Best examples of related party transactions in financial statements

Let’s start where most accountants and analysts actually start: with the examples. When you read actual notes to financial statements, certain patterns show up again and again. The best examples of related party transactions in financial statements usually fall into a few recognizable buckets:

Sales or purchases of goods and services between a parent and subsidiary
Loans to or from directors, officers, or major shareholders
Leases of office space or equipment from entities owned by insiders
Management fees and shared services within a corporate group
Guarantees of debt for affiliates or owners
Transfers of intellectual property within a group at non‑market prices

Those categories sound abstract until you see how they’re described in real disclosures.

Take a typical U.S. public company 10‑K. You might see a note along the lines of:

“The Company leases its headquarters under a non‑cancelable operating lease from an entity owned by the Company’s Chief Executive Officer. Rent expense under this lease was $2.4 million, $2.3 million, and $2.1 million for the years ended December 31, 2024, 2023, and 2022, respectively.”

That one sentence is a classic example of related party transactions in financial statements: it names the relationship, describes the transaction, and quantifies the amounts.

Some of the most frequent examples of related party transactions in financial statements involve ordinary operating activities, just not with ordinary counterparties.

Intra‑group sales and purchases

Multinational groups routinely buy and sell goods and services between subsidiaries. This is standard transfer pricing territory. A U.S. parent might manufacture components and sell them to a European subsidiary, which then sells to end customers. The financial statements will often disclose:

Revenue from sales to subsidiaries or affiliates
Purchases of inventory or raw materials from related entities
Outstanding receivables and payables with group companies

A typical note might read:

“During the year ended December 31, 2024, the Company recorded $185 million of sales to its wholly owned subsidiaries. Trade receivables from these related parties totaled $42 million at year‑end.”

Under U.S. GAAP (ASC 850) and IFRS (IAS 24), these are clearly related party transactions, even though they may be priced at arm’s length. The key is the relationship, not whether the pricing is fair.

Management, technical, and shared service fees

Another recurring example of related party transactions in financial statements is management and service fees within a corporate group. A holding company might charge its subsidiaries for:

Executive management services
Finance, HR, legal, or IT support
Use of shared systems or brands

You’ll often see language such as:

“The Company charged its subsidiaries $12.7 million (2024), $11.9 million (2023), and $10.4 million (2022) in management and shared service fees. These amounts are included in other operating income.”

Investors read these disclosures to understand whether profits are being shifted between entities, especially in private equity structures or tax‑driven group arrangements.

When regulators talk about related parties, they usually worry most about financing. Loans and guarantees between insiders and the company can be perfectly fine, but they’re also fertile ground for abuse.

Loans to directors, officers, and major shareholders

One classic example of a related party transaction in financial statements is a loan from the company to an executive or controlling shareholder. In the U.S., public companies face significant restrictions here under securities and banking laws, but private companies still do this regularly.

A disclosure might say:

“At December 31, 2024, the Company had outstanding loans to its Chief Executive Officer totaling $1.5 million. The loans bear interest at 3.5% and are repayable over five years. Interest income of $52 thousand was recognized during 2024.”

Analysts immediately ask: Is that interest rate below market? Was the loan approved by independent directors? Is the risk properly reflected?

The mirror image is often more common: insiders funding the company. Real examples include:

A founder providing bridge financing to a startup when banks won’t lend
A parent company extending intercompany loans to a cash‑poor subsidiary
A major shareholder buying company bonds on favorable terms

You might see:

“During 2024, the Company entered into a $25 million term loan with an entity controlled by a director. The loan bears interest at 9.0%, payable quarterly, and matures in 2027. The Company incurred $2.1 million of interest expense on this loan during 2024.”

Again, this is a textbook example of related party transactions in financial statements: the note identifies the related party, the terms, and the impact on profit.

Guarantees and off‑balance sheet support

Not all financing shows up as a direct loan. Sometimes a related party guarantees the company’s debt, or the company guarantees a related party’s obligations. These guarantees can be material to risk even if no cash has changed hands yet.

A typical disclosure:

“The Company’s parent has guaranteed the repayment of the Company’s $80 million revolving credit facility. No amounts have been paid under this guarantee to date.”

Under IFRS and U.S. GAAP, guarantees to or from related parties are related party transactions and must be disclosed, even if they are contingent.

