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In an information release issued in July 2000, the
Australian Securities and Investments Commission
(ASIC) stated that it believed the existence of a
significant number of creditors and/or employees
may indicate that users exist who cannot command
the preparation of reports tailored so as to satisfy
specifically all of their information needs, and
therefore that the company is a reporting entity.
ASIC indicated that it will look closely at cases
where companies are treated as non-reporting
entities, and will seek explanations from directors
where it appears reasonable to expect that there
may be users dependant on GPFRs.
Preparing SPFRs under the Corporations
Act 2001
General
SPFRs prepared for a financial year must include:
• financial statements for the period, comprising a
statement of financial performance, statement of
financial position and statement of cash flows;
• notes to the financial statements, as required by
the Corporations Regulations 2001 and
Accounting Standards; and
• a directors’ declaration.
APS 1 “Conformity with Accounting Standards
and UIG Consensus Views” paragraph 20,
indicates that members of the Australian
accounting bodies who are involved in, or are
responsible for, the preparation, presentation or
audit of a SPFR (except where it is reasonable to
expect that the SPFR will be used solely for
internal purposes, for example monthly
management accounts) are to take all reasonable
steps within their power to ensure that the SPFR
and any audit report or accountant’s statement
states:
• that it is a SPFR;
• the special purpose for which the SPFR has been
prepared; and
• the extent to which Accounting Standards and
UIG Consensus Views have, or have not, been
adopted in its preparation and presentation.
Minimum compliance requirements
The following Accounting Standards and UIG
Consensus Views apply to all companies required to
comply with Chapter 2M of the Corporations Act
2001, irrespective of whether they are reporting
entities or not:
• AASB 1018 “Statement of Financial Performance”;
• AASB 1034 “Financial Report Presentation and
Disclosures”;
• AASB 1040 “Statement of Financial Position”; and
• UIG Abstract 35 “Disclosure of Contingent
Liabilities”.
Statement of Cash Flows
A statement of cash flows is required to be included
in a SPFR prepared in accordance with Chapter 2M
of the Corporations Act 2001. In accordance with the
reporting entity concept, the disclosure requirements
of Accounting Standard AASB 1026 “Statements of
Cash Flows”, including the notes to the statement of
cash flows, need only be complied with to the extent
necessary to meet the information needs of the
special purpose users, preparers of the SPFR must
ensure that the statement of cash flows includes a
sufficient level of detail to present a true and fair
view of the performance of the entity. The ASIC has
expressed the view in ASIC-PN 68 that a statement
of cash flows should be presented in the AASB 1026
format. However, the SPFR may exclude some of the
detailed disclosure requirements of AASB 1026, for
example the requirements concerning:
• non-cash transactions;
• credit standby arrangements and used and unused
loan facilities; and
• acquisitions and disposals of entities, if
consolidated financial statements are not prepared.
Where an entity has no cash flows during the current
and preceding reporting period, the entity should still
includes a statement of cash flows in its financial
report in order to comply with Chapter 2M of the
Corporations Act 2001. The statement of cash flows
in this instance would disclose nil balances for each
class of cash flow (that is, net cash flows from
operating, investing and financing activities).
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• entities and registered schemes which offer
securities other than debentures as consideration
for an acquisition of shares in a target company
under a takeover scheme; and
• entities whose securities are issued under a
compromise or scheme of arrangement.
The following entities are exempt, from the
enhanced disclosure requirements of the
Corporations Act 2001:
• a public authority of a State or Territory or an
instrumentality or agency of the Crown in right
of a State or Territory;
• a public authority of the Commonwealth or an
instrumentality or agency of the Crown in right
of the Commonwealth, the relevant traded debt
securities of which are guaranteed by the
Government of the Commonwealth; and
• an entity exempted by the Regulations or the
ASIC.
Disclosing entities are required, inter alia, to
comply with:
1 The continuous disclosure requirements, which
include:
• a requirement to provide information which,
if generally available, would be likely to have
a material effect on the price or value of the
entity’s securities. Listed disclosing entities
must immediately make such disclosure to the
ASX, while unlisted disclosing entities must
make such disclosure to the ASIC as soon as
practicable; and
• a requirement to give the ASX the information
needed to correct or prevent a false market in
an entity’s securities where the ASX considers
that there is or is likely to be a false market
and asks the entity to give it information to
correct or prevent a false market.
