NFRA’s Insights on Related Party Transactions From Its Interaction Series

The NFRA Interaction Series 3 delves into the challenges posed by related party relationships and transactions, which can jeopardize the integrity of financial reporting. The document outlines comprehensive disclosure requirements under key regulations like Ind AS 24, AS 18, and SEBI (LODR) regulations, with specific focus on listed entities. For instance, Ind AS 24 mandates detailed disclosures on the nature and terms of related party transactions, while AS 18 covers control relationships in non-Ind AS-compliant companies.

The document also outlines the compliance requirements under Section 188 of the Companies Act, emphasizing the need for board and shareholder approvals for certain related party transactions, particularly to ensure they are at arm’s length and avoid non-compliance penalties. Additionally, it highlights the auditor’s responsibilities under SA 550, including the assessment of related party disclosure completeness, evaluation of material misstatement risks, and the need for professional skepticism, especially for complex transactions. It concludes by stressing the importance of strong governance and audit committee oversight to effectively manage related party risks and maintain financial integrity.

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