Insights

Keeping up with ASIC: Understanding your reporting obligations under the Corporations Act

The Australian corporate regulator, the Australian Securities and Investments Commission (ASIC) has recently written to over 1,000 proprietary companies enquiring whether their annual financial reports should’ve been prepared, audited and lodged with ASIC in accordance with the requirements of Corporations Act 2001.

The letters require companies to inform ASIC within 14 days of receiving the letter whether or not they failed to comply with the requirements to prepare annual financial reports, and if so, lodge the audited annual financial reports with ASIC as a matter of urgency.

Reason for ASIC action

Historically, ASIC has had no formal mechanism to identify whether a proprietary company is large or small and hence whether audited financial reports need to be lodged with ASIC. With the emergence of new technologies and data matching practices, ASIC now has the ability to identify those proprietary companies that may have missed the adjustment to their reporting requirements, and request that they do so.

The requirements

Under the requirements of Corporations Act, a ‘large’ proprietary company is generally required to prepare and lodge financial reports annually. A proprietary company is classified as ‘large’ if it satisfies any two of the following three items:

  • The consolidated revenue for the financial year of the company and the entities it controls (if any) is $25 million or more;
  • 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; 
  • The company and the entities it controls (if any) have 50 or more employees (full- time equivalent) at the end of the financial year.

These tests must be performed on a consolidated basis (even if a consolidated financial report is not prepared) and in accordance with all relevant Australian Accounting Standards.

If a proprietary company fails to meet any two of the above tests, it would be classified as ‘small’. A small proprietary company is generally not required to prepare and lodge financial reports annually unless the company is controlled by a foreign company.

Accordingly, large proprietary companies and small proprietary companies that are controlled by foreign companies will generally be subject to financial reports preparation, audit and lodgement requirements unless relief is available and obtained under specific ASIC class order exemptions.

Class order requirements are relatively complex --below is a list of three class orders relevant to preparation, audit and lodgement of financial reports by proprietary companies.

Class Order

Nature of the relief

ASIC Corporations (Foreign-Controlled Company Reports) Instrument 2017/204 (formerly CO 98/98)

Provides relief to foreign controlled small proprietary companies from financial report preparation and lodgement requirements provided that the company is not part of a large Australian group

ASIC Corporations (Audit Relief) Instrument 2016/784 (formerly CO 98/1417)

Provides relief to large proprietary companies and small proprietary companies that are controlled by foreign companies from audit (but not lodgement) requirements

ASIC Corporations (Wholly-owned Companies) Instrument 2016/785 (formerly CO 98/1418)

Provides relief to certain companies from financial report preparation and lodgement requirements

These are all required to be lodged prior to the end of the financial year in question.

Action required by large proprietary companies

Subject to any relief obtained under above-mentioned class orders, a large proprietary company is required to:

  • prepare a financial report [s292(1])
  • prepare a directors’ report [s298]
  • appoint an auditor and have the financial report audited [s301(1)]
  • lodge the financial report with ASIC within 4 months after year end [s319(1),(3)(b)]
  • distribute the financial report to members within 4 months after year end [s314, 315(4)]

If you are (or have been) a ‘large’ proprietary company and have received an ASIC query recently about non-lodgement of audited financial reports, you will need to prepare the financial reports (not just for the current period but also for all preceding periods in which the company was large), appoint an auditor and lodge the audited financial statements with ASIC as a matter of priority.

If you believe you are (or have been) a ‘large’ proprietary company but have not complied with the financial report preparation, audit and lodgement requirements, we recommend taking a proactive position.

For advice on your reporting obligations or assistance throughout this process please get in touch with me or any one of the Grant Thornton Audit & Assurance team