2 The half-year reporting requirements, which
include a requirement to prepare a half-year
financial report, including:
• directors’ report and directors’ declaration, in
accordance with Part 2M.3 of the Corporations
Act 2001; and
• half-year financial statements, in accordance
with AASB 1029 “Interim Financial
Reporting”.
Recognition and Measurement Requirements
In its July 2000 information release, the ASIC
noted that the Accounting Standards provide a
framework for determining a consistent
definition of “financial position” and “profit or
loss”. Without such a framework the figures in
financial statements would lose their meaning.
Financial reports prepared under the
Corporations Act 2001 must be prepared within
the framework of Accounting Standards to ensure
that the following requirements of the
Corporations Act 2001 are met:
• the financial report gives a true and fair view
(s.297);
• the financial report does not contain false or
misleading information (s.1308); and
• dividends are only paid out of profits (s.254T).
Therefore the recognition and measurement
requirements of all Accounting Standards must
be applied in order to determine profit or loss
and financial position. The recognition and
measurement requirements of Accounting
Standards include requirements relating to
depreciation of non-current assets, amortisation
of goodwill, tax-effect accounting, lease
accounting, measurement of inventories,
recognition and measurement of liabilities for
employee benefits. In addition, those Accounting
Standards which deal with the classification of
items must be applied, for example the provisions
of AASB 1033 “Presentation and Disclosure of
Financial Instruments” concerning the
classification of financial instruments as debt or
equity.
Disclosing Entities
The Corporate Law Reform Act 1994 introduced
enhanced disclosure requirements for disclosing
entities, which include:
• listed entities and listed registered schemes;
• entities and registered schemes which raise
funds pursuant to a prospectus;
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The half-year financial report must be lodged
with the ASIC (or the ASX for listed disclosing
entities) within 75 days of the half-year end.
However, the ASX recently revised its Listing
Rules, including those relating to reporting
deadlines for half-year financial reports of listed
disclosing entities. The revised ASX Listing Rules
relating to half-year reporting deadlines will be
operative for half-years ending on or after 30 June
2003 and requires entities to lodge their half-year
report with the ASX within two months of the
half-year end. A summary of the revised
reporting deadlines are provided on page 20. The
half-year report, prepared in accordance with
AASB 1029 must be lodged together with the
information required by the newly developed
Appendix 4D to the Listing Rules.
3 The annual reporting requirements, which
require disclosing entities to prepare a financial
report for the financial year in accordance with
Part 2M.3 of the Corporations Act 2001. The
annual financial report must be lodged with the
ASIC (or the ASX for listed disclosing entities)
within 3 months of the financial year end.
The annual financial report of disclosing entities
that are not companies must be prepared in
accordance with AASB accounting standards.
This requirement applies to financial years
commencing on or after 1 July 1994 through the
application of AASB 1030 “Application of
Accounting Standards to Financial Year Accounts
and Consolidated Accounts of Disclosing Entities
Other than Companies”.
Large Proprietary Companies
Preparation of Financial Reports
Large proprietary companies (as defined below) are
required to prepare a financial report in accordance
with Part 2M.3 of the Corporations Act 2001 and
have the financial report audited.
Definition
A proprietary company is a large proprietary
company for a financial year if it satisfies at least 2
of the following conditions:
a the consolidated gross operating revenue for the
financial year of the company and the entities it
controls (if any) is $10 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 $5 million or more;
or
c the company and the entities it controls (if any)
have 50 or more employees at the end of the
financial year.
Section 45A of the Corporations Act 2001 requires that when counting employees,
part-time employees be taken into account as an appropriate fraction of a full-time
equivalent.Consolidated gross operating revenue and the value of consolidated gross
assets are to be calculated in accordance with the basis of accounting specified by
accounting standards in force at the relevant time.
