Direct answer: AS 18 requires a relationship-based related-party analysis and a transaction-to-balance disclosure working. Do not copy only the Companies Act approval list or net purchases against sales. Where control exists, name and relationship disclosure can be required even with no transactions. For aggregation, the standard’s ordinary “in excess of 10%” size indicator is not a safe harbour that makes every smaller or exactly-10% item immaterial.
Checked on 23 October 2026 against ICAI’s complete AS 18, Related Party Disclosures and its revised non-company entity applicability announcement. This article addresses financial statements under the AS framework, not Ind AS 24. Apply the revised announcement for accounting periods beginning on or after 1 April 2024; the older Level III/IV wording still displayed in the compendium is not a complete current exemption test. The standard also contains specific confidentiality, state-controlled-enterprise and consolidated intra-group provisions.
Check current non-company applicability before preparing the note
The revised announcement classifies non-company entities as MSMEs or Large entities and supersedes the March 2021 four-level classification. To qualify as an MSME, the entity must meet all the announcement’s conditions: its securities are neither listed nor in the process of listing; it is not a bank, financial institution or insurance company; immediately preceding-year turnover excluding other income does not exceed ₹250 crore; borrowings did not exceed ₹50 crore at any time in that year; and it is not a holding or subsidiary of a non-MSME entity. A Companies Act small company or an MSME registration does not by itself establish this accounting classification.
AS 18 exemption is narrower than general MSME status. Annexure 1, paragraph 2(A)(ii), exempts qualifying MSMEs only where preceding-year turnover excluding other income does not exceed ₹50 crore, borrowings do not exceed ₹10 crore at any time in that year, and the entity is not a holding or subsidiary of an MSME outside those smaller thresholds. Check the announcement’s additional requirements, including the two-consecutive-year condition where a previously non-MSME entity becomes an MSME, and disclose the exemptions availed. Entities subject to another applicable regulatory AS or Ind AS requirement must follow that framework. Large entities must comply in full with the applicable Accounting Standards.
Build the relationship map before running ledger reports
AS 18 covers the specified control/common-control enterprises, associates and joint ventures, relevant controlling or significantly influencing individuals and their relatives, key management personnel and their relatives, and the specified enterprises influenced by those persons. Read the actual governance and ownership facts. Key management is a functional authority-and-responsibility concept, not every employee with “manager” in a title.
The standard’s voting-power tests and presumptions help identify control, substantial interest and significant influence, but they are not interchangeable. Twenty percent is relevant to substantial interest and the shareholding presumption of significant influence; it does not by itself equal majority control. Below twenty percent does not automatically exclude significant influence if other evidence establishes it. Capture board rights, agreements and policy participation as well as the percentage.
Two companies are not related merely because they share a director, unless the relevant ability to affect their policies in mutual dealings exists. A major customer is not related merely because the enterprise depends economically on that customer. Financing, utilities or ordinary government dealings also need the standard’s actual tests rather than a blanket assumption of relatedness.
Separate the disclosure columns that answer different questions
| Working column | Question answered | Common error |
|---|---|---|
| Transactions by nature during the relationship | What resources or obligations moved? | Showing only the net year-end balance |
| Outstanding items and doubtful-debt provision | What remains and what collectability adjustment exists? | Hiding the provision inside a net receivable |
| Write-offs and write-backs during the period | What debt amounts were removed or restored? | Treating every movement as new sales or purchases |
Paragraph 23 calls for the transacting party and relationship, nature and volume of transactions, other necessary elements, outstanding items and the specified doubtful-debt and write-off/write-back information. Transfers may be related-party transactions even if no price is charged. Measurement and recognition follow the applicable accounting standards; a zero invoice does not by itself mean the disclosure analysis may be skipped.
Track relationship effective dates and transactions during its existence. Reconcile ledger accounts across customer, vendor, loan, interest, guarantee and employee-related records. A party with both receivable and payable balances can disappear from a report built only on net balances. Avoid gross double counting of an underlying transaction merely because it appears in several linked ledgers, while retaining each distinct disclosure category.
