No, these are separate subjects with specific definitions (it's a specific name not a phrase of speech). I struggle to explain it briefly as it's an entire subject and I might be lambasted here for wrongly simplifying as it's nuanced. Ill give it a go (it's been 15 years since the textbooks).
Equity accounted for investments imply it's treated as one and the same as the business, the individual entries will be included with the rest of the entries related to the business being reported on. Related parties are considered external and are basically reported "at arms length". This still doesn't necessarily mean they're providing you with the consolidated results to make matters more confusing.
Separately, They're required to report intercompany transactions with related parties (specific meaning) as there is a lack of visibility on the innerworkings of that related party business (it's external and not included) and the potential conflict of interest exists as they're related and could be used to skew the ratios/reporting of the reported entities results.
A related party is a person or entity that is related to the entity that is preparing its financial statements (in this Standard referred to as the 'reporting entity').
[…]
(b) An entity is related to a reporting entity if any of the following conditions applies:[…] (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).
[…]
A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.
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IAS 28 - Investments in Associates and Joint Ventures
The following terms are used in this Standard with the meanings specified:
An associate is an entity over which the investor has significant influence.
[…]
An entity with joint control of, or significant influence over, an investee shall account for its investment in an associate or a joint venture using the equity method except when that investment qualifies for exemption in accordance with paragraphs 17-19.
———
Edit: I wrote about IRFS below but US GAAP seems similar. What are the “specific definitions” you mention?
An investor and its equity method investee are considered related parties under ASC 850 and should disclose material intra-entity transactions as related-party transactions.
An equity method investment and an investment accounted for using the fair value option are related parties to the investor, as defined in ASC 850. The investor must provide disclosures about related-party transactions with such entities, including:
The nature of the relationship
A description of transactions, including the amounts
>If Microsoft has significant influence over OpenAI (as implied by equity-method accounting), then:
OpenAI is a related party of Microsoft; and
Microsoft must disclose the nature of the relationship and any material transactions between them (e.g., cloud services, licensing, revenue sharing).
You have made that opinion clear, you’ve said that multiple times. However, you have not given any indication of why would that be wrong (substantiated in references).
You wrote “Related party in IFRS isn't what you think it is”- but you have not commented on the IFRS definition of related party that I quoted above (and repeat below). Are you thinking of a different IFRS definition?
“An entity is related to a reporting entity if any of the following conditions applies:[…] One entity is an associate or joint venture of the other entity […]”
You're ignoring what I'm saying. This has nothing to do with related parties. It's not simply a definition and it's not an opinion, this took a semester to put the pieces together.
I've explained why it's treated as such in my prior answer.
As I say it's been a while for me. I've given chatgpts reply to your prior point. They've explained it better.
Equity-method accounting does not automatically mean the investee (OpenAI) is a “related party” under U.S. GAAP (ASC 850) unless there is control or common control, or one party can significantly influence operating or financial policies of the other in both directions.
In this case:
Microsoft applies the equity method because it has significant influence over OpenAI, but OpenAI does not have reciprocal influence over Microsoft.
Therefore, OpenAI is not a related party of Microsoft under GAAP.
Microsoft may disclose the nature of the investment and transactions (e.g., Azure hosting, licensing), but not as related-party disclosures—they appear in other sections (e.g., “Investments” or “Revenue from strategic partners”).
In short:
→ Equity method ≠ related party.
→ Disclosure still required, but not under related-party rules.
> You're ignoring what I'm saying. This has nothing to do with related parties.
I don’t understand what’s “this” that has nothing to do with related parties.
Your first comment “If its equity accounted it won't be considered a related party as far as I understand. Related party in IFRS isnt what you think it is.” and your second comment “It's not a related party that's the point.” were about what is a “related party” and about nothing else!
You write that “Microsoft applies the equity method because it has significant influence over OpenAI”.
According to IFRS “An associate is an entity over which the investor has significant influence.”
That makes an OpenAI an associate of Microsoft given your previous claim.
Agree or disagree?
According to IFRS “An entity is related to a reporting entity if […] One entity is an associate or joint venture of the other entity”.
In this case one entity is an associate to the other. It doesn’t give to any particular “entity” in that definition the “reporting” role - it says just “one” and “the other”.
That makes OpenAI a related entity to Microsoft if Microsoft has significant influence on OpenAI.
Correct. Under IFRS, the definition in IAS 24 / Section 33 of the IFRS for SMEs explicitly includes associates and their investors as related parties. So if Microsoft reports under IFRS, OpenAI would indeed be a related party.
Under U.S. GAAP (ASC 850), however, the definition is narrower. “Related parties” include affiliates, principal owners, management, and members of their immediate families—but associates accounted for under the equity method are not automatically treated as related parties unless reciprocal influence or common control exists.
So:
IFRS → associates are always related parties (disclosure under IAS 24.9(b)).
U.S. GAAP → equity-method investees are not necessarily related parties unless additional factors apply.
Microsoft reports under U.S. GAAP, not IFRS, so OpenAI is not a related party in Microsoft’s filings. Disclosures still occur in “Investments” or “Strategic Partnerships,” not under “Related Party Transactions.”
> Under U.S. GAAP (ASC 850), however, the definition is narrower. [...] associates accounted for under the equity method are not automatically treated as related parties unless reciprocal influence or common control exists.
Is that definition written anywhere?
According to the glossary in ASC 850:
"Related parties include: [...] b Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity"
It says nothing about "reciprocal influence or common control" - only that investments would be required to be accounted for by the equity method. And that's a question of "significant influence".
If Microsoft has "significant influence" on OpenAI (does it?) and is required to account for its investment in OpenAI using the equity method (is it?) then I don't see why it wouldn't be a related party according to ASC 850.
Now, if it doesn't have "significant influence" and is not required to account for its investment using the equity method then it's not an "associate" under IFRS either.
So it seems that if it's an IAS 24 related party it's also an ASC 850 related party. (At least until you provide some evidence for those reciprocal influence requirements you mention.)
26.5 Common related party transactions
In order to comply with the related party disclosure requirements, a reporting entity must identify all of its transactions with related parties.[…]
26.5.1 Disclosure of related party equity method investments
Equity method investees are, by definition, related parties of the equity holder.