Lodgement Relief
In accordance with the former s.319(4) of the
Corporations Law which continues to apply in
accordance with s.1408(6) of the Corporations
Act 2001, (ie. the “Grandfather Clause”) large
proprietary companies that were classified as
“exempt proprietary companies” as at 30 June 1994
and continue to meet the definition of “exempt
proprietary company” at all times subsequent to
30 June 1994 are relieved from the requirement to
lodge a financial report with the ASIC, provided
certain conditions are satisfied.
ASIC Class Order 98/0099 (dated 10 July 1998),
provides similar lodgement relief to large
proprietary companies in which an ownership
interest is held by a foreign company, provided the
ownership interest does not constitute control and
certain other conditions are satisfied. To take
advantage of this relief, the directors of the large
proprietary company must lodge with the ASIC,
within 4 months after the end of the first financial
year that ends after 24 April 1997, notification of
their intention to adopt the ASIC Class Order.
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Audit Relief
ASIC Class Order 98/1417 (dated 13 August 1998)
relieves large proprietary companies that were not
audited for a financial year ending during 1993, or
in any later financial year, from the audit
requirements of the Corporations Act 2001
provided certain conditions are satisfied.
The relief does not apply to large proprietary
companies that are:
• large “grandfathered” proprietary companies
under the former s.319(4) of the Corporations
Law;
• disclosing entities;
• borrowers in relation to debentures;
• guarantors of borrowers in relation to
debentures; or
• a licensed securities dealer or a futures broker.
The Class Order relieves large proprietary
companies from the audit requirements of the
Corporations Act 2001 for any financial year ending
on or after 1 July 1998 (defined as the ”Relevant
Financial Year”) provided certain conditions are
satisfied.
To qualify for audit relief the following conditions
must be satisfied:
• during the period of three months before the
commencement of the Relevant Financial Year
and ending one month after the
commencement of the financial year, all
directors and all shareholders must resolve
that an audit is not required and formal
notification of the resolution must be lodged
with the ASIC (using Form 382);
• written notice that an audit is required has not
been received;
•
the directors’ declaration for each financial
year ending on or after 1 July 1998 must
include an unqualified statement that there
are reasonable grounds to believe that the
company will be able to pay its debts as and
when they become due and payable;
• the company must have procedures which
enable all the directors to assess whether the
company is able to pay its debt as and when
they fall due;
• management accounts, incorporating a
statement of financial performance, statement
of financial position and statement of cash
flows, must be prepared on at least a quarterly
basis within one month after the end of the
relevant quarter;
• total liabilities must not exceed 70% of total
tangible assets (determined in accordance with
the basis of accounting specified by
Accounting Standards and UIG Consensus
Views, except that liabilities may exclude
Approved Subordinated Debt);
• the company, and economic entity where
consolidated financial statements are required
under the Corporations Act 2001, must have
made a profit from ordinary activities after
related income tax expense for the Relevant
Financial Year or the financial year preceding
the Relevant Financial Year;
• where the company is party to a deed of cross
guarantee for the purposes of relief to its
wholly-owned controlled entities under ASIC
Class Order 98/1418 the previous two
conditions must also be satisfied for the closed
group and those entities which are parties to
the deed of cross guarantee; and
• the year end financial statements must be
prepared by a prescribed accountant (which may
be an employee of the company) in accordance
with Miscellaneous Professional Statement APS
9 “Statement on Compilation of Financial
Reports” and must be accompanied by a
compilation report prepared in accordance with
APS 9.
In addition, the company must comply with the
following requirements:
• where a shareholder requests a copy of the
management accounts or a directors’
resolution regarding the above items, the
company must make these available to the
shareholder;
•
the company must lodge its financial report
and directors’ report with the ASIC in
accordance with the requirements of the
Corporations Act 2001; and
• the directors’ report must include a statement
that the financial statements have not been
audited, in reliance on this Class Order, and
that the requirements of this Class Order have
been complied with.
