A related-party transaction can be handled correctly for company-law approval and still be handled incorrectly in the financial statements. The reverse is also true: putting a transaction into an Ind AS 24 note does not tell you whether Section 188 approval was required. The two frameworks are connected, but they answer different questions.
The short answer: disclosure and approval are separate tests
Ind AS 24 is a financial-reporting standard. ICAI describes it as prescribing principles for identifying related parties and specifying disclosures for related-party relationships, transactions and outstanding balances, including commitments. See ICAI’s 2026 Educational Material announcement on Ind AS 24 and the ICAI publication page.
Section 188 is a Companies Act governance rule for specified contracts and arrangements. The live ICSI Companies Act e-book sets out seven categories, including sale or purchase of goods, property transactions, leasing, services, agency arrangements, office or place of profit, and underwriting. For covered transactions it starts with Board consent, subject to the prescribed conditions and statutory exceptions. See Section 188 in the ICSI Companies Act e-book.
That difference in purpose is the key. Ind AS 24 asks what must be identified and disclosed so users of financial statements can understand related-party effects. Section 188 asks whether a particular company-law relationship and transaction falls into its approval framework. A single related-party register can support both exercises, but it should not be treated as the legal conclusion for both.
Why one related-party list is not enough
The Companies Act uses its own statutory definition of “related party” in Section 2(76). The current text can be reviewed in the ICSI e-book’s Section 2 definitions. Ind AS 24, by contrast, applies its own accounting-standard related-party concepts for financial reporting.
The practical consequence is simple: do not copy the financial-statement related-party list into the Section 188 file and assume the approval analysis is finished. Equally, do not build the Ind AS 24 note only from parties that appeared in Board approval papers. Each framework needs its own applicability conclusion.
Section 188 has an extra transaction screen that Ind AS 24 does not
Even after a counterparty is identified as a related party under the Companies Act, Section 188 does not automatically apply to every dealing with that party. The transaction must first fit one of the categories listed in Section 188(1). The provision also states that its subsection does not apply to transactions entered into in the ordinary course of business when they are on an arm’s-length basis.
If the Section 188 exception is not available, the next step is to apply the current prescribed approval conditions. The ICSI e-book page for Rule 15 of the Companies (Meetings of Board and its Powers) Rules contains the current rule text. This article deliberately does not reproduce a numeric threshold table because those prescription-based limits should be checked from the live rule for the transaction date rather than copied from an old checklist.
None of those company-law steps replaces the Ind AS 24 exercise. A conclusion that a transaction is ordinary-course and arm’s-length for Section 188 is an approval conclusion; it is not, by itself, a financial-reporting conclusion that the related-party relationship or transaction can be omitted from the Ind AS 24 assessment.
A worked example shows the difference
Hypothetical example: An Ind AS-reporting company regularly buys IT support services from an entity connected with a person in its management structure. The finance and secretarial teams should not start by asking only whether the invoice is “arm’s length”.
For the Companies Act file, the team should first determine whether the supplier is a related party under Section 2(76), whether the service arrangement falls within Section 188(1), and whether the ordinary-course and arm’s-length exception applies. If Section 188 remains applicable, the team should then apply the current approval rules.
For the financial statements, the team separately tests the relationship under Ind AS 24 and captures the information required for the related-party disclosure process. If the Section 188 exception applies, that does not automatically end the Ind AS 24 analysis. Conversely, if the transaction appears in the Ind AS 24 related-party note, that fact alone does not prove that Section 188 Board or member approval was required.
A dual-track workflow is safer than a single RPT checklist
- Build the relationship population. Start from ownership charts, directors and KMP information, group entities and declarations, but record separately how each party qualifies under Ind AS 24 and under the Companies Act.
- Run the Section 188 transaction test. Map the contract or arrangement to the statutory categories instead of assuming every related-party ledger entry is a Section 188 transaction.
- Document the exception analysis. Where relevant, support ordinary course and arm’s-length conclusions separately. Commercial routine and pricing are not the same question.
- Check live approval requirements. If Section 188 applies, use the current rule text and company-specific facts before deciding whether Board or company approval is required.
- Run the Ind AS 24 disclosure process independently. Capture the relationship, transactions, balances and commitments needed for financial reporting without using the Section 188 approval file as the only data source.
- Reconcile, do not merge. At year end, compare the two populations and investigate differences. A difference may be legitimate; what matters is that it is explained and documented.
Build a bridge schedule between the two files
At year end, do not ask the finance and secretarial teams to force their populations into one “RPT” list. Use a bridge schedule that preserves the reason for each difference:
| Bridge column | Ind AS 24 file | Section 188 file | Reviewer question |
|---|---|---|---|
| Relationship basis | Accounting-standard definition and relationship | Section 2(76) relationship | Does the party qualify under one framework, both or neither? |
| Transaction screen | Transaction, balance or commitment captured for disclosure assessment | One of the seven Section 188 contract or arrangement categories | Is the difference caused by scope rather than an omission? |
| Relief or exception | Disclosure requirements assessed under Ind AS 24 | Ordinary-course and arm’s-length exception or another applicable statutory relaxation | Is the conclusion supported by facts and the current rule text? |
| Output | Financial-statement note and supporting reconciliation | Board/member approval and Board-report records, where applicable | Can each output be traced back to the same contract and ledger data? |
For every material difference, record a short reason code such as “Ind AS-only relationship”, “not a Section 188 category”, “ordinary-course and arm’s-length exception supported”, or “Section 188 approval item pending Ind AS disclosure assessment”. An unexplained blank is not a reconciliation.
What the final reviewer should be able to trace
- the party’s relationship conclusion under each framework;
- the contract category and exception analysis under Section 188;
- the approval evidence, including the Rule 15 information where applicable;
- the Ind AS 24 transaction, balance and commitment data used for the financial statements; and
- the reason every item appears in one population but not the other.
For the accounting side, use the Ind AS 24 year-end disclosure guide. For the governance side, the Section 188 approval and arm’s-length guide covers the statutory workflow in more detail. This comparison remains the bridge between those two workstreams, not a substitute for either.
