Question

The Financial Accounting Standards Board has provided guidance on disclosures of transactions between related parties, for example, transactions between subsidiaries of a common parent. GAAP regarding related-party transactions requires all of the following disclosures except

a) The nature of the relationship involved.
b) A description of the transactions for each period an income statement is presented.
c) The dollar amounts of transactions for each period an income statement is presented.
d) The effect on the cash flow statement for each period a cash flow statement is presented.

Answer 1

GAAP requires disclosure of the nature of the relationship, a description, and the dollar amounts of related-party transactions. The effect on the cash flow statement is not a required disclosure.

Step-by-step explanation:

The Financial Accounting Standards Board (FASB) requires certain disclosures for related-party transactions under Generally Accepted Accounting Principles (GAAP). These required disclosures include:

• The nature of the relationship involved between the parties.
• A description of the transactions for each period in an income statement is presented.
• The dollar amounts of transactions for each period in an income statement are presented.

However, GAAP does not require that the effect on the cash flow statement for each period a cash flow statement is presented be disclosed. This information can still be vital for users of financial statements in understanding the true economic implications of related-party transactions, but it is not a mandated disclosure by the FASB's GAAP.