SA 550 Related Parties

SA 550 Related Parties

Related Party means :-

1) A related party as defined in the applicable financial reporting framework.

For Example :- As per Section 2(76) of The Companies Act 2013, A Related Party is a person or entity that is related to the entity preparing its financial statements like:-

v Director or his relative,

v A key Managerial Personnel (MD/WTD/Manager/Secretary/CEO/CFO) or his relative;

v A firm, in which a director, manager or his relative is a partner,

v A Private Company in which a director or manager is a member or director;

v A public company in which a director or manager is a director or holds along with his relatives, more than 2% of its paid-up-capital;

v A body corporate whose board of directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director, manager;

v Any person on whose advice, directions or instructions of a director or manager is accustomed to act;

v A company which is a holding, subsidiary or an associate company of such company;

v A company which is subsidiary of holding company to which it is also a subsidiary, or

v Such other person as may be prescribed.

Reason for this SA ! Why the Related Party disclosures is important for an entity?

Related-party transactions are close relationships between entities or individuals. They aren’t necessarily wrong, but because of their delicate nature and the risk of abuse or fraud, they must be carefully scrutinized and usually fully disclosed. As an investor, we want corporate disclosures to provide a clear and fair picture of the entity’s net worth, operations, and cash flow. Related party transactions are important because they have the potential for distorting that information. Related party transactions have been highlighted as a feature of a number of financial scandals in recent years. This prompted the financial statements user the importance of adequate attention to information disclosed by companies in their financial statements in this respect.

Even As per AS 18, Related Party Disclosures, All the Related Parties of an enterprise should be disclosed in the financial statements even though there are no transactions between the enterprises.