Corporate disclosures to include live-in relationships from next year

NEW DELHI: Corporate disclosures from the next financial year will include details of transactions between top managers and their domestic partners, with the country’s apex body on accounting standards clearing a move that, for the first time, recognises live-in relationships.

Existing accounting norms on ‘related party disclosures’ define a relative as the spouse, son, daughter, brother, sister, father and mother who may influence an individual’s dealings with a company. The international financial reporting standards (IFRS), coming into force from April 2011, has domestic partners also among the list of relatives.

“The national advisory committee on accounting standards (NACAS) has made a recommendation in this regard,” said an official with the ministry of corporate affairs.

Companies need to disclose transaction of its top managers with domestic partners in annual reports, he said, requesting anonymity.

The term ‘domestic partner’ will find a mention in the revised accounting standard although it may not be clearly defined as to who would fall under this category.

The move, however, does not provide legal sanctity to such relationships, as an accounting norm does not have the force of law. The issue of the rights of live-in partners is being debated in a case pending before the Supreme Court. A twojudge bench of the court had favoured a broad meaning of the term ‘wife’ to include live-in partners , in the context of awarding maintenance to deserted women. The bench, however, referred the issue to be settled by the larger bench of the apex court.

The Institute of Chartered Accountants of India (ICAI), in its exposure draft on accounting standard AS-18 issued this year, mentioned the term ‘domestic partner’ as a close family member who may be expected to influence a person in his dealings with an entity.

ICAI president Amarjit Chopra said NACAS has suggested that the term ‘domestic partner’ should be there in the list of relatives. NACAS –– a body of experts formed by the ministry of corporate affairs –– is the final authority in clearing new accounting standards as well as revising existing ones.

Accounting experts say the new norm could create confusion in the absence of a clear definition to the term ‘domestic partner’ , which means a relationship between two individuals who live together and share a common domestic life but are neither joined by marriage or a civil union.

“With no clear definition of domestic partnership , it may be interpreted according to the customs and circumstances, said Dolphy D’Souza , partner at Ernst & Young.

“This is a typical example of how culture can influence the drafting of accounting standards in different jurisdictions,” he said.

In some jurisdictions like Australia, New Zealand and some states of the US such as Oregon, Washington, Nevada, and California, domestic partnerships are treated at par with marriages.

Related party transactions are defined as transfer of resources or obligations between related parties, regardless of whether or not a price is charged. As per the existing Indian accounting standard, a related party include holding companies and subsidiaries, associates and joint ventures and individuals such as key management personnel and their relatives.

The current accounting norm in this regard, AS-18 , came into effect from April 2001. From 2004, compliance with the standard was made mandatory for all listed companies, banks, financial institutions and insurance companies.
As per the roadmap laid out by the ministry of corporate affairs, companies with a net worth of over Rs 1,000 crore, will have to prepare their accounts as per the IFRS from April 2011. Banks and insurance companies have been exempted from complying with these norms for the first year.

The government on Tuesday expressed confidence that the IFRS rollout is on schedule.

“By the end of December, we will notify the converged accounting norms. All issues are almost resolved and we are confident that by the next fiscal, Indian companies will prepare their accounts as per IFRS,” said R Bandyopadhayay, secretary at the ministry of corporate affairs.