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10.10 Initial measurement of a liability with a related party
Publication date: 14 Oct 2019
us IFRS & US GAAP guide
Fundamental differences in the approach to related-party liabilities under the two accounting models may impact the values at which these liabilities initially are recorded. The IFRS model may, in practice, be more challenging to implement.
US GAAP | IFRS |
When an instrument is issued to a related party at off-market terms, one should consider which model the instrument falls within the scope of as well as the facts and circumstances of the transaction (i.e., the existence of unstated rights and privileges) in determining how the transaction should be recorded. There is, however, no requirement to initially record the transaction at fair value.
The presumption in ASC 850 that related party transactions are not at arm’s length and the associated disclosure requirements also should be considered.
| When an instrument is issued to a related party, the financial liability initially should be recorded at fair value, which may not be the value of the consideration received.
The difference between fair value and the consideration received (i.e., any additional amount lent or borrowed) is accounted for as a current-period expense, income, or as a capital transaction based on its substance.
IAS 24 sets out the disclosure requirements associated with related party transactions.
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