When a company gets started, it brings a package of lots of legal compliances along with it. Registration of company might be a few steps procedure, but once registered, it needs continuous compliances in some or the other form so the responsibility of entrepreneur is quite high in terms of governance to get it done from professional expertise. Companies Act, 2013 has mandated u/s 129 for every company to prepare its financial statements going simultaneous compliance with the accounting standards as mentioned in sec 133 of Companies Act, 2013. Related Party Transaction is a very vital concept in today’s globalized world where transparency is the basic need expected from every company. Related Party Transaction as per AS-18 (Accounting Standard 18) is discussed corely in this blog.
AS-18 defines Related Party as “at any time during the year, one party has an ability to:Control the other party, exercise significant influence over the other party in making financial and/or operating decisions. Whereby control means:
“those persons who have the authority and responsibility for planning, directing and controlling the activities of the reporting enterprise”
As per Accounting Standard 18-’Related Party Disclosures’ issued by the ICAI, Related party means “Parties are considered to be related if at any time during the reporting period one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions”Related Party transaction means “a transfer of resources or obligations between related parties, regardless of whether or not a price is charged. The following are the related parties as per AS-18
Further, Auditing and Assurance Standard 23- Related Parties impose duty on auditor to identify and disclose the related party transaction in the financial statements. If we make comparison between these two definitions, we will come to know that AS-18 is wider than Companies Act.