Abstract—This paper reviews the existing requirement on related party transactions (RPTs) disclosure in the Malaysian context and discusses issues surrounding such disclosure. As there are two conflicting effects of RPTs, sufficient information should be made available to assist investors in analyzing the risk and return of RPTs. We review prior studies and highlight issues of information disclosure related to RPTs, such as the variations in the level of RPTs disclosure. We propose future research on RPTs to apply content analysis using a voluntary disclosure index to understand more about the breadth and depth of the RPTs information. Index Terms—Relatedparty transactions, disclosure, Malaysia. I. INTRODUCTION This paper reviews existing requirement on related party transactions (RPTs) in Malaysia and highlights issues surrounding such disclosure. RPTs, which refer to transactions with parties that are related, are common features in Malaysian economy. The prevalence of RPTs is not a surprise because cultural and political forces lead to a relationship-based system in the economy. From the perspective of investors, RPTs are a fact of life in investing in Asia, generally, and Malaysia specifically. However, the 1997 Asian financial crisis has created a generally accepted view that RPTs in the Asian region are abusive in nature. This view is substantiated by at least three reasons. First, in the case where the controlling shareholder own private interests outside of the listed company such as in Asia, a significant risk of abusive RPTs exists [1]. Second, the relationship-based corporate governance and business systems in Asia provides a perfect environment that allows controlling shareholders to profit at the expense of the company‘s financial health—whether because company assets are sold at an excessively low price, assets are purchased at an inflated price or loans are given by the company to controlling shareholders on terms far better than the market offers [2]. Unlike Anglo-American jurisdictions, RPTs in Asian groups are typically either transactions of revenue or trading nature, or asset transfers [3]. Third, the inappropriate institutional, law and legal enforcement in the East Asian countries [4] that shields controlling shareholders from internal governance structure, facilitates the practice of abusive RPTs. The negative perceptions involving RPTs in East Asia are supported by the many fraud incidences Manuscript received May 18, 2013; revised July 27, 2013. The study is supported byResearch Acculturation Grant Scheme (RAGS: Vote No. 57089) from the Ministry of Higher Education of Malaysia. The authors are with Universiti Malaysia Terengganu, Kuala Terengganu, Terengganu, 21030 Malaysia (e-mail: akmalia.ariff@umt.edu.my, hafizaaishah@umt.edu.my). involving related parties [5] and empirical evidence from existing literature in those countries. Nevertheless, many reforms have been undertaken by countries in East Asia to deal with abusive RPTs. These include the accounting standard on RPTs (IAS 24), strengthening the capital market regulations and approval procedures on RPTs, and providing guidelines for best practices on RPTs. The revamped Bursa Malaysia Listing requirement following the Asian Financial crisis, for example, has attributed a great deal in the issues surrounding substantial and related party transactions. While Asian jurisdictions are commonly noted for abusive RPTs, shareholders in many of the Asian countries enjoy substantially better protection from abusive RPTs than shareholder in many ‗developed‘ jurisdictions [3]. Empirical research has analyzed the economic consequences of RPTs information. Prior research focuses on RPTs disclosed in the annual reports, filings, and circulars. Our review on RPTs requirement and empirical evidence suggests that non-monetary information should be considered in measuring RPTs. We also find that there are different managerial incentives behind the different types of RPTs disclosure. Reviews provided in this conceptual paper benefits future research in the area of financial reporting quality, generally, and RPTs specifically. We propose that a disclosure index needs to be developed to capture the breadth and depth of information on RPTs in publicly available information to assist in understanding the true value of RPTs disclosure by firms. This paper proceeds as follows, Section II discusses the requirement for RPTs information in Malaysia, followed by reviews on empirical research on RPTs in Section III. In Section IV, we highlight issues on RPTs disclosure, while Section V concludes. II. REQUIREMENT FOR RELATED PARTY TRANSACTIONS DISCLOSURE IN MALAYSIA RPTs are defined as deals entered into by at least two entities, one of which has control over the other or where the parties come under the same control of another [5]. Normal business transactions fall into the category of RPTs when the transfer of resources, services, or obligations occurred between related parties. Among parties that can be considered as ‗related‘ are directors, officers, and controlling owners. Annually published financial statements are one of the sources of RPTs information, and as such, discussion on accounting standards for RPTs is of relevance. Prior to full convergence with the International Accounting Standards Board (IASB) in 2012, RPTs in Malaysia are accounted using FRS124. The standard has gone through a revision in 2010, which sees some amendments involving definition of related The Breadth and Depth of Related Party Transactions Disclosures A. Mohamad Ariff and H. A. Hashim International Journal of Trade, Economics and Finance, Vol. 4, No. 6, December 2013 388 DOI: 10.7763/IJTEF.2013.V4.323