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Small Proprietary Companies
Preparation of Financial Reports
A small proprietary company (as defined below) is
not required to prepare a financial report under
Chapter 2M.3 of the Corporations Act 2001 unless:
• the small proprietary company is controlled by
a foreign company (for all or part of the year)
and the results of the small proprietary
company for the year (or part thereof, if control
existed for only part of the year) are not
covered by consolidated financial statements
lodged with the ASIC by the registered foreign
company or by an intermediate Australian
holding company;
• 5% or more of the shareholders request that a
financial report be prepared; or
• the ASIC requests that a financial report be
prepared.
If 5% or more of the shareholders request that a financial report be prepared, a
directors’report need not be prepared and the financial report need not be prepared
in accordance with Accounting Standards if the shareholders’request specifies that a
directors’report is not required and that Accounting Standards need not be complied
with.In addition,the financial report need only be audited if the shareholders’
request asks for the financial report to be audited.
If the ASIC request that a financial report be prepared,the financial report is to be
prepared in accordance with the request (ie.the request may or may not require that
the financial report be prepared in accordance with Accounting Standards or be
subject to an audit).
Definition
A proprietary company is a small proprietary
company for a financial year if it satisfies at least 2
of the following conditions:
a the consolidated gross operating revenue for the
financial year of the company and the entities it
controls (if any) is less than $10 million;
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 less than $5
million; or
c the company and the entities it controls (if any)
have fewer than 50 employees at the end of the
financial year.
Section 45A of the Corporations Act 2001 requires that when counting employees,
part-time employees be taken into account as an appropriate fraction of a full-time
equivalent.Consolidated gross operating revenue and the value of consolidated gross
assets are to be calculated in accordance with the basis of accounting specified by
accounting standards in force at the relevant time.
Relief for Foreign Controlled Small
Proprietaries Companies
Financial Report Preparation, Audit and
Lodgement Relief
ASIC Class Order 98/0098 (dated 10 July 1998)
provides relief to foreign controlled small
proprietary companies that are not part of a “large
group” from the requirement to prepare, audit and
lodge a financial report under Part 2M.3 of the
Corporations Act 2001 (other than as required by a
shareholders’ request or an ASIC request) provided
certain conditions are satisfied.
A “group” is a “large group” when, on a combined
basis, the “group” satisfies at least 2 of the
following conditions for the financial year of the
company in question:
• the combined gross operating revenue of the
group for the financial year is $10 million or
more;
• the combined value of the gross assets of the
group at the end of the financial year is $5
million or more;
• the group has 50 or more employees at the end
of the financial year.
Where “group” is defined to comprise:
• the company in question;
• any entity which controlled the company and
which was incorporated or formed in Australia,
or carries on business in Australia;
• any other entities (“the other entities”) controlled
by any foreign company which controls the
company in question, which are incorporated or
formed in Australia or carry on business in
Australia; and
• any entities which are controlled by the company
in question or the other entities (these entities
can be Australian or foreign entities).
Combining financial statements is a process similar to consolidation except that it
only includes the entities which fall within the definition of “group”.
To take advantage of this relief, the directors must
resolve to adopt the ASIC Class Order and lodge
formal notification with the ASIC
(using Form
384)
prior to the commencement of each financial
year.
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Audit Relief
ASIC Class Order 98/1417 provides relief to
foreign controlled small proprietary companies,
that were not audited in 1993 or any subsequent
financial year except for a financial year which
ended after 9 December 1995 and before 24 April
1997, from the audit requirements of the
Corporations Act 2001 provided certain conditions
are satisfied. The Class Order relieves foreign
controlled small proprietary companies from the
audit requirements of the Corporations Act 2001
for any financial year ending on or after 1 July 1998
(defined as the “Relevant Financial Year”) provided
certain conditions are satisfied, refer large
proprietary companies – audit relief.
Wholly-Owned Subsidiaries
Directors’ Report
All wholly-owned subsidiaries of companies
incorporated in Australia need not include the
information required by s.300(10) of the
Corporations Act 2001 in the directors report.
Financial Report Preparation, Lodgement
and Audit Relief
ASIC Class Order 98/1418 (dated 13 August 1998)
exempts wholly-owned subsidiaries from the
requirement to prepare a financial report, where
their parent entity prepares consolidated financial
statements. The relief extends to the auditors’ and
directors’ report, and to the distribution and
lodgement of the financial report.
