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GAAP For Non-Profits › General Reporting Matters

Related Party Transactions

A related party is one that is either directly or indirectly able to significantly influence another party. This significant influence may exist where there is an economic interest, significant influence, control, joint control, common management or where immediate family members are involved in the management or directorship of another entity. If the relationship existed before a transaction, the transaction is considered to be a related party transaction.

The recommendations applicable to these transactions and balances do not specify the measurement basis to be used but only the required disclosures. These recommendations do not apply to:

  • management remuneration, including any expense allowances
  • transactions eliminated on consolidation

Disclosures Required

The Relationship

The description would preferably be specific, describing the relationship using terms like "significant influence," and "control" as opposed to less descriptive terms like "affiliated." Also it may be desirable to include a description of how the relationship arises, for example, through representation on the Board of Directors.

Transactions and the Recorded Amounts

Even where no amount has been recorded in the financial statements, transactions and balances should be described. Transactions and balances that are insignificant or immaterial, both in quantitative and qualitative terms, may be excluded from this disclosure. Disclosure would preferably aggregate individual financial statement items like accounts payable and accounts receivable.

The Measurement Basis

As mentioned, the measurement basis has not been specified by the related party standards, however the basis used: whether it be carrying value, fair value or otherwise should be disclosed.

Amounts Due to or From Related Parties; Contractual Obligations; and Contingencies

These balances should be presented separately. Also, it may be desirable to describe the transactions or events resulting in related party balances. (4460.07)

Sample Note Disclosure for Related Party Transactions:

Included in expenses is $5,000 paid to Organization X for use of its facilities in Xtown. For accounting purposes, Organization X is considered to be a controlled organization as Reporting Organization has the ability to elect all of Organization X’s Board of Directors. Organization X charges Reporting Organization for the use of its facilities on a cost recovery basis.