Related Party Transactions in Singapore Financial Statements: FRS 24 Disclosure Requirements Explained

Every Singapore private company that transacts with its own directors, shareholders, or group companies is, whether it realises it or not, dealing in related party transactions. A director’s loan account, a management fee charged by a holding company, a director-owned property rented to the business: these are everyday arrangements that carry specific financial reporting obligations under FRS 24 Related Party Disclosures.

For many small and medium-sized enterprises in Singapore, related party disclosure is treated as an afterthought rather than a governance discipline that runs through the financial year. That approach creates real risk. Incomplete related party notes can trigger audit qualifications, invite scrutiny from the Inland Revenue Authority of Singapore (IRAS) on transfer pricing, and, in serious cases, expose directors to liability for failing their statutory duty to ensure financial statements give a true and fair view.

This article sets out what counts as a related party under FRS 24, what must be disclosed in the financial statements, why Singapore SMEs commonly fall short, how the disclosure requirement interacts with IRAS transfer pricing rules, and the practical steps a private company can take to stay compliant.

What Is a “Related Party” Under FRS 24?

FRS 24, issued under the Singapore Financial Reporting Standards framework maintained by the Accounting Standards Council Singapore, defines a related party by reference to the relationship between a person or entity and the reporting company, not by the size or nature of the transaction itself. If you want the wider context of how FRS 24 fits into the SFRS framework, our guide to SFRS basics is a useful starting point.

Under the standard, a person or a close member of that person’s family is related to the reporting entity if that person:

• Has control or joint control over the reporting entity;
• Has significant influence over the reporting entity; or
• Is a member of key management personnel of the reporting entity, or of its parent.

An entity is related to the reporting company if, among other circumstances, it is a parent, subsidiary, or fellow subsidiary; an associate or joint venture; or an entity controlled, jointly controlled, or significantly influenced by a person identified above. Significant influence, in this context, is the power to participate in financial and operating policy decisions without having full control, and it can arise through shareholding, statute, or agreement.

Close family members are defined broadly, covering a person’s children and spouse or domestic partner, the children of that spouse or domestic partner, and any dependants. In practice, this means transactions with a director’s adult child who runs a separate but related supplier company, or with a shareholder’s spouse who provides consultancy services, both fall within scope.

Common Related Party Categories in Singapore SMEs

What Must Be Disclosed in the Financial Statements

Once a related party relationship exists, FRS 24 requires disclosure regardless of whether a price was charged for the transaction. The standard is deliberately broad because the objective is transparency about the possibility that the reporting entity’s financial position and results have been affected by related parties, not just proof that pricing was unfair.

At a minimum, the notes to the financial statements should disclose:

• The nature of the related party relationship (parent, associate, key management personnel, close family member, and so on);
• The amount of transactions during the period, by category (sales, purchases, management fees, rental, loans, guarantees given or received);
• Outstanding balances at the reporting date, including terms and conditions, whether secured, and the nature of consideration to be provided in settlement;
• Provisions for doubtful debts related to outstanding related party balances, and the related expense recognised during the period; and
• Key management personnel compensation in total, broken down by category (short-term, post-employment, other long-term benefits) where material.

Sample Disclosure Checklist

Why Singapore SMEs Often Get This Wrong

Related party disclosure is one of the areas auditors flag most often in Singapore SME financial statements, for a handful of recurring reasons.

First, director current accounts are frequently treated as ordinary loans rather than as a disclosable related party balance. Founders moving money in and out of the company to manage personal cash flow is common in the early years of a business, but the year-end balance still needs to be disclosed with its terms, even if those terms are informal.

Second, common directorships between group entities are often overlooked when the companies are not formally structured as parent and subsidiary. If the same individual sits on the boards of two otherwise unconnected companies and those companies trade with each other, a related party relationship exists and must be disclosed.

Third, management fees, shared service charges, and rent paid to a director-owned entity are sometimes coded straight into the profit and loss account without anyone flagging the related party angle. This is why good bookkeeping practices for Singapore SMEs should tag related party transactions at the point they are recorded, not as a reconstruction exercise at year end.

Fourth, many SMEs assume that if a transaction was priced “fairly” it does not need to be disclosed. FRS 24 does not work this way. Disclosure is triggered by the relationship, not by whether the terms were favourable or unfavourable to either side.

The Transfer Pricing Overlay: IRAS Rules for Related Party Transactions

Related party transactions do not sit only within financial reporting. Once money moves between related parties, IRAS transfer pricing rules also apply: the FRS 24 note tells the reader what happened, and the transfer pricing documentation tells IRAS why the pricing was appropriate.

