Ind AS 24 – Related Party Disclosure Required Despite Regulated Rates

1. Question

Alpha Power Limited (APL) is the sole licensed electricity distributor to consumers within a specific geographical region. Among several customers, it also supplies electricity to its group company, Beta Infra Limited (BIL), a fellow subsidiary under the same parent entity. The rates at which APL supplies electricity, including to BIL, are set by an independent regulatory authority and are uniformly applicable to all consumers in the area.

APL contends that since the transaction is conducted at rates mandated by the regulator and is identical to those charged to all other consumers, the electricity supply to BIL should not be disclosed as a related party transaction in the financial statements.

Whether the transaction between APL and BIL is required to be disclosed as a related party transaction in the financial statements of APL and BIL as per Ind AS 24?

2. Relevant Provisions

Ind AS 24, Related Party Disclosures

Para 9(b)(i) – “An entity is related to a reporting entity if both the entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).”

Para 11(c) – “The following are not related parties –

(i) providers of finance,

(ii) trade unions,

(iii) public utilities, and

(iv) departments and agencies of a government,simply by virtue of their normal dealings with an entity (even though they may affect the freedom of action of an entity or participate in its decision-making process).”

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.

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