Use the correct denominator for the 10% indicator
Paragraphs 26–27 permit aggregation of similar items by related-party type, except where separate disclosure is needed for understanding. Ordinarily, a transaction exceeding 10% of total related-party transactions of the same nature is considered material, subject to facts. The denominator is not total company turnover, all purchases including unrelated parties, or a combined total of sales, loans and asset purchases.
Exactly 10% is not “in excess of 10%”, but that wording does not confer an exemption. Nature and circumstances can make a lower amount material, especially an unusual or non-normal-course transaction. Goods purchases should not be buried in an asset-purchase total merely to dilute the percentage. Keep the qualitative conclusion beside the numeric screen and do not club a material individual-party item into a category that obscures it.
Retain separate and consolidated statement conclusions
AS 18 does not require intra-group transaction disclosure in consolidated financial statements presenting the group as one reporting enterprise. That does not erase the transaction from the relevant company’s separate-statement working. Maintain both views and reconcile eliminations. Likewise, the standard’s control-relationship disclosure is not contingent on a non-zero transaction volume.
Do not use an accounting disclosure note as proof that company-law approvals, tax related-party reporting or transfer-pricing requirements were satisfied. Their definitions, scopes and obligations differ. Keep a cross-reference between the registers without forcing the same legal conclusion into every framework. The calculations below isolate AS 18 disclosure controls and assume the underlying accounting recognition is otherwise correct.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: Twenty percent is an influence screen, not majority control
An investor holds 20,000 out of 1,00,000 equal-vote shares: 20%. With no rebutting evidence, AS 18’s shareholding presumption of significant influence is relevant. Another holding of 19,000 shares is 19%; it does not meet that percentage presumption, but other policy-participation evidence must still be considered. Neither percentage alone is more than half the voting power.
Illustrative example 2: Use related-party transactions of the same nature
Total related-party goods purchases are ₹1 crore. Purchases from A are ₹12 lakh and from B ₹10 lakh, giving 12% and 10% respectively. A exceeds the ordinary 10% size indicator. B does not exceed it but still needs a nature-and-circumstances assessment. A denominator of ₹10 crore total purchases would wrongly reduce the two screens to 1.2% and 1%.
Illustrative example 3: A smaller unusual item can still need separate disclosure
Related-party licence transactions of the same type total ₹50 lakh. One unusual, non-normal-course licence transfer is ₹2 lakh: 4%. Its size is below 10%, but the facts can still make it material by nature. Aggregating it without explaining that assessment would misuse the numeric screen.
Illustrative example 4: Loans advanced and recovered are not the closing balance
A related-party loan opens at ₹20 lakh, with ₹15 lakh additionally advanced and ₹10 lakh of principal recovered. Closing principal is ₹25 lakh. Interest income of ₹2 lakh is a separate transaction category, assumed settled separately. The disclosure working retains the ₹15 lakh advance, ₹10 lakh recovery, ₹2 lakh interest and ₹25 lakh outstanding principal; none is replaced by the ₹5 lakh net principal movement.
Illustrative example 5: Reconcile gross debt, provision and write-off
A related receivable opens at ₹14 lakh. Current-period credit sales are ₹8 lakh, collections ₹8 lakh and a debt write-off ₹2 lakh. Closing gross receivable is ₹12 lakh. A closing doubtful-debt provision of ₹3 lakh leaves ₹9 lakh net carrying amount. The working identifies ₹8 lakh sales, ₹12 lakh gross outstanding, ₹3 lakh provision and ₹2 lakh write-off separately, rather than describing ₹9 lakh as all the information.
