A transaction that is entered into by two parties who are related, i.e., they have some sort of connection prior to the transaction date. Such a transaction involves a transfer of economic resources, services, or obligations between the related parties (regardless of a whether a compensation/ price is charged). This may also result from outstanding balances with related parties. The related party may be a person or entity that is connected with the entity that is preparing it financial statements (the reporting entity), and as such has to disclose such a relationship.
Generally speaking, a related party transaction is one that involves two parties: one party can exercise control or significant influence over the operating policies of the other.
Examples of related-party transactions are one between a firm and a major shareholder or another between a manager of the reporting entity and a member of his/ her family.
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