What must be disclosed in financial statements regarding related party transactions?

Financial statements are required to disclose related party transactions to ensure transparency and accountability in financial reporting. This is essential for understanding the impact of these transactions on the financial position and performance of an entity. Related party transactions may potentially involve conflicts of interest, and thus, their disclosure offers stakeholders vital insights into the entity's dealings that may not be conducted at arm's length.

Disclosing related party transactions includes specifying the nature of the relationships with those parties, the transactions themselves, and the terms of those transactions, especially if they differ from market expectations. This transparency allows users of the financial statements to assess the potential implications of these transactions on the entity’s financial results and standing.

While the identities of related parties may also be necessary information, it is the details surrounding the transactions that take precedence for assessment purposes. This ensures that stakeholders have a fuller understanding of how relationships with related entities can affect their understanding of the company's financial health.