The term related-party transaction is used to describe an arrangement between two entities that had a special relationship and subsequently conducted business together. Related-party transactions are typically associated with service agreements between a parent company and subsidiaries.
Generally Accepted Accounting Principles require companies to disclose transactions that occur between related parties. Specific guidance can be found in FASB Statement of Financial Accounting Standards No. 57 - Related Party Disclosures. Publicly-traded companies are required by federal laws under the jurisdiction of the Securities and Exchange Commission (SEC) to disclose certain operating and financial information on an ongoing basis. As part of its Form 10-K filing, companies must disclose material transactions that occur between:
The types of transactions that are subject to disclosure include those that occur during the normal course of business such as:
Finally, the disclosures must include the following types of information:
Management's Discussion and Analysis, Critical Accounting Estimates, Liquidity and Capital Resources, variable interest entities, financing receivables, asset retirement obligation, mine safety disclosures