are allowances for doubtful debts related to related party balances disclosed?

Accepted Answer

Allowances for doubtful debts related to related party balances must be disclosed in the financial statements, including the nature of the relationship, the amount of the allowance, and the rationale for its estimation. This ensures transparency and compliance with accounting standards regarding related party transactions.

Question 16

Provide examples of transactions that typically require related party disclosure (e.g., sales, loans, services).

Accepted Answer

Related party disclosures typically include sales transactions between subsidiaries, loans extended to executives, and service agreements with affiliated companies. These disclosures ensure transparency and help stakeholders assess potential conflicts of interest.

Question 17

How should the nature and terms (e.g., secured, collateral, consideration) of related party transactions be disclosed?

Accepted Answer

The nature and terms of related party transactions should be disclosed in the notes to the financial statements, detailing the relationship between the parties involved, the terms of the transactions, and whether they are secured or involve collateral. This transparency is crucial for assessing the risks and potential conflicts of interest, ensuring compliance with relevant accounting standards and regulations.

Question 18

How is compensation to KMP disclosed under Ind AS 24?

Accepted Answer

Under Ind AS 24, compensation to Key Management Personnel (KMP) is disclosed in a structured format, including short-term employee benefits, post-employment benefits, and other long-term benefits. The disclosure must detail the nature of the compensation and the amounts paid, ensuring transparency and compliance with the standard.

Question 19

If a related party transaction occurred before relationship commencement but balance remains at reporting date—should it be disclosed? Explain.

Accepted Answer

Yes, it should be disclosed. According to accounting standards, related party transactions must be disclosed if they occurred before the relationship commenced and the balance remains at the reporting date, as this information is crucial for users of the financial statements to understand potential conflicts of interest.

Question 20

What must be disclosed if related party commitments exist even without transactions?

Accepted Answer

If related party commitments exist, even without transactions, it is essential to disclose the nature of the relationships, any potential conflicts of interest, and the terms of the commitments. This transparency is crucial for stakeholders to assess the potential impact on financial statements and to ensure compliance with accounting standards and ethical guidelines.

Question 21

What are the risks of not properly identifying and disclosing related parties and their transactions?

Accepted Answer

Failing to properly identify and disclose related parties and their transactions can lead to significant regulatory penalties, financial misstatements that may distort the true financial position of the company, and damage to the organization's reputation, potentially eroding stakeholder trust.

Question 22

How do Companies Act provisions and SEBI regulations intersect with Ind AS 24 in related party disclosures?

Accepted Answer

The Companies Act provisions and SEBI regulations complement Ind AS 24 by requiring transparency in related party disclosures. While Ind AS 24 outlines specific disclosure requirements for transactions with related parties, the Companies Act mandates adherence to these disclosures in financial statements. SEBI further enforces compliance by requiring listed companies to disclose related party transactions in their quarterly and annual reports, ensuring a comprehensive regulatory framework.

Question 23

What recent regulatory updates have affected related party transaction disclosures?

Accepted Answer

Recent updates, such as those from the IFRS and SEC, have emphasized greater transparency in related party transactions. These regulations require more detailed disclosures about the nature, terms, and potential impacts of such transactions on financial statements, ensuring that stakeholders have a clearer understanding of any conflicts of interest.

Question 24

In case statutory or regulatory constraints prevent disclosure, how is Ind AS 24 applied?

Accepted Answer

In such cases, Ind AS 24 allows for the non-disclosure of certain related party transactions if they are not material or if disclosure would conflict with other regulations. The focus should be on ensuring compliance while maintaining transparency as much as possible.

Question 25

How might aggressive related party practices mislead users, and how does Ind AS 24 mitigate such risks?

Accepted Answer

Aggressive related party practices can distort financial statements by hiding true performance and creating conflicts of interest. Ind AS 24 mitigates these risks by requiring clear disclosures of related party relationships, transactions, and outstanding balances, ensuring transparency and helping users make informed decisions.

Ind AS 24 – Related Party Disclosures Interview Q&A

A. Core Concepts & Definitions

Q4: Why must relationships be disclosed even if no transactions occur between the parties involved?

B. Identification & Relationships

Q6: Who qualifies as Key Management Personnel (KMP) under Ind AS 24? Give practical examples.

Q9: Does control or influence alone trigger disclosure, even in absence of transactions? Explain.

Q10: What disclosures are needed for relationships in consolidated and separate financial statements?

C. Disclosure Requirements

Q12: Which categories require separate disclosure (e.g., parent, subsidiaries, associates, KMP)?

Q13: Why must separate disclosure be made even if no transactions occurred in the reporting period?

Q14: What details must be provided about outstanding balances and commitments with related parties?

D. Transaction-Level Disclosures

Q18: How is compensation to KMP disclosed under Ind AS 24?

E. Compliance, Ethics & Trends

Q22: How do Companies Act provisions and SEBI regulations intersect with Ind AS 24 in related party disclosures?

Q24: In case statutory or regulatory constraints prevent disclosure, how is Ind AS 24 applied?

Ind AS 24 – Related Party Disclosures Interview Q&A

A. Core Concepts & Definitions

Q1: What is the primary objective of Ind AS 24, and why are related party disclosures important in financial statements?

Q2: How does Ind AS 24 define a “related party”? Provide examples.

Q3: Which relationships are explicitly excluded from being related parties under Ind AS 24?

Q4: Why must relationships be disclosed even if no transactions occur between the parties involved?

Q5: What are the exemptions for government-related entities under Ind AS 24?

B. Identification & Relationships

Q6: Who qualifies as Key Management Personnel (KMP) under Ind AS 24? Give practical examples.

Q7: Should immediate family members of KMP be treated as related parties? Why?

Q8: How does Ind AS 24 distinguish related parties under control, joint control, or significant influence?

Q9: Does control or influence alone trigger disclosure, even in absence of transactions? Explain.

Q10: What disclosures are needed for relationships in consolidated and separate financial statements?

C. Disclosure Requirements

Q11: What must be disclosed about related party relationships, transactions, and outstanding balances?

Q12: Which categories require separate disclosure (e.g., parent, subsidiaries, associates, KMP)?

Q13: Why must separate disclosure be made even if no transactions occurred in the reporting period?

Q14: What details must be provided about outstanding balances and commitments with related parties?

Q15: How are allowances for doubtful debts related to related party balances disclosed?

D. Transaction-Level Disclosures

Q16: Provide examples of transactions that typically require related party disclosure (e.g., sales, loans, services).

Q17: How should the nature and terms (e.g., secured, collateral, consideration) of related party transactions be disclosed?

Q18: How is compensation to KMP disclosed under Ind AS 24?

Q19: If a related party transaction occurred before relationship commencement but balance remains at reporting date—should it be disclosed? Explain.

Q20: What must be disclosed if related party commitments exist even without transactions?

E. Compliance, Ethics & Trends

Q21: What are the risks of not properly identifying and disclosing related parties and their transactions?

Q22: How do Companies Act provisions and SEBI regulations intersect with Ind AS 24 in related party disclosures?

Q23: What recent regulatory updates have affected related party transaction disclosures?

Q24: In case statutory or regulatory constraints prevent disclosure, how is Ind AS 24 applied?

Q25: How might aggressive related party practices mislead users, and how does Ind AS 24 mitigate such risks?