CHAPTER-5

Disclosure Standards

● Related Party Disclosures (Ind AS 24)

● Events occurring after Balance Sheet Date(Ind AS 10)

● Interim Financial Reporting (Ind AS 34)

● Segment Reporting (Ind AS 108)

1) Related Party Disclosures (Ind AS 24)

Indian Accounting Standard 24 requires disclosures to be made by a parent entity
regarding its transactions with associates, joint ventures or subsidiaries, collectively
referred to as related party.

DEFINATIONS PERTAINING TO RELATED PARTY DISCLOSURE

A. Related party-
Related party is a person or entity that is related to the reporting entity that is an entity
that prepares financial statements. A person or close family member is related to
reporting entity if that individual:

a. Has control or joint control over the reporting entity.

b. Has significant influence over the reporting entity.
c. Is a member of the key personnel of the reporting entity or of the parent of the
reporting entity.

B. Close Member
Close Member of the family includes person’s children, spouse or domestic
partner, brother, sister, father and mother, children of that person’s spouse or
domestic partner and dependants of that person’s or person’s spouse or domestic
partner. An entity is related to a reporting entity if the following conditions are
met:
● Both the reporting entity and the entity belonging to the same group.

● An associate or joint venture of the other entity or of the same third party.

● The entity is a post-employment benefit plan for the reporting entity or

any entity related to the reporting entity.
 ● The entity is controlled or jointly controlled by the person mentioned
above or the person mentioned has significant influence over the entity.
● The entity or any member of the group provides key management
personnel service to the reporting entity or parent of reporting entity.

OBJECTIVES-
The objective of this Standard is to ensure that an entity’s financial statements contain the
disclosures necessary to draw attention to the possibility that its financial position and
profit or loss may have been affected by the existence of related parties and by
transactions and outstanding balances, including commitments, with such parties.

SCOPE-
This standard shall be applied to:

● Identifying related parties and transactions with them.

● Identifying outstanding balance and commitments between the reporting entity

and related parties.
● Recognizing the circumstances in which disclosures will be required in the above-
stated situations
● Determine the disclosures to be made.

The standard also requires disclosure of related party relationships transactions, outstanding
balances including commitments in the consolidated financial statements, separate financial
statements, and individual financial statements. In case a statute or regulatory body or similar
competent authority governing an entity prohibits the entity from disclosing certain information
that is required by this standard, then the disclosure of such information is not warranted. For
instance banks, stock broking entities are not permitted to disclose customer related information,
hence such information need not be disclosed.

Why should related party transactions be disclosed?

Related party transactions are an integral part of businesses in today’s world. The transactions
between the related parties are generally conducted at negotiated terms and hence they must be
disclosed. Additionally, for an investor, knowledge of related parties facilitates a more informed
decision to invest in an entity. Also, for every reader of the financial statements accurate
disclosure of all the related party relationships, transactions, and outstanding balances presents a
correct picture of the risk and opportunities for an entity.

Disclosures to be made-

Relationships between parent and subsidiaries should be disclosed irrespective of whether there
have been any transactions or not. If the entity’s parent or the ultimate controlling party does not
produce consolidated financial statements, then the next senior parent must be named in the
consolidated financial statements for public use.

An entity must report the compensation to the key management personnel in total and each of the
categories such as short term employee benefits, post-employment benefits, termination benefits,
share-based payment, and other long-term benefits.

If key management services are obtained from another entity, then only the amounts incurred for
the provision of such services shall be disclosed.

If the entity has transactions with the related party during the financial year, then it shall disclose
the nature of such transactions, and also all the details such as amount, outstanding balances
including commitments, provision for doubtful debts, and the expense recognized in respect of
bad and doubtful debts.

The above disclosures will be made separately in respect of a parent, subsidiaries, associate,
entities with joint control or significant influence over the other entity, joint ventures in which
the entity is the venture, and key management personnel of the entity or parent and other related
parties.

The disclosures for similar items can be made in aggregate except when separate disclosure is
necessary to understand the effects of related party transactions on the financial statements.
Examples of related party transactions are purchase and sale of goods, assets, rendering, or
receiving of services, leases, transfers, and so on.

2) Events occurring after Balance Sheet Date(Ind AS 10)

Events after the balance sheet date are significant financial events that occur after the date of
the balance sheet but prior to the date that the Financial Statements are issued.

Events after the reporting period are those events, favorable and unfavorable, that occur between
the end of the reporting period and the date when the financial statements are authorized for
issue.

Two types of events can be identified:

 ● Adjusting Events:-Those that provide evidence of conditions that existed at the end of the
reporting period.
● Non Adjusting Events: Those that is indicative of conditions that arose after reporting
period.

