ASC 850
Active
Related Party Disclosures
Requires disclosure of related party relationships and transactions to ensure transparency in financial reporting.
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Conceptual Framework Linkage
Transparency about who an entity really transacts with
Transactions between an entity and its RELATED PARTIES (management, significant owners, affiliated entities) may not always occur on genuinely ARM'S-LENGTH terms – a related party transaction might be priced, timed, or structured differently than it would be between unrelated parties. ASC 850 doesn't change HOW such transactions are measured or recognised (that's determined by whatever OTHER Topic governs the transaction type) – it simply requires DISCLOSURE, so financial statement users can identify and evaluate these relationships and transactions for themselves.
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Scope – Who Is a Related Party?
Control, significant influence, or common ownership
ASC 850 applies to ALL entities preparing financial statements under US GAAP, requiring identification of RELATED PARTIES – broadly, parties that can CONTROL or SIGNIFICANTLY INFLUENCE the reporting entity's management or operating policies, or vice versa, such that they might not act in their own separate best interests.
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Related Party Definition – Common Categories
Who typically qualifies
CategoryDescription
AffiliatesEntities that control, are controlled by, or are under common control with the reporting entity
Equity method investeesEntities in which the reporting entity has significant influence
Principal ownersOwners of more than 10% of the entity's voting interests
ManagementPersons responsible for achieving the entity's objectives, including their immediate family members
Other partiesAny party able to significantly influence management or operating policies such that an arm's-length transaction might not result
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No Special Measurement – Disclosure Only
The transaction is still measured under its own Topic's rules
ASC 850 does NOT itself REQUIRE (or preclude) any special RECOGNITION or MEASUREMENT treatment for related party transactions – a related party sale is still measured under ASC 606, a related party loan still measured under the applicable financial instruments guidance, and so on. ASC 850's role is purely to require adequate DISCLOSURE of the relationship and the transaction, so readers can judge for themselves whether the terms appear arm's-length.
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Required Disclosures
Nature, amounts, and balances
For MATERIAL related party transactions, ASC 850 requires disclosure of: the NATURE of the relationship; a DESCRIPTION of the transactions, including transactions with no amounts ascribed to them; the DOLLAR AMOUNT of transactions for each period presented; and AMOUNTS DUE TO/FROM related parties as of each balance sheet date, including terms and manner of settlement.
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The Key Divergence – IAS 24's Key Management Personnel Compensation Categorisation
A more granular, mandatory compensation breakdown that ASC 850 doesn't require
IAS 24 REQUIRES disclosure of KEY MANAGEMENT PERSONNEL (KMP) compensation broken down into SPECIFIC, MANDATORY CATEGORIES: short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits, and share-based payment – a genuinely PRESCRIPTIVE categorisation structure. ASC 850 is LESS PRESCRIPTIVE – it does NOT mandate this SAME granular breakdown of management/executive compensation by category within its related party disclosures (though executive compensation disclosure requirements DO exist elsewhere, notably in SEC proxy disclosure rules for public companies, which are a SEPARATE regulatory requirement, not an ASC 850 requirement itself). This is a genuine, worth-noting divergence in disclosure GRANULARITY and STRUCTURE between the two frameworks' related party standards specifically.
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Worked Example – Related Party Disclosure
Disclosing a related party lease
Example: An entity leasing warehouse space from its CEO
An entity leases warehouse space from a company wholly owned by its CEO, paying $240,000 in annual rent – comparable to, but not independently benchmarked against, market rates in the area.
The entity DISCLOSES: the NATURE of the relationship (lessor is wholly owned by the entity's CEO); a DESCRIPTION of the arrangement (warehouse lease); the DOLLAR AMOUNT of rent paid each period ($240,000 annually); and any amounts DUE TO/FROM the related lessor as of the balance sheet date (e.g. any unpaid rent or security deposit balance). The lease itself continues to be MEASURED under ASC 842's normal lessee accounting rules – ASC 850 doesn't change that measurement, only requires the disclosure.
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Disclosure Requirements (Detailed)
What ASC 850 requires
Nature of the relationship(s) involvedDescription of transactions, including those with no dollar amountsDollar amount of transactions for each period an income statement is presentedAmounts due to/from related parties, terms, and manner of settlement
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Identifying all related parties, particularly less obvious "other parties" able to exert significant influenceAssessing materiality of related party transactions for disclosure purposes
SIGNIFICANT ESTIMATES
Generally minimal – this Topic is disclosure-focused rather than measurement-focused
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ASC 850 vs IAS 24 – Comprehensive Comparison
Comparison – ASC 850 vs IAS 24
FeatureUS GAAP (ASC 850)IFRS (IAS 24)
Special measurement/recognitionNONE – disclosure onlyNONE – disclosure only, converged approach
Basic related party definitionControl, significant influence, principal owners, managementBroadly similar – control, joint control, significant influence, KMP
KMP compensation disclosureNOT separately mandated by category within ASC 850 itselfREQUIRED, broken into specific mandatory categories (short-term, post-employment, other long-term, termination, share-based payment)
Government-related entity exemptionNo equivalent broad exemptionIAS 24 provides a partial exemption for entities related solely through government control
The KMP compensation categorisation gap is the most consequential remaining divergence – IAS 24's approach gives readers a genuinely more granular, standardised breakdown of executive compensation than ASC 850 mandates on its own.
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Statement Mapping
Where ASC 850 disclosures land
EventStatement(s) affectedNotes
Related party transaction disclosureNotes onlyThe underlying transaction itself is recognised/measured under its own applicable Topic
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Related Topics
Cross-reference map
TopicConnection
ASC 810Consolidation – supplies the control concepts underlying related party identification for affiliates
ASC 323Equity method investees are a common category of related party
ASC 718Governs measurement of share-based payments, a component of KMP compensation under IAS 24's more granular disclosure
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Glossary
Related party
A party able to control or significantly influence the reporting entity's management or operating policies, or vice versa.
Principal owner
An owner of more than 10% of an entity's voting interests, a specifically named related party category under ASC 850.
Key management personnel (KMP)
Individuals with authority and responsibility for planning, directing, and controlling an entity's activities – the subject of IAS 24's mandatory compensation categorisation, not separately required in the same structured way under ASC 850.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows