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The concept of related and unrelated parties arises in the context of the arm's length principle.
Under the arm's length principle, transactions between related parties are conducted and priced as if they were unrelated, so that there is no question of either:
- A conflict of interest, or
- Tax avoidance.
Unrelated parties are companies or other entities which are independent of each other, so that they are normally assumed to be dealing with each other at fair market prices.
Relevant accounting standards include Section 33 of FRS 102.