Pub. 9 2018 Issue 1

www.wvbankers.org 22 West Virginia Banker A s calendar year-end audit season moves into full swing, you can expect to receive a request from your audit firm for your related party listing. Related parties can sometimes be a topic of confusion and gray area. While judgment may still be required when applying the standards to your entity, hopefully the overview below will provide clarity to the topic. Guidance FASB Accounting Standard Codification (ASC) 850, Related Party Disclosures, is the standard regarding related party transactions and the required disclosures. This standard applies to both public and private entities. The standard aims to provide transparency to financial statement readers regarding related party relationships and activity. Financial institutions are subject to the Federal Reserve Bank’s Regula- tion O requirements regarding extensions of credit (loans) to executive officers, directors and principal shareholders. An important distinction to note is the Regulation O definition is not the same as the FASB ASC 850 definition and should not be used in the determination of those designated as related parties for financial statement disclosure purposes. Identification of Related Parties and Regulatory Guidance ASC 850 cites example relationships involved in related party transactions as including: • A parent entity and its subsidiaries • Subsidiaries of a common parent • An entity and trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of the entity’s management • An entity and its principal owners, management, or mem- bers of their immediate families • Affiliates. Identification is not always easy; it can be complicated by the interpretations of the language used in the standard. Most often, the confusion stems from the definition of “immediate family.” The ASC Glossary defines immediate family as “fam- ily members who might control or influence a principal owner or a member of management, or who might be controlled or influenced by a principal owner or a member of management, because of the family relationship.” However, before you be- gin to interpret who may be related parties for your entity, you will need to consider which guidance applies to your entity. While ASC 850 applies to all entities, both public and private, SEC registrants are required to follow the additional SEC guidelines for their filings. SEC Regulation S-K details the dis- closure requirements for SEC filings and shareholder annual reports. Item 404 of this regulation pertains to transactions with related persons, promoters and certain control persons. If you are an SEC registrant, defining immediate family mem- bers is more easily interpreted than the ASC 850 definition. Item 404 of Regulation S-K defines it as “any immediate family member of a director or executive officer of the registrant, or of any nominee for director when the information called for by paragraph (a) of this item is being presented in a proxy or infor- mation statement relating to the election of that nominee for director, which means any child, step-child, parent, step-par- ent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law of such director, executive officer or nominee for director, and any person (other Related Party Transactions A Brief Overview By Rachel Klein, YHB