Financial Accounts Preparation, Lodgement and Audit Exemption in Australia – Increase In Thresholds
Implementing the Corporations Amendment (Proprietary Company Thresholds) Regulations 2019
The Australian Government requires all “large” companies and foreign-controlled companies to prepare and lodge audited financial statements with the Australian Investment & Securities Commission (ASIC). Generally, the majority of Australia companies are not required to prepare and lodge audited financial statements.
Documents lodged with ASIC are available for public scrutiny (for a small search fee). Thus any financials lodged with ASIC are available for competitors and the like to view.
Currently, section 45A(3) of the Corporations Act 2001 defines proprietary companies to be considered “large” if they satisfy at least two of the following requirements:
a) the consolidated revenue for the financial year of the company and any entities it controls is $25 million or more;
b) the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is $12.5 million or more;
c) the company and the entities it controls have 50 or more employees at the end of the financial year.
The Federal Government has recently doubled the threshold size of large proprietary companies by amending the Corporation Act 2001. The laws will come into effect from 1 July 2019 and will apply to companies with year ends commencing on or after 1 July 2019.
With the implementation of the new Regulations, the thresholds for proprietary companies to be considered as “large” have been adjusted with effect from 1 July 2019 to any company that satisfies at least any two of the following criteria:
a) the consolidated revenue for the financial year of the company and any entities it controls is $50 million or more;
b) the value of the consolidated gross assets at the end of the financial year of the company and the entities it controls (if any) is $25 million or more;
c) the company and the entities it controls have 100 or more employees at the end of the financial year.
The reason behind the change was that the thresholds have not been reviewed since 2007 and it was a matter of significance to ensure an accurate reflection of the sustainable economic growth over more than a decade.
What will be the implications of the thresholds adjustments?
Large proprietary companies will need to continue to prepare and lodge audited general purpose financial reports with ASIC. However, those companies which no longer meet the criteria of the thresholds will benefit from the significant cost reductions for not having to prepare and lodge general purpose financial reports and can also avoid the substantial financial cost of having their accounts audited.
Foreign Controlled Companies
Foreign Controlled Companies which would otherwise not be considered large are generally required to prepare and lodge audited financial statements unless they have applied for an exemption to do so under ASIC Corporations (Foreign-Controlled Company Reports) Instrument 2017/204 which relieves them from having to prepare and lodge audited financial reports.
Foreign Controlled Companies which previously failed to meet the criteria set out above due to the thresholds but meet the criteria from 1 July 2019 are able to apply for the exemption and avoid the cost of having to prepare and lodge audited financial statements.
For companies with Substituted Accounting Period, the new thresholds apply to any financial years commencing on or after 1 July 2019.
The request for exemption can be lodged three months prior to the commencement of the start of the year and through to four months after the end of the financial year.
By way of example companies that have a 31 December year-end must apply the old definitions for 31 Dec 2019 and can apply the new definitions for the year ending 31 December 2020 (ie the first year commencing on or after 1 July 2019).
The exemption does not apply to “large” companies which are foreign-controlled and therefore they will continue to need to prepare and lodge audited financial statements.
We would suggest that companies that meet the criteria for exemption, apply for the exemption in order to:
1. Avoid the need to lodge their financial statements
2. Avoid the need for a Statutory Audit
Having received the exemption, foreign-controlled companies can nonetheless choose to appoint an auditor (particularly in order to satisfy either parent company or lead auditor obligations). Having received the exemption, however, would mean that they don’t need to lodge their financials with ASIC.
The recently introduced Significant Global Entity (SGE) and Country by Country Reporting (CbC) regimes place additional reporting obligations on subsidiaries of SGE groups. In Australia, an SGE is a member of a group with a global turnover of over AUD$1Billion. These obligations are separate and quite distinct from the obligations explained above.
Should you require any assistance with regard to these changes or the application for Exemption, we ask you to contact Ms Sanjna Johurdassing (Corporate Secretarial Manager) or Mr Riccardo Raso (Principal) at McBurneys on [email protected] or call us on + 61 2 9230 0808.