How should related-party transactions be disclosed?

Related-party transactions need to be disclosed in financial statements to maintain transparency and to avoid potential conflicts of interest. This requirement stems from the recognition that transactions with related parties can create situations where personal interests may conflict with the interests of the entity or its stakeholders. By disclosing these transactions, stakeholders—including investors, creditors, and regulators—can assess the impact of these relationships on the entity's financial health.

Failure to disclose related-party transactions can lead to misleading financial statements and undermine trust in the financial reporting process. Regulatory frameworks and accounting standards generally mandate such disclosures to ensure that all parties are aware of the potential biases or influences that may arise due to these relationships.

In contrast, the other options fail to recognize the necessity of transparency in financial reporting. Not disclosing at all would obscure potential risks, and only disclosing significant transactions may not adequately inform stakeholders about relevant relationships that could affect decision-making. The notion of limiting disclosure solely to regulatory bodies does not serve the broader goal of transparent financial practices that benefit all stakeholders involved.