What are 'related party transactions'?

Related party transactions refer to transfers of resources, services, or obligations between parties that have a pre-existing relationship. This relationship can occur through ownership, control, or familial ties, meaning that one party is influenced by or has the ability to influence the other. Recognizing related party transactions is essential because they can impact the financial statements and the economic decisions of users. They can also result in conflicts of interest and may not occur under normal market conditions, potentially leading to non-arm's length pricing.

In accounting and financial reporting, it's important to disclose these transactions appropriately in the financial statements to provide transparency and ensure that stakeholders are aware of the potential implications. This ensures that the financial statements present a true and fair view of the company's financial position. Thus, the option stating that related party transactions include transfers of resources or obligations between related parties is accurate and aligns with the definitions used in financial reporting standards, such as IFRS and GAAP.