Property, leases, and asset transfers: tangible examples investors care about

Some of the clearest examples of related party transactions in financial statements involve hard assets — real estate, equipment, and intellectual property.

Leasing office space or warehouses from a company owned by a director or executive is extremely common, especially in smaller or founder‑led businesses. The disclosure usually covers:

The nature of the leased asset (headquarters, manufacturing facility)
The related party’s relationship to the company
Lease terms and annual rent expense

For example:

“The Company leases its main distribution center from an entity owned by the Company’s founder. Lease expense recognized under this arrangement was $3.6 million in 2024, $3.4 million in 2023, and $3.1 million in 2022.”

Under ASC 842 and IFRS 16, you’ll also see the related right‑of‑use asset and lease liability in the balance sheet, but the related party angle shows up in the notes.

Purchases and sales of property and equipment

Another common example of related party transactions in financial statements is the sale of property, plant, and equipment to or from insiders. These can be legitimate — for instance, a company buying a warehouse from a founder at fair market value — or problematic if priced aggressively.

A note might read:

“In March 2024, the Company sold a parcel of land to an entity controlled by a director for cash consideration of $9.8 million, recognizing a gain of $4.1 million. The transaction was approved by the Audit Committee based on an independent appraisal.”

The governance details matter here. Investors want to know whether the board actually tested the pricing.

Transfers of intellectual property and brands

In technology and consumer brands, some of the most significant related party transactions involve intangibles:

Licensing a brand from a company owned by a founder
Transferring patents or software between group entities for tax planning
Paying royalties to an entity controlled by a key executive

A disclosure could say:

“The Company licenses the ‘XBrand’ trademark from an entity controlled by the Company’s founder. Royalty expense under this agreement was $7.2 million in 2024, $6.9 million in 2023, and $6.5 million in 2022.”

Again, this is a very clear example of a related party transaction in financial statements that directly affects operating margins.

Executive compensation is heavily regulated and usually disclosed separately, but many compensation arrangements also qualify as examples of related party transactions in financial statements.

Stock‑based awards and performance arrangements

Grants of stock, stock options, or performance‑based equity to directors and executives are related party transactions because the recipients are key management personnel.

A typical disclosure under IAS 24 might summarize:

“Total compensation of key management personnel, including directors, consisted of short‑term employee benefits of $8.5 million (2024), share‑based payment expense of $3.2 million (2024), and post‑employment benefits of $0.4 million (2024).”

While these are not the first examples people think of, standards explicitly treat key management compensation as related party transactions.

Side agreements and consulting arrangements

More subtle examples include:

Consulting contracts with former executives
Non‑compete payments to founders
Advisory retainers to board members’ personal firms

For instance:

“During 2024, the Company paid $900 thousand in consulting fees to a firm owned by a former Chief Financial Officer under a two‑year advisory agreement.”

These may not be large individually, but they speak volumes about governance and board independence.

Why regulators care: risks and 2024–2025 trends

The reason standards setters and regulators keep tightening disclosure rules is simple: related party transactions are a classic pathway for earnings manipulation, asset tunneling, and outright fraud.

Regulators like the U.S. Securities and Exchange Commission (SEC) have repeatedly flagged related party issues in enforcement actions. The SEC’s Division of Corporation Finance has published guidance reminding issuers to clearly identify related parties and describe material terms, not bury them in vague wording.

Globally, IAS 24 has been around for years, but enforcement is intensifying. Post‑COVID, as interest rates climbed and liquidity tightened, companies leaned more on:

Insider loans when bank credit dried up
Intra‑group transfers of assets to shore up weak subsidiaries
Renegotiated related party leases to manage cash flow

Those shifts show up directly in the volume and complexity of examples of related party transactions in financial statements from 2022 through 2024.

Academic research has also linked abnormal related party activity to governance problems. For example, studies hosted on university sites such as Harvard’s corporate governance programs frequently emphasize that opaque related party deals correlate with lower valuation multiples and higher perceived risk.

The message: the more transparent and specific the examples of related party transactions in financial statements, the more comfortable the market tends to be.

If you’re preparing financial statements, it’s not enough to simply say, “The Company had transactions with related parties.” That kind of sentence tells investors nothing. High‑quality notes share a few characteristics:

They identify the relationship clearly.
Is this a director, an officer, a close family member, a company under common control, or a major shareholder? Vague labels like “an affiliated entity” are a red flag.

