What are related party transactions in accounting?
The term related-party transaction refers to a deal or arrangement made between two parties who are joined by a preexisting business relationship or common interest. Companies often seek business deals with parties with whom they are familiar or have a common interest. Public companies must disclose these transactions.
Is loan a related party transaction?
Answer: Remuneration and unsecured loans to directors are not covered under the related party transactions as per section 188 of the Companies Act, 2013. Unsecured loans to directors (section 185 of the Act).
Is salary to director a related party transaction?
In the author’s view, there is no requirement of treating Director’s remuneration as a RPT as long as the sum of money paid to the director is the ‘remuneration to which he is entitled as director’. The definition of related party clearly indicates that every director is considered to be a related party to the Company.
Where are related party transactions in financial statements?
Related party transactions and outstanding balances with other entities in a group are disclosed in an entity’s financial statements. Intra-group related party transactions and outstanding balances are eliminated in the preparation of consolidated financial statements of the group.
What are the disclosure requirements relating to related party transactions?
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 recognised in respect of bad and doubtful debts.
Is related party transactions prohibited?
In most cases, related parties transactions are forbidden and as far as there is any need for reporting, it is for reporting that the parties are not related2.