Related Party Transactions Toolkit

Effective corporate governance is essential to cultivate a company’s culture of integrity and growth, and to gain investor confidence. One of the key components of corporate governance is evaluation of transactions with related entities (Related Party Transactions or RPTs).

RPTs have been a focus area for all regulators and policy makers, and there are various regulations governing the same:

• The Accounting Standards (AS) and Indian Accounting Standards (Ind AS) have defined related parties and RPTs and require companies to disclose prescribed relationships and transactions with related parties
• The Companies Act, 2013 and the Securities and Exchange Board of India (SEBI) have stipulated detailed procedures for approval of RPTs, and
• The Standards on Auditing (SA) require auditors to perform stipulated procedures for components of financial statements which involve RPTs.

Considering the disparate requirements in all these regulations, corporates need to incorporate appropriate systems and processes to ensure that these regulations are embraced in both the letter and spirit.

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Recently, SEBI revised the LODR Regulations w.r.t. related party norms, by including

• A wider net of entities as related parties and a broader set of transactions as RPTs
• Enhanced the approval requirements of audit committee and shareholders, and
• Enhanced the disclosure requirements to the audit committee, shareholders and the regulators.

These amendments require companies to revisit their existing procedures on related parties and make amendments wherever necessary.

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With a view to enable companies and practitioners ensure compliance with the RPT regulations prescribed in the Companies Act, 2013, the LODR Regulations and the accounting standards applicable, the Foundation for Audit Quality has developed an implementation toolkit of RPTs. The toolkit aims to cover some practical considerations that would help overcome certain potential challenges that companies could face complying with the RPT norms. The regulatory requirements and practical considerations incorporated in the toolkit have been classified within the four main areas, namely:

• Identification of related parties
• Identification of RPTs
• RPT approval mechanism, and
• Disclosure requirements of RPTs.

The RPT toolkit comprises of – a management toolkit and a checklist for identifying connected parties.

To access the comprehensive RPT toolkit Please click here

To access individual sections of the toolkit, click in the relevant sections of the table below