By P. N. Shah, H. N. Motiwalla,Chartered Accountants
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The Financial Reporting Review Board (FRRB) of ICAI has noticed that there has been non-compliance in the matter of reporting of Related Party Disclosures by some companies. The report of FRRB is published on Pages 1140-1141 of C.A. Journal for January, 2013. Some of these issues are as under.
(i) Some enterprises, while giving the Related Party disclosures, simply state that there are no material individual transactions with the related parties during the year which are not in the normal course of their business or at arm’s length basis and, accordingly, do not provide any disclosures. Others provide disclosures for “significant transactions with the related parties.”
In the opinion of the FRRB Para 23 of AS 18, it does not prescribe for classification of transactions with related parties as significant/insignificant or material/ immaterial transactions. It is also felt that all transactions with related parties must be disclosed rather than just disclosing the significant transactions. Accordingly, non-disclosure of related party transactions on the pretext that no significant transactions have taken place or that only significant transactions are required to be disclosed is not in line with AS 18.
(ii) It may be noted that paragraph 21 of AS 18, Related Party Disclosure, requires that the name of the related party and the 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. Following non-compliances have been commonly noted from review of the Related Party disclosures of various enterprises.
• In some cases, the names of related parties have been disclosed, but the nature of the relationship with them has not been disclosed.
• In other cases, the names and the nature of only those related parties have been disclosed with whom transactions have taken place during the year.
(iii) It is often noted from the annual reports of various enterprises that while the schedules/notes to accounts/ Cash Flow Statements/Corporate Governance Reports, either individually or together, contain the information about the transactions taking place with related parties, the same are not reported under Related Party disclosure. It has been viewed that if any transaction has taken place during the year with the related party, then the reporting enterprise is required to disclose the details of the transactions as required under paragraph 23 of AS 18. Non-disclosure of such details is contrary to AS 18.
