When the wife is the supplier and the trust is the landlord: three questions every reviewer and compiler should ask
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You sign off the financial statements. Your name goes on the report. And if the numbers hide a related-party transaction that should have been told to the world, you are the one who carries the risk, not the family that owns the business.
This is the silent risk in nearly every family-run SME you work with.
In South Africa, most SMEs are family businesses. The husband owns the company. The wife runs the admin. A brother rents the building to the company. A cousin supplies the stock. A child draws a salary but does not really work in the business. The lines between the family and the company are blurry, sometimes by accident, sometimes on purpose.
That blur is where the risk sits.
If you are a CIBA Independent Reviewer working under ISRE 2400 (Revised), or a CIBA member compiling Annual Financial Statements under IFRS for SMEs Section 33, related-party transactions are not a side issue. They are one of the top three areas where reviews go wrong, where SARS pushes back, and where the reviewer ends up explaining themselves to a CIPC or CIBA disciplinary panel.
This article gives you a simple, practical way to handle it.
First — what counts as a related party in a family business?
You need to know exactly who is in scope. Section 33 of IFRS for SMEs gives you the definition. In plain language, a related party is:
The owner or person who controls the business
Close family of the owner — spouse, life partner, children, stepchildren, dependants (and the children of the owner's spouse)
Key management — directors, the CEO, the financial manager, anyone who runs the place
Close family of key management
Other companies that the owner, family or management controls or has significant influence over (more than 20% voting rights is a common signal)
Trusts linked to the family — including the family trust that owns the business, the trust that owns the building, or the trust that "lends" the business money
⚠️ Two businesses are NOT automatically related just because they share a director. Section 33.4 is clear on this. Look for control or significant influence, not just overlap.
The simple test: could this person or entity influence the financial decisions of the business, and would the deal have happened on the same terms with a stranger?
If the answer to either is yes, you are looking at a related party.
Why this matters more in a family-run SME
In a listed company, there are audit committees, independent directors, and legal teams watching related-party deals.
In a family-run SME in Mpumalanga, KZN, or the Eastern Cape, there is you. That's it.
Family-run SMEs carry three structural risks that bigger businesses do not:
1. The owner and the business share one wallet. The owner takes money out as "salary," "drawings," "loan repayments," and "expense reimbursements", sometimes for the same thing, recorded in three different ways. Without proper records, you cannot tell which is which.
2. Related-party deals are not at market price. The family trust rents a building to the company for R80 000 per month when the market rate is R30 000. Why? To shift profit from the company (which pays tax) into the trust (which may be taxed differently, or be used for estate planning). SARS sees this. So does anyone reading the financial statements.
3. Disclosure is weak or missing. The owner does not want competitors, the bank, or his sister-in-law to know what he pays himself. So the deal is recorded, but never disclosed in the notes. That is a Section 33 breach. And that breach sits on your signed report.
This is why related parties are not a "tick-box" item. They are the heart of the review.
The three questions every reviewer should ask
Here is the practical framework. Use these three questions on every family-run SME engagement, at planning, during fieldwork, and again before you sign off.
Question 1: Who is in the family — and what else do they own?
You cannot review related-party transactions if you do not know who the related parties are.
Most reviewers stop at the company structure. They look at the CIPC records, see one director, and move on. That is not enough.
Do this instead:
Get a family tree from the owner. Spouse, children, parents, siblings, in-laws, life partners. Put it on paper.
Pull a CIPC search on each adult family member. What other companies are they directors of? What trusts are they linked to?
Ask about family trusts. Who are the trustees? Who are the beneficiaries? Does the trust own the company, the building, the vehicles, or the IP?
Get the owner to sign a related-party declaration at the start of the engagement. List every entity, person, and trust connected to the family. Make it part of your working papers.
This is not paranoia. It is the identification step that PCAOB inspectors and CIBA's monitoring team all look for first. If you skipped this, the rest of your work has no foundation.
Sector example — Construction: A construction SME in Mbombela has one director on paper. The family tree shows the wife runs a "labour broker" supplying workers to the company. The brother owns the plant hire business that the company rents excavators from. The son owns the transport company moving the materials. Every one of those is a related party, and every monthly invoice is a related-party transaction. You cannot find them if you never asked the question.
Question 2: Is the transaction at arm's length, and if not, is it disclosed?
This is the question that protects the financial statements from being misleading.
A related-party transaction is not automatically wrong. Many of them are perfectly norma, a director's loan, a rental from the family trust, a sale to a sister company. Section 33 does not require these to be stopped. It requires them to be disclosed.
The disclosure must include:
The nature of the related-party relationship
The amount of the transaction
The outstanding balance at year-end
The terms and conditions — including whether they are at market value, whether security has been given, and how it will be settled
Any provision for bad debts on amounts owed by related parties
Any expense recognised for bad debts owed by related parties
If the transaction is not at arm's length, that fact itself is a disclosure. You do not write "this rental is at market value" unless you have evidence that it is.
