The
Companies Act 2013 defines a Key Management Personnel (KMP) in
Section 2(51) as follows:
[(51) “key managerial personnel”, in relation to a company, means—
(i) the Chief Executive Officer or the Managing Director or the
Manager,
(ii) the Company Secretary;
(iii) the whole time director;
(iv) the Chief Financial Officer,
(v) such other officer as may be prescribed;
This section
came into force on 12th September 2013.
Accounting
Standard 18 defines a KMP as:
[14.
Key management personnel are those persons who have the authority and
responsibility for planning, directing and controlling the activities of the
reporting enterprise. For example, in the case of a company, the managing
director(s), whole time director(s), manager and any person in accordance with
whose directions or instructions the board of directors of the company is
accustomed to act, are usually considered key management personnel.]
In drawing
up the balance sheet of the company, we have to comply with the Accounting
Standards. Accounting Standard 18 doesn’t define a related party in a very
specific manner. The way AS 18 defines a related party--“manager and any other
person in accordance with whose directions the Board is accustomed to act”--gives
the companies a great deal of leeway to decide for themselves whether the CEO, the
CFO, the CS, etc are people who issue directions/instructions to the Board. There
is hardly any company in India that lists as their KMP officers/managers other
than the Executive Directors of the company.
But now
with Section 2(51) of the new Companies Act having been effectuated on 12th
September 2013, should we report the remuneration drawn by the CFO and the CS
in the year 2013-14 as related party transactions?
I have
looked up the annual reports of Reliance and Infosys. Reliance has not treated
their CFO and CS as related parties. But Infosys has reported their CFO and the
CS as related parties.
In my
view, Infosys did the right thing. But Reliance did not.
What do you have to say?
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