Reforms proposed to reduce companies' reporting obligations

Draft Corporations Amendment (Corporate Reporting Reform) Bill 2010

On 4 December 2009, the Federal Treasury released draft reforms to improve Australia’s corporate reporting framework. It is proposed that most of these amendments to the Corporations Act (including the limited by guarantee proposals) will be able to be applied as from 30 June 2010.

The reforms are aimed at reducing reporting obligations of companies, saving both time and money for those effected by these proposed changes.

The reforms include:

1   A reduction on the regulatory requirements on companies limited by guarantee.

• The draft reforms outline a three tiered reporting framework for companies limited by guarantee (based on revenue and deductible gift recipient status). The first tier will abolish Corporations Act reporting for those companies whose annual revenues are less than $250,000 and who do not have deductible gift recipient status
• An audit review, rather than an audit would be permitted for those companies whose annual revenues are less than $1,000,000 or less than $250,000 if they have deductible gift recipient status
• The elimination of an ability to pay dividends will reduce the usefulness of this entity type for commercial activities

2   Changing the circumstances in which a dividend may be paid by introducing a ‘solvency’ rather than a ‘profits’ test for the payment of dividends.

Under these amendments, a company must not pay a dividend unless:

• the company’s assets exceed its liabilities and the excess is sufficient for the payment of the dividend
• the payment of the dividend is fair and reasonable to the company’s shareholders as a whole; and
• the payment of the dividend will not materially prejudice the company’s ability to pay it’s creditors

3   Allowing companies to more easily change their year end reporting dates. 

This will assist companies in timing and preparation of year end reports and will also assist in balancing companies and auditors work loads, moving away from peak reporting periods.  It will also assist companies to match their operating and reporting cycles.

4   Removal of the Corporations Act requirement to prepare parent entity financial statements where consolidated financial statements are required. 

This would simplify the preparation of the consolidated financial statements resulting in only two or three columns of information being presented.  Limited information regarding the parent entity would still be required by way of note disclosure.

5   Statutory protection of legal professional privilege on solicitor’s representation letters, which assist auditors to verify a company’s actual and contingent liabilities.

6   Other changes include:

• technical amendments to clarify the circumstances in which a company can cancel capital
• director's declaration to include a statement of compliance with IFRS
• improving disclosure of non-financial information in the director's report
• changes to the composition of the Companies Auditors and Liquidators Disciplinary Board

Implementation of these proposed amendments will result in significant changes to financial reporting, and Grant Thornton has made a submission which is supportive of the majority of the changes proposed, with the exception of allowing a non-registered company auditor to be able to do an audit review if they are a practising member of any of the Australian accounting bodies. Grant Thornton’s submission is available by clicking here and argues that an audit reviewer needs the appropriate qualifications and experience that only a registered company auditor possesses. 

For more information on the draft Corporations Amendment (Corporation Reporting Reform) Bill 2010, contact your usual Grant Thornton advisor, Keith Reilly - National Head of Professional Standards at kreilly@grantthornton.com.au or the author of this article.

Author, Michelle Spain, February 2010

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