IRAS requires related party transactions to be conducted at arm’s length, meaning the pricing should reflect what independent parties would have agreed under comparable circumstances. Where IRAS determines that related party pricing was not at arm’s length and has understated a Singapore taxpayer’s profit, it can make a transfer pricing adjustment under section 34D of the Income Tax Act 1947, and since Year of Assessment 2019 a 5% surcharge applies to the amount of that adjustment, regardless of whether there is any actual tax underpayment.

Contemporaneous transfer pricing documentation is required where a Singapore entity’s gross revenue from trade or business exceeds S$10 million for the financial year and its related party transactions exceed the category thresholds set out in the Income Tax (Transfer Pricing Documentation) Rules 2018. Separately, taxpayers with aggregate related party transactions exceeding S$15 million in a financial year must complete the Related Party Transactions form as part of their corporate income tax return. Companies preparing their annual Estimated Chargeable Income (ECI) filing should flag whether related party transactions are approaching these thresholds, so documentation is not left as a last-minute scramble before the Form C-S or Form C deadline.

Even below the mandatory documentation thresholds, IRAS still expects taxpayers to demonstrate that related party dealings are commercially justified. Keeping simple contemporaneous records, such as a comparison to third party pricing or a documented cost-plus basis for intra-group service fees, is sound financial management and reduces the risk of a costly adjustment later.

Statutory Context: Director’s Interest and Board Approval

Singapore company law adds a further layer of obligation on top of the accounting disclosure. Under section 156 of the Companies Act 1967, a director who is in any way, directly or indirectly, interested in a transaction or proposed transaction with the company must declare the nature and extent of that interest to the other directors. This can be done by specific declaration or, for standing relationships, by a general notice that the director is connected to a named entity. Our guide to directors’ duties in Singapore covers this obligation in more detail alongside a director’s other statutory responsibilities.

Separately, section 201 of the Companies Act requires directors to ensure the financial statements comply with prescribed accounting standards and give a true and fair view. Since related party transactions can materially affect that picture, incomplete related party notes can, in a worst case, undermine a director’s compliance with this duty. The Companies Act is available in full on Singapore Statutes Online.

It is worth briefly distinguishing this from the interested person transaction (IPT) regime that applies to companies listed on the Singapore Exchange, which imposes additional shareholder approval and continuous disclosure obligations above prescribed value thresholds under the SGX Listing Manual. Private companies are not subject to the IPT regime, but the same governance principle, that transactions with insiders need scrutiny and transparency, applies equally under FRS 24.

Practical Steps to Stay Compliant

Getting related party disclosure right does not require a large finance team. It requires a handful of disciplined habits, applied consistently through the year.

• Maintain a related party register listing every director, shareholder with significant influence, key management personnel, close family member involved in the business, and related entity. Update it whenever shareholding or board composition changes.
• Tag transactions at the point of entry, flagging each one against the register rather than relying on memory to reconstruct related party arrangements at year end.
• Document the commercial rationale and pricing basis for management fees, rent, and intra-group services, with a comparison against third party rates where practical.
• Route related party transactions through board approval. Have the interested director declare their interest under section 156, and minute approval of material arrangements, including loans and guarantees.
• Reconcile director and shareholder loan accounts every period rather than leaving them unreviewed; a running reconciliation makes the year-end disclosure straightforward.
• Check transfer pricing thresholds annually as part of ECI and tax computation preparation, not only when Form C-S or Form C is due.
• Brief the auditor early with the related party register and transaction summary, so gaps are corrected before the financial statements are finalised.

A well-run related party register does more than satisfy FRS 24. It supports better business investment planning, because founders and boards can see clearly how much capital is genuinely tied up in intra-group and insider dealings, rather than discovering the picture for the first time when the auditor asks questions.

Conclusion

Related party transactions are a normal feature of how Singapore SMEs and group structures operate, but FRS 24 treats the relationship, not the fairness of the price, as the trigger for disclosure. Getting this right means identifying every related party accurately, disclosing relationships, transaction values, outstanding balances, and terms in full, and aligning the financial reporting position with IRAS transfer pricing expectations and the director’s statutory duty to declare interests under the Companies Act. Companies that build a related party register and review it every period will find that year-end disclosure, and the tax filing that sits alongside it, becomes routine rather than a last-minute reconstruction.

To speak with the team at Raffles Corporate Services, you can email [email protected] or call, SMS, or WhatsApp +65 8501 7133. We are happy to assist with any queries.

– The Editorial Team, Raffles Corporate Services