The objective of IndAS 10 is to prescribe:

▪ when an entity should adjust its financial statements for events after the reporting period;
and
▪ the disclosures that an entity should give about the date when the financial statements
were approved for issue and about events after the reporting

Scope

This Standard shall be applied in the accounting for, and disclosure of, events after the reporting
period.

Definitions
The meaning of the following terms used repetitively in the Standard are:-

● Events after the reporting period are those favorable and unfavorable events that occur between the
end of the reporting of the financial statements and the date of approval of financial statements by
the board of directors of the company and the relevant authority in case of an entity other than a
company. These can be classified under two headings as follows:
● Those which denote the conditions arising at the end of the reporting period commonly known as
Adjusting events; and
● Those which denote the conditions after the reporting period commonly known as Non-Adjusting
events.

● The procedures relating to approval of financial statements will depend on management policies,
how financial statements are prepared and completed and the compliance procedures.

● In cases where the approval of the shareholders is required after the approval of the board of
directors, the date for issue of approval of Board members will be considered.

Recognition
● Adjusting events after the reporting period: If any event was in the knowledge of entity on
reporting period, but it occurred after reporting period then it can be adjusted in the financial
statements of previous year even if these items occurred after reporting period.

● Non-Adjusting events after the reporting period: If any event was not in the knowledge of the
entity at reporting period then we cannot adjust such unknown event in the financial statements of
previous year. These events should be considered as new events and we will adjust these items in
next year.

E.g. decrease in the market value of investments between the end of the reporting of the financial
statements and the date of approval of financial statements by the board of directors. This sudden
expected change was not expected at the end of the financial year in computing carrying forward of
investments. Therefore, the adjustment will not be made in the financial statements of previous
year.

● Dividends: When the company decides to declare dividend to its equity shareholders between the
end of the reporting of the financial statements and the date of approval of financial statements, it
will not be recorded as a liability because the obligation to pay these dividends will fall in the next
year.

● Going Concern: This principle indicates the entity’s willingness to not liquidate its business in
near future. When the management decides to cease its operations and the intention of liquidating
its business after the reporting period, the entity shall not prepare its financial statements on going
concern anymore.

3) Interim Financial Reporting (Ind AS 34)

Interim Financial Reporting applies when an entity prepares an interim financial report. Ind AS
34
does not mandate an entity as when to prepare such a report. Timely and reliable interim
financial
reporting improves the ability of investors, creditors, and others to understand an entity’s
capacity
to generate earnings and cash flows and its financial condition and liquidity. Permitting less
information to be reported than in annual financial statements (on the basis of providing an
update
to those financial statements), the standard outlines the recognition, measurement and disclosure
requirements for interim reports.
Interim Financial Reporting applies when an entity prepares an interim financial report. Ind AS
34
does not mandate an entity as when to prepare such a report. Timely and reliable interim
financial
reporting improves the ability of investors, creditors, and others to understand an entity’s
capacity
to generate earnings and cash flows and its financial condition and liquidity. Permitting less
information to be reported than in annual financial statements (on the basis of providing an
update
to those financial statements), the standard outlines the recognition, measurement and disclosure
requirements for interim reports.
Interim Financial Reporting applies when an entity prepares an interim financial report. Ind AS
34
does not mandate an entity as when to prepare such a report. Timely and reliable interim
financial
reporting improves the ability of investors, creditors, and others to understand an entity’s
capacity
to generate earnings and cash flows and its financial condition and liquidity. Permitting less
information to be reported than in annual financial statements (on the basis of providing an
update
to those financial statements), the standard outlines the recognition, measurement and disclosure
requirements for interim reports.
Interim Financial Reporting applies when an entity prepares an interim financial report. Ind AS
34
does not mandate an entity as when to prepare such a report. Timely and reliable interim
financial
reporting improves the ability of investors, creditors, and others to understand an entity’s
capacity
to generate earnings and cash flows and its financial condition and liquidity. Permitting less
information to be reported than in annual financial statements (on the basis of providing an
update
to those financial statements), the standard outlines the recognition, measurement and disclosure
requirements for interim reports.

Interim financial report means a financial report containing either a complete set of
financial statements (as per Ind-AS 1) or a condensed set of financial statements (as
described in this Standard) for an interim period. (Complete or condensed set is an option
to the entity) Interim period is a financial reporting period shorter than a full financial
year.
 Interim Financial Report An entity has an option to prepare either-

Objective
The objective of this Standard is to prescribe the minimum content of an interim financial report
and to prescribe the principles for recognition and measurement in complete or condensed
financial statements for an interim period. Timely and reliable interim financial reporting
improves the ability of investors, creditors, and others to understand an entity’s capacity to
generate earnings and cash flows and its financial condition and liquidity.

