Which of the following are required disclosures for related-party transactions?

ASC 850-10 notes the following:

The Related Party Disclosures Topic provides disclosure requirements for related party transactions and certain common control relationships. Accounting and reporting issues concerning certain related party transactions and relationships are addressed in other Topics.

Information about transactions with related parties is useful in comparing an entity’s results of operations and financial position with those of prior periods and with those of other entities. It helps users of financial statements to detect and explain possible differences.

Examples of related party transactions include those between:

1. A parent entity and its subsidiaries
2. Subsidiaries of a common parent
3. An entity and trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of the entity’s management
4. An entity and its principal owners, management, or members of their immediate families
5. Affiliates.

Transactions between related parties commonly occur in the normal course of business. Examples of common transactions with related parties are:

1. Sales, purchases, and transfers of real and personal property
2. Services received or furnished, such as accounting, management, engineering, and legal services
3. Use of property and equipment by lease or otherwise
4. Borrowings, lendings, and guarantees
5. Maintenance of compensating bank balances for the benefit of a related party
6. Intra-entity billings based on allocations of common costs
7. Filings of consolidated tax returns.

Transactions between related parties are considered to be related party transactions even though they may not be given accounting recognition. For example, an entity may receive services from a related party without charge and not record receipt of the services. While not providing accounting or measurement guidance for such transactions, this Topic requires their disclosure nonetheless.

Favorited Content

Publication date: 28 Feb 2022   

us Financial statement presentation guide 26.4

The disclosure provisions of ASC 850 are intended to enable users of financial statements to evaluate the nature and financial effects of related party relationships and transactions. In general, the disclosures outlined below are required when the financial statements include material related party transactions. However, related party transactions are subject to these disclosure requirements even if they are not given accounting recognition in the financial statements.

Related party transactions that occur in the ordinary course of business may not require the same extent of disclosure. In some situations, the relationship's effect on the financial statements may be pervasive enough that disclosing the relationship alone is sufficient. Regardless, SEC registrants need to include sufficient disclosure to address SEC requirements, including S-X 4-08(k).

It may be appropriate to aggregate similar transactions by type of related party. Before aggregating, the reporting entity should consider whether disclosure of the name of a related party is necessary for a user to understand the relationship.

Related party transactions eliminated in the preparation of consolidated or combined financial statements are not required to be disclosed in those statements.

ASC 850 provides guidance on related party disclosures.

Excerpt from ASC 850-10-50-1

The disclosures shall include:

1. The nature of the relationship(s) involved
2. A description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements
3. The dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period
4. Amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement
5. The information required by paragraph 740-10-50-17

ASC 740-10-50-17

An entity that is a member of a group that files a consolidated tax return shall disclose in its separately issued financial statements:

1. The aggregate amount of current and deferred tax expense for each statement of earnings presented and the amount of any tax-related balances due to or from affiliates as of the date of each statement of financial position presented
2. The principal provisions of the method by which the consolidated amount of current and deferred tax expense is allocated to members of the group and the nature and effect of any changes in that method (and in determining related balances to or from affiliates) during the years for which the above disclosures are presented

The above disclosures are incremental to the identification of related party transactions on the face of the financial statements.

26.4.1 Disclosures about common control relationships

A reporting entity may also need to consider whether to disclose common control ownership or common management with other entities, even if there have not been any transactions with those entities.

ASC 850-10-50-6

If the reporting entity and one or more other entities are under common ownership or management control and the existence of that control could result in operating results or financial position of the reporting entity significantly different from those that would have been obtained if the entities were autonomous, the nature of the control relationship shall be disclosed even though there are no transactions between the entities.

26.4.2 Disclosures about arm’s-length basis of transactions

Transactions involving related parties cannot be presumed to be at arm’s length. As discussed in ASC 850-10-50-5, a reporting entity should only disclose that a transaction was at arm’s length when it can substantiate such a representation.

For example, a reporting entity may want to disclose that a loan arrangement between the reporting entity and a related party is at arm’s length. Such disclosure would only be appropriate if the reporting entity is able to substantiate that the terms of the loan are equivalent to terms it would have obtained with an unrelated lender. Similarly, a reporting entity may sell services to third parties and related parties at the same rate. In this situation, the reporting entity may be able to substantiate that the transactions occur at arm’s length.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

• Table of contents

Please ensure
that you select
Print Background (colors and images) when printing.

Back to the Original document This view is read only. To access this content, click on "Go to content"

What are the disclosure requirements for related party transactions?

Is related party disclosure required?

Which will most likely would be considered as a related party transaction requiring disclosure?

Which of the following is a related party transaction?