Related-party transactions call for separate checks of company-law requirements under the Companies Act 2016, financial-statement disclosures and tax treatment. This article focuses on the first two; transfer-pricing rules may also be relevant.
Company law
Section 221 of the Act requires a director who is interested, directly or indirectly, in a contract or proposed contract with the company to declare the nature of that interest at a board meeting as soon as practicable after the relevant facts come to the director's knowledge. The Act also restricts certain arrangements in which a director or substantial shareholder, or a person connected with them, acquires shares or non-cash assets of the requisite value from the company, or disposes of them to it, unless shareholder approval is obtained.
Financial reporting
Confirm the reporting framework first, using the MASB’s private-entity reporting requirements. Related-party disclosures are addressed by MFRS 124 Related Party Disclosures for companies applying Malaysian Financial Reporting Standards (MFRS), and Section 33 for companies applying the Malaysian Private Entities Reporting Standard (MPERS). Use the requirements of the edition that applies to the reporting period.
Prepare a related-party schedule covering the relationship, transactions during the year and outstanding balances. Obtain the terms of loans and other arrangements, security and guarantees, commitments, and information about doubtful or impaired balances. Identify key management personnel and assemble their compensation information for the required disclosures. Reconcile the schedule to the ledger, contracts and directors’ declarations.
A transaction can be relevant even if no price is charged. Do not describe terms as equivalent to an arm’s-length transaction without evidence. The reviewer should determine the applicable definitions, disclosure categories and any exemptions under the company’s framework. Company-law approval and tax documentation remain separate checks; a board declaration alone is not a financial-statement disclosure assessment.
Director balances are a common related party item; see our article on director loans and advances. Related-party pricing can also raise transfer pricing questions.
This article is general information only. Requirements depend on each company's circumstances; please refer to the official guidance from SSM and MASB, and see Saifudin & Co's accounting and financial reporting services if you would like assistance.