The Different Definitions
Ind AS 24 defines a related party more broadly than Section 2(76). It includes any director (not only executive directors), close members of the family of KMP, and entities over which a KMP or close family member has control or significant influence. Section 2(76) uses a narrower list of limbs tied to directors, KMP, relatives, firms, and specified companies. A party can be a related party under Ind AS 24 and not under Section 188; the disclosure note may therefore be longer than the approval matrix.
The Different Transaction Tests
Ind AS 24 requires disclosure of transactions with related parties regardless of whether a price is charged. Section 188 applies to contracts or arrangements with specified descriptions—sale or purchase of goods, property, services, appointment to a place of profit, and underwriting—subject to the ordinary-course and arm’s-length exemptions. A transfer of resources that is not a Section 188 description may still require Ind AS 24 disclosure.
The Arm’s-Length Disclosure
Ind AS 24 requires an entity to disclose that related-party terms are equivalent to arm’s-length terms only if those terms can be substantiated. A bare statement of arm’s length without a comparability analysis is a disclosure that the standard does not support. The company should either substantiate the claim or disclose the terms without the arm’s-length assertion.
The KMP Remuneration Overlay
Ind AS 24 requires disclosure of KMP remuneration, including post-employment benefits. The Section 188 analysis may not apply to remuneration paid in the ordinary course of employment, but the Ind AS 24 note still requires the disclosure. A company that omits KMP remuneration from the related-party note on the basis that it is not a Section 188 transaction has an incomplete disclosure.
The Reconciliation Discipline
The related-party note in the financial statements and the AOC-2 disclosure should be reconciled line by line. A transaction that appears in the note but not in AOC-2 (or vice versa) is a visible inconsistency for the auditor, the ROC, and any diligence party. The reconciliation sheet should identify the Section 188 character of each disclosed transaction, the exemption claimed, and the approval reference.
Call to Action: For Ind AS 24 note review, Section 188 reconciliation, or related-party disclosure mapping, contact office@anujdesaiassociates.com or 9619456656. Website: https://anujdesaiassociates.com. LinkedIn: linkedin.com/in/ca-anuj-desai-122547230.