Understanding Related Parties in Government Companies: A Guide Based on IND-AS 24

What are Related Parties According to IND-AS 24?

Under International Financial Reporting Standards (IND-AS 24), the concept of related parties is crucial for government companies. These entities are defined based on a range of familial, organizational, and financial relationships. This article aims to provide a comprehensive understanding of related parties in government companies as per IND-AS 24, ensuring that you are fully informed for effective financial reporting.

Definition of Related Parties

Close Members: These are individuals who may be expected to influence or be influenced by the person. This includes: The person’s children, spouse, domestic partner, siblings, mother, or father. The dependent of the person’s spouse or domestic partner. The children of the person’s spouse or domestic partner.

Identification of Related Entities

According to IND-AS 24, an entity is considered related to another entity if either of the following conditions apply:

Same Group: Both entities are members of the same group, meaning that there is a parent-subsidiary relationship. This can include fellow subsidiaries, where all subsidiaries are under the control of a parent company. Associated or Joint Venture: Both entities are associated or joint venture enterprises of the same parent, subsidiary, or other related entity. Same Third Party Joint Venture: Both entities are joint venture enterprises of the same third party. Post-Employment Benefit Plan: An entity is a post-employment benefit plan of the reference entity (RE) or an entity related to the RE. If the RE itself is a post-employment benefit plan, the sponsoring employers are also related to the RE. Control or Joint Control: An entity is controlled or jointly controlled by a person identified under IND-AS 24. Significant Influence: A person identified under IND-AS 24 has significant influence over the entity or is a member of the key management personnel (KMP) of the entity or its parent. Key Management Personnel Services: An entity or any member of the group of the entity provides key management personnel services to the reference entity (RE) or its parent.

Government-Related Entities

A government-related entity is defined as one that is controlled, jointly controlled, or significantly influenced by a government. It is important to note that government entities, when serving as reference entities (RE) under IND-AS 24, are exempt from the disclosure requirements in relation to related party transactions and balances with the following:

An entity controlled, jointly controlled, or significantly influenced by the government.

Exemptions and Compliance

The exemption from disclosure requirements for government companies under IND-AS 24 is a key feature. This means that if the reference entity (RE) is a government-related entity, it is not required to disclose related party transactions and balances with government-controlled entities. However, compliance with relevant regulations and maintaining transparency is still important.

For government companies, understanding these exemptions and related party definitions is crucial for maintaining accurate and transparent financial reports. Proper identification and disclosure of related parties can help in managing conflicts of interest and ensuring compliance with financial reporting standards.