Who is a related party under ASC 850?
Immediate family means family members who might control or influence a principal owner or a member of management, or be controlled or influenced by them, because of the family relationship, which usually includes spouses and often children and parents. Management includes directors, the chief executive and other officers who make policy decisions. Substance matters more than legal form: a party that can significantly influence the company through an arrangement other than ownership can also be related. See ASC 810 consolidation, since related parties also affect the variable interest model.
What does ASC 850 require companies to disclose?
- The nature of the relationship.
- A description of the transactions for each period presented, including transactions with no amounts or only nominal amounts, and other information needed to understand their effect.
- The dollar amounts of transactions for each period, and the effect of any change in the method of setting their terms.
- Amounts due to or from related parties at each balance sheet date and, if not otherwise apparent, their terms and how they will be settled.
- Where companies are under common control and that control could make results significantly different from those of an independent company, the nature of the control relationship, even with no transactions between them.
Compensation arrangements, expense allowances and similar items in the ordinary course of business are not required, and transactions eliminated in consolidated statements need not be disclosed in them. Public companies give related person and executive pay information outside the financial statements, under SEC rules.
ASC 850 in practice: a related party note
A private logistics company identifies four related party relationships for 2026. All amounts are in dollars.
| Transaction | Related because | Amount in 2026 | Balance at year end | Terms |
|---|---|---|---|---|
| Warehouse leased from an LLC owned by the CEO | Management | 360,000 | 30,000 | Rent paid; 30,000 due at year end |
| Loan from a shareholder owning 35% of the voting stock | Principal owner | 20,000 | 1,000,000 | Interest at 2% on a 1,000,000 loan due 2029 |
| Purchases from a 30%-owned equity method investee | Equity method investee | 2,400,000 | 180,000 | Bought on 60-day terms |
| Sales to a company owned by the CFO's spouse | Immediate family of management | 150,000 | 0 | Sold at list prices |
The note describes each relationship and transaction, gives the 2026 and 2025 amounts and the year-end balances, and explains the loan's terms. It does not claim that the warehouse rent is at market rates unless the company can support that, for example with an independent appraisal. The CEO's salary is not disclosed here, because ordinary compensation is excluded. See ASC 842 leases for how the related party lease itself is accounted for.
How are related party leases treated?
Leases between related parties are classified and measured on their legally enforceable terms, not on what the parties might informally do. ASU 2023-01 lets private companies use the written terms of leases between entities under common control to decide whether a lease exists, and requires leasehold improvements in such leases to be amortized over their useful life to the common control group. Private companies may also elect not to apply the variable interest model to some entities under common control, with extra disclosures.
Can a company say a related party deal was at arm's length?
Only if it can substantiate it. ASC 850 prohibits representations that related party transactions were on terms equivalent to those in arm's length transactions unless they can be supported. Auditors give related parties particular attention, so companies should keep a list of related parties and a process for capturing transactions with them.
How does ASC 850 compare with IAS 24?
IAS 24 requires key management personnel compensation to be disclosed in total and by category, which ASC 850 excludes, and offers a partial exemption for government-related entities. ASC 850 names principal owners of more than 10% explicitly, while IAS 24 relies on control, joint control and significant influence. Both require the nature of the relationship, the transactions and outstanding balances. See IAS 24 related party disclosures and IFRS vs US GAAP key differences.
Need help applying the standards?
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Questions people ask
Who is a related party under ASC 850?
Affiliates, equity method investees, employee benefit trusts managed by management, principal owners, management, their immediate families, and other parties that can significantly influence the entity.
What is a principal owner under ASC 850?
An owner of record or known beneficial owner of more than 10% of the entity's voting interests.
What must be disclosed about related party transactions under US GAAP?
The nature of the relationship, a description of the transactions, their dollar amounts, amounts due to or from related parties and their terms.
Does ASC 850 require disclosure of executive compensation?
No. Compensation arrangements and expense allowances in the ordinary course of business are excluded, though SEC registrants disclose pay under SEC rules.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- FASB Accounting Standards Codification: Topic 850, Related Party Disclosures
- Financial Accounting Standards Board
- PwC Viewpoint: Related parties, scope and relevant guidance
- Crowe: Identifying related-party disclosure requirements
Rules and fees change. If you are reading this long after October 21, 2026, confirm the figures with the source before you rely on them.
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This guide is general information. It is not tax or legal advice for your situation.