Illustrative example 6: Group elimination does not remove the separate-company record
A parent’s revenue is ₹100 lakh, including ₹40 lakh sales to its subsidiary. The subsidiary sells to outside customers for ₹70 lakh. Assume no other transactions and ordinary elimination of the intra-group sale: combined revenue of ₹170 lakh less ₹40 lakh gives ₹130 lakh group external revenue. The parent’s separate-statement related-party sales remain ₹40 lakh. The consolidated intra-group disclosure exception does not turn the separate-statement transaction into zero.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Confirm AS 18 applicability and relevant relief | Reporting-framework memo, current MSME/AS 18 exemption tests and transition history |
| 2 | Identify control and influence relationships | Ownership, governance agreements and board rights |
| 3 | Identify key management and specified relatives/entities | Functional-role assessment and declarations |
| 4 | Record relationship start/end dates | Dated relationship register |
| 5 | Extract transactions by party and nature | Goods, assets, services, finance and guarantee schedules |
| 6 | Reconcile opening, movements and closing items | Ledger bridge with interest distinguished from principal |
| 7 | Identify provisions and debt write-offs/write-backs | Collectability and movement schedules |
| 8 | Apply the same-nature 10% screen and qualitative review | Correct denominator and materiality explanation |
| 9 | Prepare separate and consolidated disclosure views | Control names, category aggregation and eliminations |
| 10 | Cross-check note completeness without substituting approvals | Final AS 18 note and links to other compliance registers |
Sixteen practitioner FAQs
1. Is the Companies Act section 188 list sufficient for AS 18?
No. Apply AS 18’s own relationship definitions and disclosure requirements. Keep company-law and tax conclusions separately traceable.
2. Is AS 18 the applicable standard for every Indian company?
First determine the reporting framework. Ind AS reporters use their applicable Ind AS requirements, while entity-specific AS relief also needs review.
3. Does every enterprise called small obtain non-company relief?
No. The current ICAI non-company classification uses MSMEs and Large entities. AS 18 exemption additionally requires the ₹50 crore turnover, ₹10 crore borrowings and holding/subsidiary conditions in the revised announcement, together with applicable transition and disclosure requirements. Companies Act small-company status is a different test.
4. Does 20% voting power automatically mean control?
No. The standard distinguishes majority/control tests from substantial interest and the presumption of significant influence.
5. Can a holding below 20% still involve significant influence?
Yes. Assess governance, agreements, policy participation and other relevant evidence rather than stopping at the percentage.
6. Are two companies always related if they share a director?
Not merely for that reason. Apply the standard’s qualification concerning the director’s ability to affect their policies in mutual dealings.
7. Is an economically important customer automatically related?
No. Economic dependence from a large transaction volume alone is not the AS 18 relationship test.
8. Who is key management personnel?
Assess authority and responsibility for planning, directing and controlling the reporting enterprise. Job title alone is not decisive.
9. Can a transaction exist without a price?
Yes. The definition covers resource or obligation transfers whether or not a price is charged. Recognition and measurement still need their own accounting analysis.
10. Is the 10% denominator company turnover?
No. The ordinary size screen uses total related-party transactions of the same type. Do not mix unrelated transactions or different natures to dilute it.
11. Does exactly 10% become immaterial automatically?
No. It does not exceed the numeric indicator, but materiality also depends on nature and circumstances.
12. Can a 4% unusual transaction need separate disclosure?
Yes. A smaller transaction can be material by nature, particularly outside the normal course of business.
13. Can goods purchases and fixed-asset purchases be combined?
Do not aggregate them in a way that obscures their different nature or significant individual transactions. The standard expressly distinguishes these categories.
14. Is a closing net receivable sufficient disclosure?
No. Reconcile transaction volume, relevant outstanding items, doubtful-debt provision and write-off/write-back information as required.
15. Does no transaction mean no control-relationship disclosure?
No. Paragraph 21 requires the name and nature of a control relationship irrespective of transactions, subject to applicable standard exceptions.
16. Does the consolidated intra-group exception apply to separate statements?
No. Maintain the separate-company transaction disclosures and a distinct consolidation view with appropriate eliminations and exception analysis.
Working-paper organisation
Keep the source documents, calculation and final conclusion together for the same entity and period. If using assureFinancials or other assureOffice tools, use only confirmed available functions and retain this evidence with the output.
Conclusion
Start with the relationship map, then reconcile each transaction type to outstanding items and debt adjustments. Use the numeric screen with qualitative judgment and preserve both separate-company and consolidated conclusions.