Which of the following would be classified as a related party transaction?

 See AS 2805.06l, which requires the auditor to obtain written representations from management if the financial statements include such an assertion. Representations from management alone are not sufficient appropriate audit evidence. See also paragraphs .18–.19 of AS 3105, Departures from Unqualified Opinions and Other Reporting Circumstances.

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 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.

The objective of IAS 24 is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances, including commitments, with such parties.

A related party is a person or an entity that is related to the reporting entity: 

• A person or a close member of that person’s family is related to a reporting entity if that person has control, joint control, or significant influence over the entity or is a member of its key management personnel.
• An entity is related to a reporting entity if, among other circumstances, it is a parent, subsidiary, fellow subsidiary, associate, or joint venture of the reporting entity, or it is controlled, jointly controlled, or significantly influenced or managed by a person who is a related party. 

A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. If an entity has had related party transactions during the periods covered by the financial statements, IAS 24 requires it to disclose the nature of the related party relationship as well as information about those transactions and outstanding balances, including commitments, necessary for users to understand the potential effect of the relationship on the financial statements.

IAS 24 requires an entity to disclose key management personnel compensation in total and by category as defined in the Standard.

Related party transactions are conducted with other parties with which an entity has a close association. The disclosure of related party information is considered useful to the readers of a company’s financial statements, particularly in regard to the examination of changes in its financial results and financial position over time, and in comparison to the same information for other businesses.

Examples of Related Parties

Examples of related parties are affiliates, other subsidiaries under common control, owners of the business, its managers, and their families, the parent entity, and trusts for the benefit of employees.

Types of Related Party Transactions

There are many types of transactions that can be conducted between related parties, such as sales, asset transfers, leases, lending arrangements, guarantees, allocations of common costs, and the filing of consolidated tax returns.

Related Party Disclosures

In general, any related party transaction should be disclosed that would impact the decision making of the users of a company’s financial statements. This involves the disclosures noted below. Depending on the transactions, it may be acceptable to aggregate some related party information by type of transaction. Also, it may be necessary to disclose the name of a related party, if doing so is required to understand the relationship.

General Disclosures

Disclose all material related party transactions, including the nature of the relationship, the nature of the transactions, the dollar amounts of the transactions, the amounts due to or from related parties and the settlement terms (including tax-related balances), and the method by which any current and deferred tax expense is allocated to the members of a group. Do not include compensation arrangements, expense allowances, or any transactions that are eliminated in the consolidation of financial statements.

Control Relationship Disclosures

Disclose the nature of any control relationship where the company and other entities are under common ownership or management control, and this control could yield results different from what would be the case if the other entities were not under similar control, even if there are no transactions between the businesses.

Receivable Disclosures

Separately disclose any receivables from officers, employees, or affiliated entities.

When disclosing related party information, do not state or imply that the transactions were on an arm’s-length basis, unless you can substantiate the claim.

What are considered related party transactions?

Who are considered as related parties?

What is considered a related party in accounting?

Which of the following would not be classified as related party transaction?