1 kaushal kishore. draft for discussions 1 presentation on “related party disclosures” ias 24...
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1Kaushal Kishore. DRAFT FOR DISCUSSIONS 1
PRESENTATION
ON
“RELATED PARTY DISCLOSURES”
IAS 24 Vs. AS 18
AN OVERVIEW
JULY 9, 2010
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2Kaushal Kishore. DRAFT FOR DISCUSSIONS 2
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
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3Kaushal Kishore. DRAFT FOR DISCUSSIONS 3
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
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4Kaushal Kishore. DRAFT FOR DISCUSSIONS 4
BASIC DIFFERENCES IN DEFINITIONS, ETC.BASIC DIFFERENCES IN DEFINITIONS, ETC.
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5Kaushal Kishore. DRAFT FOR DISCUSSIONS 5
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
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6Kaushal Kishore. DRAFT FOR DISCUSSIONS 6
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
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7Kaushal Kishore. DRAFT FOR DISCUSSIONS 7
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
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8Kaushal Kishore. DRAFT FOR DISCUSSIONS 8
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
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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
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10Kaushal Kishore. DRAFT FOR DISCUSSIONS 10
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
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11Kaushal Kishore. DRAFT FOR DISCUSSIONS 11
DIFFERENCES WHEN INDIVIDUALS ARE INVOLVED AS STAKEHOLDERS
DIFFERENCES WHEN INDIVIDUALS ARE INVOLVED AS STAKEHOLDERS
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12Kaushal Kishore. DRAFT FOR DISCUSSIONS 12
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
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13Kaushal Kishore. DRAFT FOR DISCUSSIONS
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
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14Kaushal Kishore. DRAFT FOR DISCUSSIONS
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.
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15Kaushal Kishore. DRAFT FOR DISCUSSIONS
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.
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16Kaushal Kishore. DRAFT FOR DISCUSSIONS
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
Significant influence
over entity A
Significant influence
over entity B
DIFFERENCE WHEN AN INDIVIDUAL HAS SIGNIFICANT INFLUENCEDIFFERENCE WHEN AN INDIVIDUAL HAS SIGNIFICANT INFLUENCE
.
RELAXED
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17Kaushal Kishore. DRAFT FOR DISCUSSIONS
IAS 24:
Entities having common Entities having common KMP are not related to each KMP 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
KMP of entity A KMP of entity B
DIFFERENCE WHEN AN INDIVIDUAL IS A COMMON KMPDIFFERENCE WHEN AN INDIVIDUAL IS A COMMON KMP
.
RELAXED
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18Kaushal Kishore. DRAFT FOR DISCUSSIONS
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:
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
Significant influence
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
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19Kaushal Kishore. DRAFT FOR DISCUSSIONS 19
DIFFERENCES WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS
DIFFERENCES WHEN ENTITIES ARE INVOLVED AS STAKEHOLDERS
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20Kaushal Kishore. DRAFT FOR DISCUSSIONS 20
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
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21Kaushal Kishore. DRAFT FOR DISCUSSIONS
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
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22Kaushal Kishore. DRAFT FOR DISCUSSIONS 22
OTHER DIFFERENCESOTHER DIFFERENCES
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23Kaushal Kishore. DRAFT FOR DISCUSSIONS 23
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
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24Kaushal Kishore. DRAFT FOR DISCUSSIONS
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
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25Kaushal Kishore. DRAFT FOR DISCUSSIONS 25
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
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26Kaushal Kishore. DRAFT FOR DISCUSSIONS 26
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
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27Kaushal Kishore. DRAFT FOR DISCUSSIONS 27
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
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28Kaushal Kishore. DRAFT FOR DISCUSSIONS 28
ADDITIONAL DEFINITIONS IN AS-18ADDITIONAL DEFINITIONS IN AS-18
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29Kaushal Kishore. DRAFT FOR DISCUSSIONS 29
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
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30Kaushal Kishore. DRAFT FOR DISCUSSIONS 30
CLARIFICATIONS IN AS-18CLARIFICATIONS IN AS-18
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31Kaushal Kishore. DRAFT FOR DISCUSSIONS 31
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
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32Kaushal Kishore. DRAFT FOR DISCUSSIONS 32
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
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33Kaushal Kishore. DRAFT FOR DISCUSSIONS 33
RECAP…….RECAP…….
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34Kaushal Kishore. DRAFT FOR DISCUSSIONS 34
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
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The information contained herein is of general nature and is for discussions only
THANK YOU FOR YOUR KIND ATTENTIONTHANK YOU FOR YOUR KIND ATTENTION
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36Kaushal Kishore. DRAFT FOR DISCUSSIONS 36
CONTACT DETAILS:
KAUSHAL KISHORE
+91-9811103133
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38Kaushal Kishore. DRAFT FOR DISCUSSIONS 38
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
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39Kaushal Kishore. DRAFT FOR DISCUSSIONS 39
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