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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

General Accounting

The Financial Reporting Entity
Related Parties

GASB 62, paragraphs 54 through 57, provides guidance on the disclosure requirements of transactions that occur between related parties. As defined by GASB 62, paragraph 57, a related party is one that either:

  • Can significantly influence the management or operating policies of the transacting parties (for example, through imposition of will)
    –OR–
  • Has an ownership interest in one of the transacting parties and can significantly influence the other to the extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests

A related party can be:

  • A government’s related organizations, joint ventures and jointly governed organizations, as defined in GASB 14, as amended
  • Elected and appointed officials of the government
  • The government’s management
  • Members of the immediate families of elected or appointed officials of the government and its management
  • Other parties with which the government may deal if one party can significantly influence the management or operating policies of the other to the extent that one of the transacting parties might be prevented from fully pursuing its own separate interests

Examples of related party transactions include:

  • Borrowing or lending on an interest-free basis or at a rate of interest significantly different than rates in effect at the transaction date
  • Selling real estate at a price that differs significantly from its appraised value
  • Exchanging property for similar property in a nonmonetary transaction
    –OR–
  • Making loans with no scheduled repayment terms

A related party transaction occurs if the relationship between the parties to a transaction is so close that an informed observer might conclude that one or both parties would be reluctant to fully pursue its own interests. These transactions would be outside the ordinary course of operations between the related parties, as opposed to arm’s-length transactions.

Do not presume that transactions involving related parties are carried out on an arm’s-length basis because the conditions of independent dealings may not exist. Disclose transactions such as real estate sales, leases at amounts that differ significantly from fair market value, purchases from or contracts with related parties or a transaction with an outside organization where an agency head serves on the board.

For further information on the note disclosure requirements for related parties, see Related Parties in Note 19 — The Financial Reporting Entity. Also, a copy of GASB 62 may be purchased from the GASB store or a PDF version may be downloaded from the Pronouncement’s page of GASB’s website.

Note: Related parties do not include foundations or alumni associations that were established for fundraising on behalf of the universities.

Glenn Hegar
Texas Comptroller of Public Accounts
Questions? Contact statewide.accounting@cpa.texas.gov
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