Which statement regarding related-party transactions is true?

Related-party transactions are generally acceptable when they are fully disclosed. This disclosure is crucial as it provides transparency to stakeholders about any potential conflicts of interest or biases that could affect business decisions. The key aspect of these transactions is not their existence, but rather how they are reported and disclosed in financial statements. Full disclosure allows stakeholders to understand the potential implications and risks associated with these transactions, thereby maintaining the integrity of financial reporting and helping to prevent fraud and misrepresentation.

While it is a misconception that related-party transactions are illegal, they can sometimes lead to unethical behavior if not managed properly, which is why transparency through disclosure is vital. Therefore, the notion that they must always involve cash transactions is also incorrect; related-party transactions can involve various forms of economic exchanges and not solely cash. This further underscores the importance of clear reporting rather than the prohibition of such transactions.