Disclosure Requirement of Related Party Transactions Under Ind AS 24

1. Question

Nivanta Limited (hereinafter referred to as the Company) is a listed entity engaged in the manufacture of industrial components. During the financial year 2024–25, the Company entered into multiple purchase and service transactions with Pioneer Engineering Limited. At the time of the initial transactions, both entities operated independently, and no related party relationship existed.

However, in January 2025, the company acquired a 65% equity stake in Pioneer Engineering Limited (hereinafter referred to as the subsidiary), thereby making it a subsidiary and establishing a related party relationship under Ind AS 24, Related Party Disclosures. The financial statements of the company for the year ended 31 March 2025 were approved for issue in May 2025.

In preparing its financial statements, the Company disclosed related party transactions with the subsidiary only for the period after January 2025. It did not disclose transactions that occurred prior to the acquisition, nor did it disclose outstanding balances arising from those pre-acquisition transactions that remained unsettled as of 31 March 2025.

Evaluate whether the disclosure practices followed by the company align with the requirements of Indian Accounting Standard (Ind AS) 24.

2. Relevant Provisions

Ind AS 24, Related Party Disclosures

Para 13 – Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been transactions between them. An entity shall disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces consolidated financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed.

Para 18 – If an entity has had related party transactions during the periods covered by the financial statements, it shall disclose the nature of the related party relationship as well as information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements. These disclosure requirements are in addition to those in paragraph 17. At a minimum, disclosures shall include:

(a) the amount of the transactions;

(b) the amount of outstanding balances, including commitments, and:

(i) their terms and conditions, including whether they are secured, and the nature of the consideration to be provided in settlement; and

(ii) details of any guarantees given or received;

(c) provisions for doubtful debts related to the amount of outstanding balances; and

(d) the expense recognised during the period in respect of bad or doubtful debts due from related parties.

Para 19 – The disclosures required by paragraph 18 shall be made separately for each of the following categories:

(a) the parent;

(b) entities with joint control of, or significant influence over, the entity;

(c) subsidiaries;

(d) associates;

(e) joint ventures in which the entity is a joint venturer;

(f) key management personnel of the entity or its parent; and

(g) other related parties.

3. Analysis

Related party disclosures are central to enhancing transparency in financial reporting, as they reveal potential conflicts of interest and allow users of financial statements to assess the effects of relationships on a company’s financial performance and position. The purpose of Ind AS 24 is not only to identify related parties but also to ensure that material transactions and balances are appropriately disclosed when a related party relationship exists.

(a) Timing of Relationship vs. Timing of Transaction

Ind AS 24 does not mandate that the parties must be related throughout the reporting period or at the reporting date to trigger disclosure. Instead, what matters is whether they were related at the time of the transaction.

In this case:

• Nivanta Limited and Pioneer Engineering Limited became related in January 2025.
• All transactions after January 2025 were disclosed, which aligns with the standard.
• However, transactions before January 2025, when no relationship existed, are not required to be disclosed, provided the parties were not related at the time of those transactions.

(b) Outstanding Balances at the Reporting Date

Even if transactions occurred prior to the relationship commencement, if the outstanding balances from those transactions continue to exist as on the reporting date, and the parties are related as of that date, disclosure is strongly recommended.

This is based on the intent of Para 18 of Ind AS 24, which emphasises the need to disclose:

• Outstanding balances (including commitments),
• Whether they are secured or unsecured,
• Nature of the consideration,
• Any allowance for doubtful debts.

Such disclosures are essential to allow financial statement users to assess the potential financial impact of relationships that exist at the reporting date, even if the transactions occurred earlier.

The company, by omitting disclosure of these outstanding balances, has likely limited the transparency of its financial position to users.

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