Enhancing Transparency: Related Party Disclosures (Ind AS 24)#
Say a listed manufacturing company buys its raw steel from a private supplier that, on paper, has no connection to the company at all. In reality, that supplier is owned by the managing director's brother, and the price being paid is 15% above what an unrelated vendor would charge. The extra 15% isn't a cost of doing business — it's value quietly moving out of the listed company and into a promoter-linked pocket, at the expense of every minority shareholder who doesn't know the relationship exists.
This is precisely the blind spot Ind AS 24: Related Party Disclosures (aligned with the global IAS 24) is designed to close. It doesn't stop a company from transacting with related parties — that's often commercially necessary — it simply forces the company to tell investors who it's dealing with, on what terms, and how much money changed hands.
Who Counts as a Related Party?#
Ind AS 24 defines a related party as any person or entity that can exercise control, joint control, or significant influence over the reporting company, or vice versa. In practice, this net catches:
- The corporate group — the parent company, subsidiaries, fellow subsidiaries, and associates or joint ventures within the same group structure.
- Key Management Personnel (KMP) — directors (executive or non-executive), the CEO, CFO, company secretary, and any other person with authority and responsibility for planning, directing, or controlling the entity's activities.
- Close family members of KMPs — under the amended definition this explicitly includes the person's spouse, children, spouse's children, dependants, and — following a later amendment — brothers, sisters, father, and mother, on the reasoning that a KMP is just as likely to direct business toward a sibling's company as a spouse's.
- Entities controlled, jointly controlled, or significantly influenced by a KMP or their close family — this is the category that catches the "brother's private supplier" scenario above, along with post-employment benefit plans for the entity's own employees.
A useful test: if the counterparty is in a position to negotiate terms other than at arm's length purely because of a personal or corporate relationship, Ind AS 24 almost certainly treats it as related.
What Must Be Disclosed#
Once a related party relationship exists, Ind AS 24 does not merely ask for a passing mention — it requires, for each category of related party, the nature of the relationship, and for each material transaction: a description of the transaction, its exact amount, the terms and conditions (including whether it is secured and the nature of the consideration), and the outstanding balance at the reporting date, along with any provision made for doubtful debts relating to that balance.
Critically, this disclosure is mandatory even when the transaction was conducted strictly at arm's length and at fair market value. The standard's logic is that investors are entitled to know a relationship existed, not just to be reassured after the fact that the pricing was fair — because "fair pricing" is precisely the thing an outsider cannot independently verify. So even a genuinely well-priced transaction between a company and its promoter's other business still has to be disclosed with full particulars.
Ind AS 24 also separately requires disclosure of total compensation paid to Key Management Personnel, broken down into short-term employee benefits (salary, bonus), post-employment benefits (gratuity, pension contributions), and share-based payments such as ESOPs — giving investors visibility into what leadership actually costs the company, beyond the single "managerial remuneration" line many expect.
A Worked Example#
Consider Company X, a listed entity with revenue of ₹500 crore. During the year, it purchases ₹40 crore of packaging material from Company Y, a private firm wholly owned by the spouse of Company X's managing director. At year-end, ₹6 crore of that ₹40 crore remains unpaid as a trade payable to Company Y.
Under Ind AS 24, Company X's financial statements must disclose: that Company Y is a related party (entity controlled by a close family member of KMP), the nature of the transaction (purchase of packaging material), the transaction value (₹40 crore for the year), and the outstanding balance (₹6 crore payable at year-end) — regardless of whether an independent pricing study shows the ₹40 crore was charged at fair market rates. A reader of the accounts can then see the relationship and the numbers side by side and form their own judgment, rather than relying on management's assurance that "it was a normal commercial transaction."
Why Auditors Treat This as High-Risk#
Related party transactions sit near the top of every statutory auditor's risk assessment, precisely because the counterparty relationship gives management both the motive and the means to misstate terms, understate the relationship, or route transactions through intermediate entities to obscure the connection. Auditors are expected to go beyond the list of related parties management discloses — cross-checking shareholding registers, director disclosures under the Companies Act, and even public records — to identify relationships the company may not have volunteered, whether by oversight or by design.
Conclusion#
Ind AS 24 doesn't police whether related party deals are fair — it simply strips away the ability to keep them invisible. For a company, compliance means maintaining a live register of related parties, KMP, and their close family, and flagging every transaction with them for full disclosure regardless of pricing. For investors and auditors, that disclosure is often the single clearest signal of whether promoter interests and shareholder interests are actually aligned.