AS 18 Related Party Disclosures: A Practitioner Guide for FY 2026-27
AS 18 (Related Party Disclosures) is the notified Indian Accounting Standard that requires entities to disclose relationships and transactions with related parties to ensure transparency in financial statements.
The Institute of Chartered Accountants of India (ICAI) issued AS 18 through the Companies (Accounting Standards) Rules, 2006. The Ministry of Corporate Affairs reaffirmed it in the Companies (Accounting Standards) Rules, 2021. AS 18 became mandatory for Level I enterprises from 1 April 2001 and replaced the earlier ICAI standard issued in October 2000.
For FY 2026-27, family-owned businesses remain most affected by AS 18. In our audit practice we frequently observe missed disclosures involving entities owned by siblings or spouses of promoters. These omissions can materially affect the credibility of financial statements.
AS 18 at a Glance
AS 18 mandates disclosure of related party relationships and transactions to enhance transparency in financial reporting. The standard primarily applies to Level I enterprises but is recommended for others. Its core principle is that users must be able to assess the impact of related party dealings on an entity’s results and position.
| Field | Value |
|---|---|
| Standard Number | AS 18 |
| Full Name | Related Party Disclosures |
| Issuing Body | ICAI (Accounting Standards Board) |
| Notified By | MCA, Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021) |
| Effective Date | 1 April 2001 for Level I enterprises |
| Supersedes | ICAI Accounting Standard issued in October 2000 |
| Equivalent Standard | AS 18 ↔ Ind AS 24 ↔ IAS 24 |
| Applies To | All Level I enterprises preparing financial statements under the Accounting Standards framework; recommended for Level II and III. Ind AS-applicable companies follow Ind AS 24 instead. |
What is AS 18: Related Party Disclosures?
AS 18 sets out requirements for identifying and disclosing relationships and transactions with related parties in an enterprise’s financial statements. It ensures that users are informed about connections that could influence reported results or financial position.
The ICAI introduced this standard to address concerns about off-book arrangements and undisclosed influences within Indian businesses. The predecessor was an ICAI-issued standard from October 2000; convergence with IAS/IFRS came later through Ind AS adoption.
Chartered accountants, statutory auditors, CFOs, and finance teams use this standard extensively when preparing or auditing Indian GAAP financial statements.
Objective of AS 18
- Establish requirements for disclosure of related party relationships and transactions between a reporting enterprise and its related parties.
- Enable users to assess the impact of related party relationships and transactions on the financial position and performance.
- Define related parties and specify minimum disclosure requirements.
These objectives support transparent reporting aligned with the “true and fair view” principle under Section 129 of the Companies Act, 2013. Proper application ensures that users receive reliable information about potential influences on an entity’s results.
Who Must Apply AS 18?
Entities covered, applicability table
AS 18 applies mandatorily to all Level I enterprises preparing financial statements as per notified Accounting Standards in India. For Level II and Level III enterprises, compliance is recommended but not compulsory unless otherwise specified by regulatory authorities or lenders.
| Entity Category | Applicability |
|---|---|
| Level I Enterprises | Mandatory |
| Level II Enterprises | Recommended |
| Level III Enterprises | Recommended |
Ind AS-applicable companies do not apply AS 18 but must comply with Ind AS 24 instead as per the MCA’s phase-wise roadmap.
Scope exclusions
The following are excluded from scope:
- Where reporting parties to a transaction are state-controlled enterprises (Para 9(a)), limited exemption
- Salaries paid to directors/managerial personnel acting in their employment capacity, though disclosed under Schedule III, not separately under AS 18
When the standard does not apply
Transactions between state-controlled enterprises are exempted from detailed disclosure under Para 9(a). Remuneration paid purely as salary to directors or managerial personnel is covered by Schedule III disclosures instead of separate reporting under this standard. For companies following Ind AS, all related party disclosure falls under Ind AS 24 rather than this standard.
