Identification Register

Maintain live list: entities, owners >10%, officers, family ties, JVs. Update on hiring, funding, and M&A — see Cap Table and Board.

Pair with Transfer Pricing, TP Docs, Consolidation, and Fraud Prevention.

Control Checklist

  • Pre-approval for related-party transactions over threshold.
  • Master service/loan agreements with rates and terms.
  • Monthly intercompany confirmations, zero break without memo.
  • Netting only with signed agreement and bank proof.
  • Disclosure draft tied to GL — see Month-End Close.

Enforce segregation per QuickBooks vs Xero and retain per Audit Procedures.

Pricing and Tax Tie

Document arm’s-length support before booking — see Corporate Tax Systems and Pillar Two. Reconcile management fees, royalties, and loans to TP master file quarterly.

Red Flags

  • Free services from owner entity without agreement.
  • Round-dollar management fees at period-end.
  • Loans with no terms, evergreen rollover.
  • Off-ledger side agreements.

Escalate via Whistleblower; report to Audit Committee.

Worked Example: Management Fee Audit Trail

Parent charges OpCo a $25k/month management fee ($300k/year). The audit-ready packet:

  1. Agreement (signed, dated): services listed (CFO oversight, HR, IT), fee formula (allocated headcount %), term, termination.
  2. Pricing memo: comparable support — e.g., standalone CFO cost $180k + HR $90k + IT $60k = $330k market; $300k charged is at/below market. Attach the comps.
  3. Monthly confirmation: OpCo confirms receipt of services + amount; both sides book mirror entries same period.
  4. Bank proof: quarterly netting settlement with bank records (not just journal nets).
  5. Disclosure tie: $300k expense / $300k income eliminated in consolidation, related-party note describing terms — see Consolidation and Month-End Close.

Missing any one layer, the fee looks like profit shifting. Present all five, the same fee is routine governance. Reconcile the fee to the TP master file quarterly — see TP Docs and Pillar Two.

Intercompany loans trigger tax (arm’s-length interest, withholding), legal (thin-cap, enforceability), and audit (recoverability) issues simultaneously. Minimum packet: written note with principal, rate (with support — e.g., AFR + spread memo), maturity, repayment schedule, and default terms; interest accrued and paid (not just booked); board approval minuted; and recoverability tested like third-party debt (if the borrower can’t service it, impair it — see Going Concern). Evergreen rollover with no payments and no collection effort is, in substance, equity — recharacterization risk falls on both tax and financial reporting. Confirm treatment with Corporate Tax Systems counsel before year-end, not during fieldwork.

De Facto Control (Substance Over Form)

Related parties aren’t just the org chart. A “independent” supplier 100% dependent on your volume, a founder’s family member consulting through an LLC, a JV partner with veto rights — all can be related in substance. Auditors test this via vendor concentration reports, address/bank-account overlaps, and approval-pattern analysis (who approves whose invoices). The register should capture de facto relationships with a one-line rationale each; a thin register with only legal entities signals the process is form-filling. Cross-check against Occupational Fraud indicators and the vendor file in Procurement Fraud.

FAQ

Do immaterial balances need tracking?

Yes for completeness; disclosure thresholds do not waive control and identification.

What evidence closes fastest?

Agreements + pricing memo + monthly confirmations + bank proof + disclosure tie — filed together.

Next Steps

  1. Freeze related-party register this month.
  2. Reconcile all intercompany to zero or memo.
  3. Align pricing to TP policy before year-end.