Related Party Disclosures: Director and Shareholder Current Accounts

In most family-owned Sdn Bhd companies in Malaysia, money moves in and out without much paperwork: the father injects cash when cash flow is tight, a child takes an advance for a personal matter, and a related company settles a bill for another. All of it collects in a single quiet line on the balance sheet — the “director’s current account” — and it is this line that most often trips things up when the auditor arrives and when the financial statements are tagged for SSM.

These balances are not ordinary transactions. They are related party transactions, and the standard that governs them — MFRS 124 Related Party Disclosures — exists because a company’s financial position can be influenced not only by what happens, but by with whom it happens.

What is MFRS 124 and why does it matter?

MFRS 124 is the Malaysian equivalent of IAS 24, adopted by the Malaysian Accounting Standards Board (MASB) as part of full convergence with IFRS and effective for annual periods beginning on or after 1 January 2012. Its objective, according to MASB, is to ensure that financial statements contain the disclosures necessary to draw attention to the possibility that an entity’s financial position and profit or loss “may have been affected by the existence of related parties”.

The underlying idea is simple. If your company borrows RM500,000 from a bank at market rate, that is one story. If it borrows RM500,000 from its director with no interest and no repayment date, the figure on the balance sheet may look the same — but the economic reality is very different. MFRS 124 forces that difference to the surface.

Parties that typically qualify as related parties for a typical Sdn Bhd include:

• Directors and key management personnel — those with the authority to plan, direct and control the company’s activities.
• Close family members of those directors — spouses, children, and dependants who may be influenced by them.
• Parent companies, subsidiaries and associate companies within the same group.
• Entities controlled or jointly controlled by a director or their family — a “cousin” company owned by the same family.

What must be disclosed in the notes?

MFRS 124 distinguishes two things that must be disclosed: the relationship itself, and the transactions and balances that flow from it.

The parent-subsidiary relationship must be disclosed regardless of whether any transactions took place between them. This means that even if a parent company never transacted with its subsidiary throughout the year, the relationship — and the identity of the ultimate controlling party — must still be stated.

When transactions do take place, the note must show at least:

• the amount of the transactions;
• the amount of the outstanding balance, including its terms (for example, interest-free, repayable on demand);
• security given or received, and any guarantees;
• provisions for doubtful debts relating to that balance; and
• expense recognised for bad or doubtful debts due from related parties.

These disclosures must also be separated by category of related party — parent company, entities with joint control, subsidiaries, associates, joint ventures, key management personnel, and other related parties — so that a reader does not confuse a director’s loan with intra-group balances.

How is key management compensation disclosed?

One part of MFRS 124 that is frequently missed in family accounts is key management personnel compensation. The total compensation must be disclosed across five categories:

Compensation category	Common examples in an Sdn Bhd
Short-term employee benefits	Directors’ salaries, bonuses, EPF, allowances
Post-employment benefits	Retirement contributions above mandatory EPF
Other long-term benefits	Long-service awards
Termination benefits	Retrenchment compensation
Share-based payment	Options or share issues to directors

For a small family company, most of these columns are empty and only “short-term employee benefits” contains a figure. But the categories still need to be considered, because directors’ salaries and fees are related party compensation — not merely an ordinary payroll cost.

Does the law permit loans to directors?

This is where accounting meets the Companies Act 2016. A director’s current account that is owed by the director to the company (that is, the director is in debt) is in fact a loan to a director — and Section 224 generally prohibits a company from lending to its directors, or from giving a guarantee or security for such a loan.

There are important exceptions:

• An exempt private company is exempted entirely from this prohibition under Section 224(2)(a) — relevant to many family Sdn Bhd companies, but only if the company genuinely meets the definition: not more than 20 members and no corporation holding a beneficial interest in its shares (directly or indirectly). A family Sdn Bhd with a corporate shareholder, or more than 20 members, does not qualify and remains bound by the Section 224 prohibition.
• A loan to enable a director to meet expenditure incurred in discharging their duties as an officer of the company.
• An employee loan scheme approved by members in general meeting, if the director is also a full-time employee.

Where a loan is permitted, the company discloses the purpose and amount of the loan to members, who must then approve it. If no approval is given, Section 224(5) requires the loan to be repaid — for a public company, within six months of the AGM, and for a private company, within twelve months from the date the loan was made. A director who authorises a non-compliant loan may face imprisonment or a fine.

Separately, Section 221 requires a director to disclose every direct or indirect interest in a contract with the company — including loans — and under Section 221(9) that interest is deemed to exist where it involves the director’s spouse or child. Failure to disclose is a criminal offence which, under Section 221(12), may attract a fine of up to RM3 million or imprisonment of up to five years, or both. In other words: the same related party balance that must be disclosed for accounting purposes also carries an obligation under the law.

How does it appear in MBRS?

For an Sdn Bhd, financial statements are no longer filed as a PDF alone. MBRS (Malaysian Business Reporting System) is the digital submission platform introduced by SSM in November 2018, where statements are filed as structured data using XBRL — every figure given a standard tag so that it can be read by machines.

The workflow: prepare the figures in mTool, tag them to the taxonomy, validate, and submit through mPortal until SSM accepts it. Related party balances — the director’s current account, amounts owed to or from a related company — must be tagged to the correct taxonomy element, not lumped into a generic “other receivables” or “other payables”. Mis-tagging here is a common cause of rejected filings.

MBRS 2.0 went live on 25 September 2024, with phased mandatory implementation: Phase 1 effective 1 December 2024, Phase 2 on 1 March 2025, and Phase 3 on 1 June 2025 — when the submission of full financial statements in XBRL became mandatory for all companies. This means that the related party disclosure discipline that was once “good enough” on a PDF must now be precise enough to pass automated validation.

What are the next steps?

• Separate the current account of each director and related party in the ledger; do not mix them into a single net balance. You need the figures by party for the disclosure and for MBRS.
• Check the direction of the balance: if a director owes the company, ensure it complies with the Section 224 exceptions and is approved by members if necessary.
• Document the terms of each balance — interest-free, repayable on demand, unsecured — so the related party note can state them accurately.
• Match the Section 221 disclosure in the board minutes with the related party note in the accounts; both should tell the same story.
• Verify the MBRS tags for related party balances before submitting, and refer to your company secretary or auditor if any balance looks like a prohibited loan to a director.

This article is an AI-assisted draft intended as general guidance, not accounting, tax or legal advice. Consult your auditor, company secretary or a qualified adviser for your specific circumstances.