Key Definitions under AS 18
| Term | Definition |
|---|---|
| Related party | Parties where one controls or significantly influences the other during the reporting period. |
| Control | Ownership over half voting power; board control; or power to direct policies by statute/agreement. |
| Significant influence | Participation in policy decisions without control; presumed at ≥20% voting power. |
| Key management personnel | Persons with authority over planning/directing/controlling activities of reporting enterprise. |
| Relative | Spouse, son, daughter, brother, sister, father or mother who may influence dealings. |
| Holding company / Subsidiary / Fellow subsidiary | Defined per Companies Act ownership/control thresholds. |
Recognition and Measurement under AS 18
When to recognise
An entity must disclose a related party relationship if such a relationship exists at any time during the reporting period or if transactions have occurred between related parties during that period. The requirement covers both direct relationships, such as parent-subsidiary, and indirect ones, such as significant influence via relatives or key management personnel (KMP).
Unlike Ind AS 24, which automatically includes entities controlled by KMP relatives as related parties regardless of their legal structure or degree of separation, AS 18 uses narrower definitions based strictly on control or significant influence combined with being a relative as defined above.
Initial measurement
Disclosure is both qualitative and quantitative at initial recognition:
Qualitative: The entity must identify all categories of related parties as set out in Para 10:
- Enterprises controlling or controlled by (including fellow subsidiaries), associates and joint ventures.
- Individuals owning interest in voting power conferring control/significant influence along with their relatives.
- KMPs and their relatives.
- Enterprises significantly influenced by such individuals/KMPs.
Quantitative: For each category identified:
- Nature of relationship.
- Type(s) of transaction, sales/purchases/loans/services.
- Volume/value in absolute terms.
- Outstanding balances at year-end (receivables/payables).
- Amounts written off/back during period where relevant.
- Pricing policy, whether arm’s length, where applicable.
**Disclosure trigger formula:**
If `Related Party Relationship Exists` **OR** `Related Party Transaction Occurred` during period ⇒ **Disclosure Required**
Subsequent measurement
Disclosures are updated each reporting period based on current relationships/transactions:
- Aggregation is permitted only if individual identification would not provide useful information; material items must always be disclosed separately.
- Comparative information is not always required unless specifically mandated by regulators or useful for understanding trends, a less stringent approach than Ind AS 24.
- Outstanding balances require year-end status disclosure even if no new transaction occurred during the year.
If a transaction ceases but balances remain outstanding at year-end (for example, unpaid loans), these must still be disclosed until settled.
Categories of Related Parties Under AS 18
AS 18 recognises five principal categories based on Para 10:
(a) Enterprises controlling/controlled by/under common control with the reporting enterprise;
(b) Associates/joint ventures;
(c) Individuals holding voting rights conferring control/significant influence plus their relatives;
(d) KMPs plus their relatives;
(e) Enterprises significantly influenced by such individuals/KMPs.
Notably:
- KMP family-controlled entities are only included if they meet both ‘relative’ definition *and* exercise significant influence/control.
- Post-employment benefit plans are outside scope, unlike Ind AS 24 where they are included.
This narrower approach means fewer entities qualify as related parties compared to Ind AS 24/IAS 24; however materiality remains paramount when deciding level/detail of disclosure required.
Worked Examples on AS 18
Example 1: Holding-subsidiary transaction disclosure
Scenario narrative:
Maharashtra Holdings Ltd owns Maharashtra Cement Ltd (100%) and Maharashtra Logistics Ltd (75%). In FY 2025-26:
(a) Maharashtra Cement sold goods worth Rs 12 crore to Maharashtra Logistics;
(b) Maharashtra Holdings provided a loan of Rs 8 crore at 6% interest to Maharashtra Cement.
Computation Table
| Transaction | Relationship | Disclosure Required |
|---|---|---|
| Sale from Cement to Logistics | Fellow subsidiaries | Name both entities; nature = sale; amount = Rs 12 crore; outstanding balance at year-end |
| Loan from Holdings to Cement | Parent-subsidiary | Name both entities; nature = loan; amount = Rs 8 crore; interest rate disclosed; outstanding balance |
Journal entry:
No special accounting entry required beyond normal sales/purchase/loan entries. Present a “Related Party Disclosures” note showing details per above table including names/nature/amount/outstanding balances for each material transaction.