Scope
1. This Standard does not mandate which enterprises should be required to present interim
financial reports, how frequently, or how soon after the end of an interim period. If an enterprise
is required or elects to prepare and present an interim financial report, it should comply with this
Standard.
2. A statute governing an enterprise or a regulator may require an enterprise to prepare and
present certain information at an interim date which may be different in form and/or content as
required by this Standard. In such a case, the recognition and measurement principles as laid
down in this Standard are applied in respect of such information, unless otherwise specified in
the statute or by the regulator.
3. The requirements related to cash flow statement, complete or condensed, contained in this
Standard are applicable where an enterprise prepares and presents a cash flow statement for the
purpose of its annual financial report.

Definitions
The following terms are used in this Standard with the meanings specified:

● Interim period- It is a financial reporting period shorter than a full financial year.

● Interim financial report – It means a financial report containing either a complete

set of financial statements or a set of condensed financial statements (as described
in this Standard) for an interim period.
During the first year of operations of an enterprise, its annual financial
reporting period may be shorter than a financial year. In such a case, that shorter period is not
considered as an interim period.

Content of an Interim Financial Report

A complete set of financial statements normally includes:
(a) balance sheet;
(b) statement of profit and loss;
(c) cash flow statement; and
(d) notes including those relating to accounting policies and other statements and explanatory
material that are an integral part of the financial statements.
In the interest of timeliness and cost considerations and to avoid repetition of information
previously reported, an enterprise may be required to or may elect to present less information at
interim dates as compared with its annual financial statements. The benefit of timeliness of
presentation may be partially offset by a reduction in detail in the information provided.
Therefore, this Standard requires preparation and presentation of an interim financial report
containing, as a minimum, a set of condensed financial statements. The interim financial report
containing condensed financial statements is intended to provide an update on the latest annual
financial statements.
Accordingly, it focuses on new activities, events, and circumstances and does not duplicate
information previously reported. This Standard does not prohibit or discourage an enterprise
from presenting a complete set of financial statements in its interim financial report, rather than a
set of condensed financial statements. This Standard also does not prohibit or discourage an
enterprise from including, in condensed interim financial statements, more than the minimum
line items or selected explanatory notes as set out in this Standard. The recognition and
measurement principles set out in this Standard apply also to complete financial statements for
an interim period, and such statements would include all disclosures required by this Standard as
well as those required by other Accounting Standards.

Minimum Components of an Interim Financial Report

An interim financial report should include, at a minimum, the following components:
(a) Condensed balance sheet;
(b) Condensed statement of profit and loss;
(c) Condensed cash flow statement; and
(d) Selected explanatory notes.

Form and Content of Interim Financial Statements

● If an enterprise prepares and presents a complete set of financial statements in its interim
financial report, the form and content of those statements should conform to the
requirements as applicable to annual complete set of financial statements.

● If an enterprise prepares and presents a set of condensed financial statements in its

interim financial report, those condensed statements should include, at a minimum, each
of the headings and sub-headings that were included in its most recent annual financial
statements and the selected explanatory notes as required by this Standard. Additional
line items or notes should be included if their omission would make the condensed
interim financial statements misleading.
● If an enterprise presents basic and diluted earnings per share in its annual financial
statements in accordance with Accounting Standard (AS) 20, Earnings Per Share, basic
and diluted earnings per share should be presented in accordance with AS 20 on the face
of the statement of profit and loss, complete or condensed, for an interim period.

● If an enterprise’s annual financial report included the consolidated financial statements

in addition to the parent’s separate financial statements, the interim financial report
includes both the consolidated financial statements and separate financial statements,
complete or condensed.

● Illustration I attached to the Standard provides illustrative format of condensed financial

statements.
4) Segment Reporting (Ind AS 108)

IAS 14 Segment Reporting requires reporting of financial information by business or

geographical area. It requires disclosures for 'primary' and 'secondary' segment reporting
formats, with the primary format based on whether the entity's risks and returns are
affected predominantly by the products and services it produces or by the fact that it
operates in different geographical areas.

IAS 14 was issued in August 1997, was applicable to annual periods beginning on or
after 1 July 1998, and was superseded by IFRS 8 Operating Segments with effect from
annual periods beginning on or after 1 January 2009.

Objective of IAS 14

The objective of IAS 14 (Revised 1997) is to establish principles for reporting financial
information by line of business and by geographical area. It applies to entities whose
equity or debt securities are publicly traded and to entities in the process of issuing
securities to the public. In addition, any entity voluntarily providing segment information
should comply with the requirements of the Standard.

