The accounting standard will come into effect from April 1, 2001.Companies will also be required to disclose names of other companies which have common ownership or directors having substantial interest.

Disclosures of transactions pertaining to related party will come under Accounting Standard (AS) 18 of the Indian Accounting Standards. The requirements of the statement apply to the financial statements of each company and also to the consolidated financial statements presented by a holding company.

The accounting standard has already been cleared by the ICAI council board and the accounting standard board will give the final go-ahead at its meeting on August 29.

As per the ICAI guidelines, "a related party is considered to be a related party if at any time during the accounting period, one party has the ability to control the other party or exercise significant influence over the other party in making financial and/or operating decisions."

As a result of making the disclosure of relation between the related parties and transaction between them mandatory, the balance sheet will bring to light the common directorship of a director with substantial interest in two or more companies and any financial transaction between these companies. The move is aimed to curb any undue benefits derived by a company because of a common ownership or directorship with substantial interest. An individual or a company is considered to have a substantial interest in another company if that company or individual owns 20 per cent or more interest in the voting power.

The move is expected to substantially improve the transparency in the company's balance sheet and aims at clearly showing the relation between the corporates and its directors and the transactions between them.

As per the ICAI guidelines, the balance sheet will also contain details of transactions with companies in which the directors have a substantial interest.

However, the guidelines do not call for any disclosure in consolidated financial statements in respect of intra-group transactions. Further, no disclosure pertaining to related parties in financial statements is required in the case of public sector enterprises.

ICAI believes that persons having multiple directorships in various companies are often expected to influence the decision making process, policy-making process and material inter-company transactions, which is expected to affect the company's financial performance. Thus the disclosure aims at providing the investor true picture of the company and its relation with other companies with whom it has transacted.

The mere existence of the relationship may be sufficient to affect the transactions of a company with other parties.

The move aims at bringing to light the transactions with directors or other key management personnel of a company and giving details like their remuneration and borrowings.