Do this instead:
For every material related-party deal, ask the owner: "How did you decide on this price?" Write down the answer.
For rentals, salaries, management fees, and loans, compare them to what the same deal would cost with an outside party. A property valuer's letter, a SARA salary survey, the prime rate plus a margin, get something on file.
For loans to and from directors, check the interest rate, repayment terms, and security. If there are none, that is a disclosure.
Look at the balance movement during the year. A director's loan that grew from R200 000 to R1.8 million without a board resolution is a red flag, for both Section 33 disclosure and the Companies Act Section 45 (financial assistance to directors).
Sector example — Retail / Hospitality: A family-run restaurant pays the owner's spouse a "management fee" of R45 000 a month for "marketing services." Marketing is a Facebook page updated once a week. The fee was set so that the company breaks even — and the spouse pays tax at a lower marginal rate. Section 33 requires you to disclose this transaction, its amount, and the relationship. If you don't, the financial statements are misstated.
Question 3: Could a reasonable user of the statements be misled?
This is the question that decides whether your conclusion in the ISRE 2400 report is unmodified, modified, or adverse.
The objective of Section 33 is clear: financial statements must contain enough disclosure that a reader can see how the financial position and performance of the business have been affected by related parties.
You are not auditing. As an Independent Reviewer under ISRE 2400, your work is built on inquiry and analytical procedures. But the standard also requires you to do more work when something does not add up. Related-party transactions in family-run SMEs almost always trigger that "more work" requirement.
Do this instead:
Read the notes to the financial statements as if you were the bank considering a loan. Could you understand how the related-party deals affect profit and cash flow? If not, the disclosure is incomplete.
Read them as if you were SARS. Are the transfer pricing flags visible? Is the management fee or the trust rental sitting in the notes for SARS to find easily?
Read them as if you were a minority shareholder, perhaps the owner's brother who put in R500 000 and has no involvement in the business. Can he see where the money is going?
If the answer to any of these is "no," the disclosure is not enough. You go back to the client.
If the client refuses to fix the disclosure, you escalate. A modified conclusion in your ISRE 2400 report is far less painful than your name on a misleading set of statements that surfaces in a divorce, an estate dispute, a SARS audit, or a bank fraud case three years later.
What to put in your working file
If a CIBA monitoring inspector open your file tomorrow, these are the documents that prove you did the work:
Signed family-tree document and related-party declaration from the client
CIPC searches on all key family members
List of all family trusts and their trustees / beneficiaries
Schedule of every related-party transaction during the year, with amounts and balances
Evidence of arm's-length testing for material transactions (valuations, salary surveys, market rate comparisons)
Copies of loan agreements, lease agreements, and management service agreements with related parties
A reconciliation of the related-party disclosures in the notes to the underlying ledger
Documented analytical review of director loan movements, drawings, and unusual balances
A memo recording any judgement calls, why you accepted a price as market-related, why you did or did not modify your conclusion
This is not extra work for the sake of paperwork. This is the file that protects you when something goes wrong.
Turn this risk into a service your client pays for
Here is the part most reviewers miss.
Most family-run SMEs do not understand that their "loose" related-party arrangements are creating tax risk, estate risk, succession risk, and bank-funding risk. They think it is just how a family business works.
You are the person who can see it. That makes you the person who can charge for fixing it.
This is exactly the shift CIBA is building the profession towards, from compliance pair-of-hands to trusted advisor.
A few practical services to package and price:
Related-party health check — annual review of every family-linked transaction, with recommendations on documentation, pricing, and disclosure. Price it as a separate engagement.
Family structure mapping — a documented family tree, CIPC linkage, trust register and intercompany schedule that the client refreshes yearly with your help.
Arm's length pricing files — keep market evidence on file for every rental, salary, and management fee. This is what SARS asks for first in an enquiry.
Loan account discipline — proper loan agreements, board resolutions, repayment schedules, and Section 45 compliance for director loans.
You are not creating make-work. You are protecting an SME from collapsing the next time the owner wants to sell, raise finance, exit, or hand the business to the next generation.
When that SME survives because you protected the file, the family keeps earning. The staff keep their jobs. The economy keeps growing. That is the CIBA logic, accountants are not spectators in the economy. They are participants in shaping it.
The bottom line
In a family-run SME, related-party transactions are not a footnote. They are where the money quietly moves, where the tax risk hides, and where your reputation as a reviewer is tested every year.
Three questions. Use them on every file.
Who is in the family — and what else do they own?
Is the transaction at arm's length — and if not, is it disclosed?
Could a reasonable user of the statements be misled?
Get those right, and you protect the business, the family, and yourself.
You are already doing the work. Now make sure the file proves it.
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