Related party transactions and disclosures

Fintechs are frequently structured with multiple group entities, founder-related vendors, and investor board representation, all of which create related party relationships requiring identification and disclosure regardless of whether transactions are priced at arm's length; omitted related-party disclosures are a common audit finding and can obscure conflicts of interest or preferential terms from investors and regulators.

Has a complete related-party register been built and maintained, covering shareholders with control/significant influence, key management, founder-owned vendors, and VC/PE investors with board seats? Are there transactions with founder-owned service providers or intercompany funding at non-market terms that require specific measurement treatment (e.g., a below-market loan)? Is key management compensation identified across all benefit types, and is the register refreshed whenever the cap table or board composition changes?

1) Build and maintain a complete related-party register covering: shareholders with control/joint control/significant influence; key management personnel and their close family members; entities under common control or significant influence (including founder-owned vendors); and any party with board representation (including minority VC/PE investors with board seats). 2) For each related party, identify all transaction types (services, loans, leases, guarantees) and outstanding balances. 3) Determine whether any transaction requires different accounting due to its terms (e.g., a below-market intercompany loan initially recognized at fair value, with the off-market element treated per its substance, such as a capital contribution or distribution). 4) Confirm related party status does not itself change recognition or measurement of arm's-length-priced transactions, but always triggers disclosure. 5) Refresh the register at least annually and whenever the cap table, board composition, or group structure changes.

Measure related party transactions on the same basis as unrelated party transactions unless a specific standard requires otherwise (e.g., a below-market loan may need to be recognized initially at fair value with the difference treated according to its substance, such as additional paid-in capital if from a parent, or a distribution if to a parent); document the pricing basis used (e.g., benchmarking) for significant related-party service arrangements to support the arm's-length assertion if made.

Disclose: the nature of relationships (control, joint control, significant influence, key management); transaction types and amounts for the period; outstanding balances, their terms and conditions (including whether secured, and the nature of consideration to be provided in settlement), and any guarantees given or received; key management personnel compensation by category (short-term employee benefits, post-employment benefits, share-based payment, termination benefits); and any provision for doubtful debts related to related-party balances.

• Overlooking venture capital or private equity investors with board representation as related parties
• failing to disclose founder-owned vendor relationships
• aggregating key management compensation without the required breakdown by category
• disclosing only transactions but omitting outstanding balances and their terms
• failing to update the related-party register after a new funding round changes board composition or significant-influence holders.