How is a related party defined in financial reporting?

In financial reporting, a related party is defined as an entity that has control or significant influence over the reporting entity. This means that such parties can affect the financial and operating decisions of the reporting entity, which is essential for transparency in financial disclosures. When parties have control, it implies ownership of a majority share or voting power, while significant influence often pertains to owning a substantial minority share or participating in the management decisions of the entity.

Recognizing related parties is crucial because transactions with these parties may not be conducted at arm's length, meaning the terms may not reflect true market conditions. Full disclosure of related party relationships in financial statements allows stakeholders to understand potential conflicts of interest and the actual economic positions of entities involved.

The other options do not accurately capture the essence of what constitutes a related party. A party that has no influence over the reporting entity does not meet the criteria of relation. An unrelated third party clearly does not fall within the definition, as they lack any control or influence. Lastly, a party merely buying services does not imply any relationship unless there is control or significant influence involved. Thus, option B is the clear and correct choice.