ASPE Section 3840
Active
Related Party Transactions
Related Party Transactions is part of the Accounting Standards for Private Enterprises (ASPE).
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Conceptual Framework Linkage
Prescribing both disclosure AND measurement for related party dealings
ASPE Section 3840 governs the IDENTIFICATION, MEASUREMENT, and DISCLOSURE of RELATED party TRANSACTIONS – TRANSFERS of RESOURCES, obligations, OR services BETWEEN an ENTERPRISE and PARTIES it IS related TO. GENUINELY distinctively, THIS Section ACTIVELY prescribes a SPECIFIC measurement BASIS (Section 4), RATHER than being a PURELY disclosure-ORIENTED standard THE way IAS 24 IS internationally.
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Scope – Defining a Related Party
A principles-based test, not a bright-line ownership threshold
A RELATED party is a PARTY subject to COMMON control, MANAGEMENT, or OTHER influence to the EXTENT that ONE party MIGHT be PREVENTED from fully PURSUING its OWN separate INTERESTS – a BROADER, more PRINCIPLES-based definition THAN a SIMPLE bright-line OWNERSHIP percentage TEST alone.
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Common Related Party Relationships
Control, common control, and significant influence relationships
Parent and subsidiary relationshipsEntities under common control (e.g. sister companies owned by the same individual or family)Key management personnel, and their close family membersEntities where significant influence exists, even absent control
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THE MEASUREMENT PRINCIPLE – Carrying Amount as the Default
No gain or loss recognized, absent specific conditions
RELATED party TRANSACTIONS in the NORMAL course OF operations are MEASURED at the CARRYING amount (the TRANSFEROR'S existing BOOK value) – NOT fair VALUE – UNLESS specific CONDITIONS are MET (Section 5). THIS default REFLECTS a GENUINE skepticism THAT related-PARTY dealings, GIVEN the INHERENT lack OF arm's-LENGTH bargaining, RELIABLY establish a GENUINE fair-VALUE exchange AMOUNT.
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When the Exchange Amount Is Used Instead
Clear evidence of substantive economic effect
THE EXCHANGE amount (the AMOUNT actually AGREED to BY the RELATED parties) is USED instead OF carrying AMOUNT where THERE is CLEAR evidence THAT the TRANSACTION has SUBSTANTIVE economic SUBSTANCE – FOR example, WHERE the TRANSACTION reflects a GENUINE change IN economic ownership INTEREST between UNRELATED third PARTIES, OR is SUPPORTED by INDEPENDENT evidence OF fair VALUE (SUCH as a THIRD-party appraisal OR a GENUINELY competitive BIDDING process).
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Why ASPE Prescribes Measurement at All
Guarding against artificially inflating reported results through related-party dealings
GIVEN private ENTERPRISES frequently ENGAGE in TRANSACTIONS with FAMILY members, AFFILIATED entities, OR key MANAGEMENT personnel – RELATIONSHIPS where GENUINE arm's-LENGTH bargaining CANNOT be ASSUMED – ASPE'S standard-SETTERS concluded that MERELY requiring DISCLOSURE (the IAS 24 APPROACH) would be INSUFFICIENT to PREVENT related-PARTY transactions FROM artificially INFLATING reported EARNINGS or ASSET values. PRESCRIBING carrying-AMOUNT measurement AS the DEFAULT provides a MEANINGFUL substantive SAFEGUARD, RATHER than RELYING solely ON transparency THROUGH disclosure.
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Transactions in the Normal Course of Operations
A qualifying scope for the measurement principle
THE carrying-AMOUNT default APPLIES to RELATED party TRANSACTIONS occurring IN the NORMAL course OF the enterprise'S OPERATIONS – ROUTINE, RECURRING transactions BETWEEN related PARTIES, RATHER than ONE-OFF, non-RECURRING events (WHICH may WARRANT separate CONSIDERATION on THEIR own SPECIFIC facts).
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Worked Example – a Related Party Sale Measured at Carrying Amount
No gain recognized, despite an apparent fair value premium
Example: A sale between commonly controlled sister companies
Company A sells equipment (carrying amount $300,000) to Company B, a sister company under common family ownership, for $380,000 – a price the family patriarch set without any independent appraisal or competitive process.
GIVEN this IS a ROUTINE related-PARTY transaction WITHOUT clear EVIDENCE of SUBSTANTIVE economic EFFECT, Company A records the SALE at the $300,000 CARRYING amount – NO gain is RECOGNIZED, DESPITE the $380,000 cash RECEIVED, WITH the DIFFERENCE effectively TREATED as an EQUITY-like transfer RATHER than genuine SALES income.
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Worked Example – an Exchange Amount Transaction With a Substantive Change in Ownership
Independent evidence supporting the agreed price
Example: A related party sale supported by an independent appraisal
A company sells a property (carrying amount $1,200,000) to a related party for $1,650,000 – a price supported by an independent third-party appraisal obtained specifically for the transaction, as part of a genuine, substantive restructuring of family ownership interests.
GIVEN the CLEAR, independent EVIDENCE of the PRICE'S fair-VALUE basis and THE substantive CHANGE in OWNERSHIP involved, the COMPANY measures the SALE at the $1,650,000 EXCHANGE amount, RECOGNIZING a $1,650,000 − $1,200,000 = $450,000 gain.
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Disclosure Requirements
What Section 3840 requires
Description of the relationship between the parties, and the nature of the transactionAmount of the transaction, and the measurement basis used (carrying amount or exchange amount)Amounts due to or from related parties, and the terms of settlement
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Critical Judgments & Estimates
Where judgment matters most
SIGNIFICANT JUDGMENTS
Whether a party is genuinely "related" under the principles-based definitionWhether clear evidence of substantive economic effect exists, justifying exchange-amount measurement
SIGNIFICANT ESTIMATES
Generally minimal – the measurement basis itself (carrying amount) typically avoids the need for fair value estimation
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Relationship to IAS 24
Comparison – ASPE Section 3840 vs IAS 24
FeatureASPE Section 3840IAS 24
Prescribes measurementYES – carrying amount defaultNO – purely a disclosure standard
Disclosure of relationships and transactionsRequiredRequired – converged
A GENUINELY fundamental DIVERGENCE in STANDARD design – DESPITE the SIMILAR name and OVERLAPPING subject MATTER, ASPE'S Section 3840 is a SUBSTANTIVELY different, MORE prescriptive STANDARD than ITS IFRS namesake.
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Statement Mapping
Where every related party event lands
EventStatement(s) affectedNotes
Transaction at carrying amountBSNo gain or loss recognized
Transaction at exchange amountBS ISGain or loss recognized, given substantive economic effect
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Related Standards
Cross-reference map
SectionConnection
Section 1591Subsidiaries – supplies the control-relationship concepts underlying this Section's definition of a related party
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Quick-Reference Glossary
Exchange amount
The amount actually agreed to by related parties in a transaction, used as the measurement basis where clear evidence of substantive economic effect exists.
Carrying amount
The transferor's existing book value, used as the default measurement basis for related party transactions in the normal course of operations.
Financial statement key (ASPE terminology)
BS Balance Sheet
IS Income Statement
SRE Statement of Retained Earnings / Statement of Changes in Equity
SCF Cash Flow Statement