Disclosures under Ind AS
Disclosure as its own discipline, not an afterthought
Every chapter so far has treated disclosure as the third step of a three-part test — scope, recognition and measurement, disclosure — attached to a specific recognition standard. This chapter is different: Ind AS 24 and Ind AS 108 are, in substance, disclosure-only standards. Neither one changes how an asset, liability, income or expense is recognised or measured; both exist purely to ensure users can see information that would otherwise remain invisible inside an entity's own internal dealings and internal management structure.
Ind AS 24: Related Party Disclosures
Why related party transactions need a dedicated standard at all. A transaction between unrelated parties is disciplined by arm's-length market forces — neither party has reason to accept unfavourable terms. A transaction between related parties carries no such automatic discipline, since one party may be able to influence the other's decisions regardless of whether the terms are commercially fair, which is precisely why Ind AS 24 exists: not to prohibit related party transactions, which are entirely legitimate and common, but to ensure users of financial statements can see that they occurred and on what terms, so users can independently judge whether the entity's reported results might have been affected by non-arm's-length dealing.
Who counts as a related party. A party is related to an entity if, among other relationships, it controls, is controlled by, or is under common control with the entity (parent, subsidiary, fellow subsidiary); it has significant influence over the entity, or the entity has significant influence over it (as in an associate relationship); it is a joint venture in which the entity is a venturer; it is a member of the entity's key management personnel (KMP — those having authority and responsibility for planning, directing and controlling the entity's activities, directly or indirectly, including directors), or a close member of the family of such a person; or it is an entity controlled, jointly controlled, or significantly influenced by, or for which significant voting power resides with, a person identified above.
What is specifically excluded. Two providers frequently mistaken for related parties are explicitly not related parties solely by virtue of the ordinary dealings a business has with them: a provider of finance, a trade union, a public utility, or a government department or agency, simply by virtue of their normal dealings with the entity (even though the relationship may involve significant economic dependence), are not related parties merely by virtue of that relationship. Similarly, two entities are not related parties simply because they share a common director or other key management personnel, or because one has non-controlling investors in common with another, unless the substance of a genuine relationship of control or significant influence exists beyond that shared personnel alone.
What must be disclosed. Where related party transactions have occurred, an entity discloses the nature of the related party relationship, together with information about the transactions, outstanding balances (including commitments), and any provision for doubtful debts related to those balances, necessary for users to understand the potential effect of the relationship on the financial statements — this includes disclosure even where no transaction has actually occurred, but a control relationship exists (parent-subsidiary), because the mere existence of control is itself considered relevant information to a user, regardless of whether that control has actually been exercised through any specific transaction during the period.
Key management personnel compensation. An entity discloses KMP compensation in total and by specific category — short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits, and share-based payment — because the aggregate compensation of those who actually direct the entity's activities is itself considered directly relevant to a user's understanding of the entity's governance and cost structure, independent of any other related party transaction.
Ind AS 108: Operating Segments
The management approach. Ind AS 108 takes a deliberately different approach from most other Ind AS: rather than prescribing an externally defined basis for segmenting a business, it requires segment information to be reported on the basis actually used internally by the entity's chief operating decision maker (CODM) — the person or group that allocates resources to, and assesses the performance of, the entity's operating segments — to make decisions about resources and assess performance. This is often summarised as the "management approach," and it is the single most distinctive, and most tested, conceptual feature of this standard: two companies in the same industry, organised and managed internally along different lines, could report entirely different segment structures for the same underlying business, and both would be correctly applying Ind AS 108, because the standard's premise is that segment information is most useful to external users when it mirrors exactly how the entity's own management actually views and runs the business internally.
Identifying a reportable operating segment. An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the CODM to make decisions about resource allocation and assess performance, and for which discrete financial information is available. A segment is reportable if it satisfies at least one of three quantitative thresholds: its reported revenue (external and intersegment combined) is 10% or more of the combined revenue of all operating segments; the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of the combined profit of all profitable segments or the combined loss of all loss-making segments; or its assets are 10% or more of the combined assets of all operating segments.
The 75% overall test. If the total external revenue reported by all identified reportable segments constitutes less than 75% of the entity's total revenue, additional operating segments must be identified as reportable (even if they individually fail the 10% thresholds) until at least 75% of total revenue is included within reportable segments — this ensures a fragmented business cannot avoid meaningful segment disclosure by keeping every individual segment just under each 10% threshold while the aggregate remains largely undisclosed.
What is disclosed for each reportable segment. General information about how the segments are identified and the types of products and services from which each segment derives its revenue; segment profit or loss, and specified categories of segment assets and liabilities if regularly provided to the CODM; and reconciliations between the totals of segment revenues, profit or loss, assets and liabilities, and the corresponding entity-wide totals in the financial statements — this reconciliation requirement exists precisely because segment figures, being drawn from internal management reporting rather than the external financial reporting framework itself, can differ in measurement basis from the amounts recognised in the entity's own Ind AS financial statements, and users need to see explicitly how the two sets of figures relate.
Entity-wide disclosures. Even where an entity has only a single reportable segment, Ind AS 108 still requires entity-wide disclosures about revenues from external customers for each group of similar products and services, revenues and non-current assets by geographical area (both the entity's country of domicile and foreign countries, individually if material), and the extent of reliance on any single major external customer (one from whom revenues amount to 10% or more of total entity revenue) — these entity-wide disclosures are not conditional on the segment identification process at all, and apply regardless of how many reportable segments an entity has identified.
Why this chapter matters even though it recognises nothing
A Final-level question drawing on this chapter typically presents a scenario — a group of companies with a parent, subsidiaries and a joint venture, transacting with each other and with key management personnel, organised internally along product lines that do not exactly match the group's legal or consolidation structure — and asks you to identify which relationships are related parties under Ind AS 24's specific tests, and which internally reported components constitute reportable operating segments under Ind AS 108's quantitative thresholds and management approach. Neither exercise involves computing a recognised asset or liability at all; both are pure classification and disclosure exercises, which is precisely why they are tested as their own distinct question type rather than folded into a recognition-heavy problem, and why a candidate who has internalised the specific definitional tests — who counts as KMP, what the three 10% thresholds are, what the 75% overall test requires — scores reliably on this chapter regardless of numerical fluency elsewhere in the paper.
