GAAP strictly prohibits companies from engaging in all related-party transactions because, without an arm's-length business negotiation process, the company may suffer economic harm and ultimately injure unsuspecting shareholders.

Question

Quizplus · Accepted Answer

GAAP allows related-party transactions, but requires disclosure of such transactions in financial statements and emphasizes the importance of ensuring that they are conducted at arm's length to avoid any potential harm to the company and its shareholders.

GAAP Strictly Prohibits Companies from Engaging in All Related-Party Transactions