Applicability

IAS 14 must be applied by entities whose debt or equity securities are publicly traded and
those in the process of issuing such securities in public securities markets.

If an entity that is not publicly traded chooses to report segment information and claims
that its financial statements conform to IFRSs, then it must follow IAS 14 in full.
 Segment information need not be presented in the separate financial statements of a (a)
parent, (b) subsidiary, (c) equity method associate, or (d) equity method joint venture that
are presented in the same report as the consolidated statements.
Key definitions-

Business segment: a component of an entity that (a) provides a single product or service
or a group of related products and services and (b) that is subject to risks and returns that
are different from those of other business segments.

Geographical segment: a component of an entity that (a) provides products and services
within a particular economic environment and (b) that is subject to risks and returns that
are different from those of components operating in other economic environments.

Reportable segment: a business segment or geographical segment for which IAS 14

requires segment information to be reported.

Segment revenue: revenue, including intersegment revenue, that is directly attributable

or reasonably allocable to a segment. Includes interest and dividend income and related
securities gains only if the segment is a financial segment (bank, insurance company,
etc.).

Segment expenses: expenses, including expenses relating to intersegment transactions, that

(a) result from operating activities

(b) And are directly attributable or reasonably allocable to a segment. Includes
interest expense and related securities losses only if the segment is a financial
segment (bank, insurance company, etc.).

Segment expenses do not include:

Interest losses on sales of investments or debt extinguishments losses on investments accounted

for by the equity method income taxes general corporate administrative and head-office expenses
that relate to the entity as a whole.

Segment result: segment revenue minus segment expenses, before deducting minority interest.

Segment assets and segment liabilities: those operating assets (liabilities) that are directly
attributable or reasonably allocable to a segment.

Which segments are reportable?

The entity's reportable segments are its business and geographical segments for which a majority
of their revenue is earned from sales to external customers and for which: [IAS 14.35]
revenue from sales to external customers and from transactions with other segments is 10% or
more of the total revenue, external and internal, of all segments; or segment result, whether profit
or loss, is 10% or more the combined result of all segments in profit or the combined result of all
segments in loss, whichever is greater in absolute amount; or assets are 10% or more of the total
assets of all segments.

Segments deemed too small for separate reporting may be combined with each other, if related,
but they may not be combined with other significant segments for which information is reported
internally. Alternatively, they may be separately reported. If neither combined nor separately
reported, they must be included as an unallocated reconciling item.

If total external revenue attributable to reportable segments identified using the 10% thresholds
outlined above is less than 75% of the total consolidated or entity revenue, additional segments
should be identified as reportable segments until at least 75% of total consolidated or entity
revenue is included in reportable segments.

Vertically integrated segments (those that earn a majority of their revenue from intersegment
transactions) may be, but need not be, reportable segments. If not separately reported, the selling
segment is combined with the buying segment.

IAS 14.contains special rules for identifying reportable segments in the years in which a segment
reaches or loses 10% significance.

IAS 14 has detailed guidance as to which items of revenue and expense are included in segment
revenue and segment expense. All companies will report a standardized measure of segment
result – basically operating profit before interest, taxes, and head office expenses. For an entity's
primary segments, revised IAS 14 requires disclosure of: [IAS 14.51-67]

sales revenue (distinguishing between external and intersegment) result assets the basis of
intersegment pricing liabilities capital additions depreciation and amortization significant
unusual items non-cash expenses other than depreciation equity method income

Segment revenue includes "sales" from one segment to another. Under IAS 14, these
intersegment transfers must be measured on the basis that the entity actually used to price the
transfers.

For secondary segments, disclose: revenue assets capital additions

Other disclosure matters addressed in IAS 14:

Disclosure is required of external revenue for a segment that is not deemed a reportable segment
because a majority of its sales are intersegment sales but nonetheless its external sales are 10% or
more of consolidated revenue. Special disclosures are required for changes in segment
accounting policies. Where there has been a change in the identification of segments, prior year
information should be restated. If this is not practicable, segment data should be reported for
both the old and new bases of segmentation in the year of change. Disclosure is required of the
types of products and services included in each reported business segment and of the
composition of each reported geographical segment, both primary and secondary.

An entity must present a reconciliation between information reported for segments and
consolidated information. At a minimum: segment revenue should be reconciled to consolidated
revenue segment result should be reconciled to a comparable measure of consolidated operating
profit or loss and consolidated net profit or loss segment assets should be reconciled to entity
assets segment liabilities should be reconciled to entity liabilities.

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