related party transactions

This subtopic governs how a real estate investment trust (REIT) accounts for "operating support" received from its external adviser — arrangements designed to guarantee the REIT a certain return, such as buying loans or property above fair value, debt forgiveness, advisory fee reductions, compensating balances, or cash payments. The REIT must adjust any transferred assets or liabilities to fair value at the transaction date and recognize the support effectively obtained as income or as a reduction of advisory fees. The effect of these transactions must be reported separately in the income statement and fully disclosed as a related party relationship.

ASC 850-10 is a disclosure-only subtopic requiring financial statements to disclose material related party transactions and certain common control relationships. Disclosures cover the nature of the relationship, a description and dollar amounts of transactions for each income statement period, and amounts due to/from related parties at each balance sheet date. It provides no accounting or measurement guidance — recognition and measurement of related party transactions is addressed in other Topics.

This Subtopic applies the general related party disclosure requirements of Topic 850 to common interest realty associations (CIRAs), such as condominium and homeowners' associations. Its core point is that when board members, officers, or developers provide services to the association — for example insurance, maintenance, or management services — those transactions may require related party disclosure under Topic 850. Its scope follows that of Subtopic 972-10 (see 850-972-15-1).