They describe the nature of the transaction.
Is it a lease, a loan, a purchase of inventory, a management fee, a royalty? The best examples of related party transactions in financial statements spell this out in plain English.

They quantify both the flow and the balance.
Users want to see:

Amounts of income, expense, gains, or losses during the period
Outstanding receivables, payables, or loan balances at year‑end

They explain pricing and approval.
Good practice is to say whether terms are “at market rates” and whether independent directors or a related party committee reviewed and approved the deal.

For instance, compare these two descriptions:

Weak: “The Company had transactions with a related party during the year.”
Strong: “During 2024, the Company purchased raw materials totaling $14.3 million from an entity controlled by a director. Prices were based on prevailing market rates for comparable materials, as confirmed by independent benchmarking. Trade payables to this related party were $2.1 million at December 31, 2024.”

The second version gives users something they can actually analyze.

If you want a sense of the baseline expectations, the text of IAS 24 is available via the IFRS Foundation, and the SEC’s guidance on related party disclosures appears in Regulation S‑K and related interpretive releases, summarized on SEC.gov.

Practical tips for analysts: reading between the lines

When you’re on the user side, combing through a 10‑K or annual report, here’s how to make the most of the examples of related party transactions in financial statements:

Scan for patterns over time.
Are related party sales, leases, or loans growing faster than the rest of the business? A sudden spike in related party revenue or a new insider financing arrangement can signal stress.

Check consistency with other notes.
If the company discloses a related party lease, does the lease maturity schedule line up? Do related party loans reconcile with the debt note?

Compare terms to market reality.
If an insider loan carries a rate that’s wildly below current market yields, ask why. In high‑rate environments like 2023–2024, a 3% loan from a shareholder when banks are charging 8% deserves scrutiny.

Watch governance language.
Mentions of “independent appraisal,” “audit committee approval,” or “review by non‑executive directors” are positive signals. The absence of any governance detail in large related party deals is a warning sign.

Tie back to corporate structure.
Use the group structure note to understand who actually controls whom. Many of the best examples of related party transactions in financial statements make sense only when you see the full ownership chart.

What are some typical examples of related party transactions in financial statements?
Common examples include loans between a company and its directors or major shareholders, leases of offices or warehouses from entities owned by executives, sales of goods between a parent and its subsidiaries, management and service fees within a corporate group, guarantees of affiliate debt, and royalty payments to entities controlled by founders.

Can you give an example of a related party transaction that looks normal but still needs disclosure?
Yes. Suppose a parent company sells finished goods to its wholly owned subsidiary at market prices, under standard credit terms. There’s nothing unusual about the pricing, but because the counterparty is under common control, the sale is still a related party transaction and should be disclosed with the amounts of sales and year‑end receivables.

Are executive salaries and bonuses examples of related party transactions?
Under IFRS, compensation of key management personnel — including salaries, bonuses, stock‑based compensation, and post‑employment benefits — is treated as a related party transaction and disclosed in aggregate. Under U.S. GAAP, executive pay is heavily disclosed in SEC filings, particularly proxy statements, even if it’s not always labeled with the same “related party” terminology.

Why do auditors focus so heavily on examples of related party transactions?
Because history has shown that many major accounting scandals involved undisclosed or poorly disclosed related party dealings. Auditing standards from bodies like the Public Company Accounting Oversight Board (PCAOB) require auditors to identify related parties, test transactions for proper authorization and disclosure, and evaluate whether any unusual terms could indicate fraud or misstatement. The PCAOB’s standards and guidance are publicly available on pcaobus.org.

How detailed should the note be when describing an example of a related party transaction?
Standards require enough detail for users to understand the nature of the relationship, the type of transaction, and its effect on the financial statements. In practice, that means naming the relationship (not necessarily the individual), describing the arrangement, quantifying income/expense and balances, and briefly explaining terms and governance where they might differ from normal market practice.

If you’re preparing notes, your goal is straightforward: anyone reading your financials should be able to understand the who, what, and why behind every material related party deal. And if you’re analyzing financials, treat the examples of related party transactions in financial statements as a window into how the company actually operates behind the glossy investor deck.