Example 2: KMP transaction with relative's enterprise
Scenario narrative:
Sundaram Engineering Pvt Ltd’s CEO Mr Ramesh Sundaram has a brother Mr Suresh Sundaram who owns Sundaram Trading Co (sole proprietorship). During FY 2025-26 Sundaram Engineering purchased raw materials worth Rs 1.50 crore from Sundaram Trading Co.
Computation Table
| Transaction | Relationship | Disclosure Required |
|---|---|---|
| Purchase from Trading Co | Relative of KMP exercises significant influence over vendor enterprise | Name Sundaram Trading Co.; nature = purchase; amount = Rs 1.50 crore; outstanding balance at year-end |
Journal entry:
Standard purchase entry applies for raw materials bought from Sundaram Trading Co.; additional note required disclosing nature/value/outstanding balance as a related party transaction per Para 10(e). Also ensure compliance with Section 188 of Companies Act regarding approval processes for such transactions.
Disclosure Requirements under AS 18
Disclosures under AS 18 are critical for meeting both Schedule III to the Companies Act, 2013 and ICAI requirements. Transparent related party disclosures allow users to assess whether transactions have occurred on terms that might not be available to unrelated parties, supporting fair presentation and audit reliability.
| Item | Requirement | Para Reference |
|---|---|---|
| Names of related parties | Disclose name and nature of relationship for each category | Para 23 |
| Description of nature of relationship | Including parent-subsidiary even if no transactions during period (where parent is reporting separate financials) | Para 21 |
| Transactions with related parties | Volume of transactions, amounts or proportions, outstanding balances, provisions for doubtful debts, amounts written off as bad debts | Para 23 |
| Pricing policy for related party transactions | Where applicable; whether transactions are at arm's length | Para 23 |
| KMP remuneration | Disclosure required as a related party transaction (note this differs in scope from Ind AS 24's broader compensation by category) | Para 23 |
| Amounts written off or written back during the period | From or for related parties | Para 23 |
Auditors must ensure compliance with these disclosure requirements under SA 700 when issuing their opinion on true and fair presentation.
Common Mistakes & Industry-Specific Considerations
Common errors auditors flag
- Failing to identify enterprises significantly influenced by relatives of KMP.
- Aggregating related party transactions in too coarse a manner, losing visibility of material transactions.
- Inadequate disclosure of pricing policy and arm's length nature.
- Treating director sitting fees and managerial remuneration as outside AS 18 scope (these are within scope unless specifically excluded).
- Missing parent-subsidiary disclosure where there are no transactions.
- Confusing AS 18 'relative' definition with Companies Act 2013 'relative' definition (both apply, with AS 18 narrower).
Industry application notes
Family-owned businesses: Most Indian SMEs and mid-market businesses have family-owned operations creating extensive related party networks. AS 18 disclosure can be voluminous. Common errors include missing entities owned by spouses or siblings of promoters.
Listed companies (where AS applies): Smaller listed companies may apply the Accounting Standards framework. SEBI LODR adds further requirements; Audit Committee approval for material related party transactions is required regardless of AS 18 disclosure.
PSUs: State-controlled enterprises have a partial exemption from disclosing transactions between themselves under Para 9(a) of AS 18 but must still disclose state control of the reporting enterprise.
