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> In this case: Microsoft applies the equity method because it has significant influence over OpenAI https://www.ifrs.org/content/dam/ifrs/supporting-implement

by kgwgk 1y ago

> In this case: Microsoft applies the equity method because it has significant influence over OpenAI https://www.ifrs.org/content/dam/ifrs/supporting-implementation/smes/module-33.pdf https://www.ifrs.org/content/dam/ifrs/supporting-implementat... IFRS® Foundation — Supporting Material for the IFRS for SMEs Standard Module 33 — Related Party Disclosures —— Ex 4 Parent entity […] has significant influence over associates 1 and 2. For Parent's separate financial statements […] associates 1, 2 […] are related parties (see paragraph 33.2(b)(i) and (ii)). […] —— Ex 13 Entity S has significant influence over Entity T. […] Entity T is an associate of Entity S. Entities S and T are related parties (see paragraph 33.2(b)(ii)). […] —— In the previous example, set Entity S = Microsoft and Entity T = OpenAI : Premise: Microsoft has significant influence over OpenAI. Conclusion: OpenAI is an associate of Microsoft. Microsoft and OpenAI are related parties (see paragraph 33.2(b)(ii)).

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KoolKat23 1y ago
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.”
- kgwgk 1y ago
  > IFRS → associates are always related parties (disclosure under IAS 24.9(b)). Ok, just for the record you started saying that it wasn't so, talking explicitly about what are related parties in IFRS: https://news.ycombinator.com/item?id=45720653 https://news.ycombinator.com/item?id=45720653 > 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.)

by kgwgk 1y ago

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KoolKat23 1y ago

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.”

kgwgk 1y ago
> IFRS → associates are always related parties (disclosure under IAS 24.9(b)). Ok, just for the record you started saying that it wasn't so, talking explicitly about what are related parties in IFRS: https://news.ycombinator.com/item?id=45720653 https://news.ycombinator.com/item?id=45720653 > 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.)