Auditor wants waiver

As a general rule, since the repayment was material (from my viewpoint), it makes sense for the auditor to request this. If you are concerned about limiting future related party transactions, you can specify in the letter what the reimbursements were for and that no additional past transactions have occured which are not already recorded. The controlling shareholder is providing documentation/comfort to your auditor that the findings and re-statement were a one-time deal and won't be happening again. (That they can't keep reviewng their books and showing up at your door with another outstanding item.)

You would want the same thing if you were a major investor in your company and already felt the sting of one re-statement to make sure it won't happen again. If there is a bank involved, it becomes even more sensitive.

They seek either a waiver or an unchangeable specific amount to be reflected, together with a written representation that the specific amount is complete. Large public firms are increasing sensitive to "surprises" of a material nature, and particularly do not like those from "related parties".

If you had to restate, it sounds to me like the loan may not have been reported as a liability on the company books. If so, I'm guessing your auditors want to know how much more is owed and why that's not on the books as a liability. If the controlling shareholder views the money as callable, the books should reflect that. If the controlling shareholder does not view the money as callable, they should have no problem with issuing a formal waiver. If they refuse to issue a waiver, it's possible that their entire investment needs to be reported as a liability.

Or, is there something else going on?

Typically your auditor should not ask for a waiver, but rather should obtain a confirmation of the total outstanding balance from your related party, although maybe this is just semantics. A waiver for any further reimbursements from old loans would not be as good of evidence as confirming the full outstanding balance at year-end, depending on the quantity and types of transactions you have with this related party.