AS 18 vs Ind AS 24 vs IFRS: Key Differences
The table below summarises major differences in related party disclosures across Indian GAAP (AS), Ind AS, and IFRS frameworks:
| Aspect | AS | Ind AS | IFRS |
|---|---|---|---|
| Scope of related parties | Narrower; AS 18 categories | Broader; covers KMP family-controlled entities, plans | Same as Ind AS |
| KMP compensation disclosure | As a related party transaction | Detailed by 5 categories of compensation | Same as Ind AS |
| Government-related entity exemption | Limited (Para 9(a)) | Specific partial exemption | Specific partial exemption |
| Outstanding balances | Disclosed | Disclosed with terms and conditions | Same as Ind AS |
| Parent disclosure absent transactions | Required | Required | Required |
India retains certain carve-outs in its Accounting Standards compared to IFRS. The scope under AS 18 is narrower than both Ind AS 24 and IAS 24. Notably, post-employment benefit plans and all KMP family-controlled entities are not automatically covered under AS 18.
Latest Amendments to AS 18 (FY 2026-27)
No amendments have been notified to AS 18 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.
Related Standards You Should Know
- [Ind AS 24](/ind-as-24-related-party-disclosures/), Equivalent and broader related party disclosure standard for Ind AS-applicable companies.
- [AS 21](/as-21-consolidated-financial-statements/), Subsidiary identification feeds into related party identification.
- [AS 23](/as-23-investments-in-associates/), Associates are related parties.
- [AS 27](/as-27-financial-reporting-of-interests-in-joint-ventures/), Joint ventures are related parties.
- [AS 1](/as-1-disclosure-of-accounting-policies/), Disclosure of accounting policies including pricing of related party transactions.
Need Help with AS 18 Compliance?
Patron Accounting LLP supports Indian businesses in meeting all aspects of AS 18 Related Party Disclosures compliance. Our team combines technical expertise with deep sector experience to ensure your disclosures withstand audit scrutiny and regulatory review.
Our services include:
- Statutory Audit
- Financial Reporting & Schedule III
- Disclosure Review
- Ind AS Advisory
Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.
Frequently Asked Questions (FAQs)
All Level I enterprises preparing financial statements under the Accounting Standards framework must comply with AS 18 Related Party Disclosures. For Level II and III enterprises, application is recommended but not mandatory unless required by regulators or lenders. Ind AS-applicable companies follow Ind AS 24 instead.
The principal categories include controlling entities, subsidiaries, fellow subsidiaries, associates, joint ventures, individuals holding controlling or significant voting power plus their relatives, key management personnel (KMP) and their relatives, and enterprises significantly influenced by such individuals or KMPs.
The main differences relate to scope, Ind AS 24 covers more relationships such as KMP family-controlled entities and post-employment plans. Compensation disclosures are more granular under Ind AS 24. Exemptions for government-related entities also differ between the two standards.
Yes. Remuneration paid to key management personnel is treated as a related party transaction under Para 23 of AS 18 and must be disclosed separately in the notes to accounts along with other material details such as outstanding balances where applicable.
No. Section 188 regulates approval processes for certain related party transactions but does not replace or fulfil the detailed disclosure requirements set out in AS 18. Both must be complied with independently where applicable.
Under AS 18, ‘relative’ includes only spouse, son, daughter, brother, sister, father or mother who may influence dealings. The Companies Act 2013 has a wider definition covering additional relations such as stepchildren or parents-in-law. Both definitions may apply depending on context.
No. While Para 9(a) provides limited exemption for disclosures between state-controlled enterprises themselves, an enterprise still needs to disclose that it is state controlled if applicable. Other relationships remain subject to normal disclosure rules.
Where relevant, an entity must disclose whether its related party transactions were conducted at arm’s length prices or otherwise. This includes stating the basis used for determining prices if not at arm’s length, supporting transparency for users and auditors alike.
Yes. Even if no transaction occurred during the reporting period between parent and subsidiary (or other defined relationships), the existence and nature of that relationship must still be disclosed per Para 21 when separate financial statements are presented.
About This Article
Reviewed by CA & CS Team · Patron Accounting LLP
Technical reviewer: CA Sundram Gupta, FCA
Last reviewed: 2026-05-02
Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Accounting Standards) Rules, 2006 (reaffirmed in Companies (Accounting Standards) Rules, 2021)) · IFRS Foundation