The relief is only available where:
a the holding entity of the company has a financial
year which ends on the same date as the
financial year of the company;
b the company is a public company, large
proprietary company or a foreign controlled
small proprietary company to which s.292(2)(b)
applies;
c the company is not a borrower in relation to
debentures, disclosing entity, licensed securities
dealer or a futures broker;
d the holding entity of the company is not a small
proprietary company;
e the company and every other entity (if any) in
the closed group is party to a deed of cross
guarantee, an original of which has been lodged
with the ASIC, which is valid at the balance date
and the holding entity’s deadline;
f in relation to the last 3 financial years before
taking advantage of the relief and since taking
advantage of the relief, the entity and the auditor
of the entity have substantially satisfied all of
their statutory obligations in relation to Chapter
2M and 2N of the Corporations Act 2001
(previously Parts 3.6 and 3.7 of the Corporations
Law);
g the directors, of the company and each other
entity that is a party to the deed of cross
guarantee, sign and lodge with the ASIC a
statement, that immediately prior to the
execution of the deed of cross guarantee, there
were reasonable grounds to believe that each
entity would be able to pay its debts as and when
they fall due;
h the directors of the company have resolved that
the company should obtain the benefit of this
Class Order;
i the company has provided the ASIC with
evidence that the company is entitled to the
benefit of this Class Order (or a previous Class
Order); and
j the company has paid the necessary fee to the
ASIC.
The main conditions of the Class Order are:
a the parent entity prepares consolidated financial
statements which include additional information
in relation to the deed of cross guarantee and
depending on the entities consolidated, include
in a note to the financial statements a detailed
statement of financial position and statement of
financial performance, opening and closing
retained profits, dividends provided for or paid,
and transfers to and from reserves, of certain
groups of entities in or out of the closed group;
b the directors of the holding entity sign and lodge
a statement, within 4 months of year end, that
there are reasonable grounds to believe that the
extended closed group will be able to meet any
obligations or liabilities to which they are, or
may become, subject by virtue of the deed of
cross guarantee. This condition is usually
satisfied by including the statement in the
directors’ declaration of the holding entity’s
financial report; and
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c the directors sign and lodge a notice, within 4
months of year end, containing
(using Form
389):
i a statement that the directors have taken
advantage of the relief under this Class Order;
ii a short statement of the nature of the deed of
cross guarantee;
iii a list of the holding entity and the parties to
the deed of cross guarantee, separately
identifying the members of the wholly-owned
group and the other members of the extended
closed group;
iv details of parties added or removed from the
deed of cross guarantee, or are subject to a
Notice of Disposal; and
v a statement that at or about the time of the
company’s reporting date the directors
reassessed the advantages and disadvantages
associated with the company remaining a
party to the deed of cross guarantee and
taking advantage of the relief and the
directors resolved either that the company
should continue to remain a party to the deed
of cross guarantee, or seek to revoke the deed
of cross guarantee, as the case may be.
Required Not Required
Part 2 – Corporations Act 2001
Preparation of an Annual Financial Report
The following flowchart assists in determining whether an entity is required to
prepare an annual financial report under Part 2M.3 of the Corporations Act 2001.
Disclosing Entity
Registered Scheme
Public Company
Large Proprietary
Company
Small Proprietary
Company
Has the ASIC granted relief from the requirement to
prepare an annual financial report (eg. ASIC-CO
98/1418)?
Has the ASIC granted relief from the requirement to
prepare an annual financial report (eg. ASIC-CO
98/1418)?
Was the small proprietary company controlled by a
foreign company for all or part of the year?
Are the results of the foreign controlled small
proprietary company covered by consolidated
financial statements lodged with the ASIC by the
foreign parent entity or by an intermediate Australian
parent entity (s.292(2)(b))?
Has the foreign controlled small proprietary company
been granted relief from the requirement to prepare
an annual financial report pursuant to ASIC-CO
98/0098?
Has the ASIC or 5% or more of shareholders requested the small proprietary
company to prepare an annual financial report (s.293 and s.294)?
Annual Financial Report
under Part 2M.3 of the
Corporations Act 2001
yes
yes
yes
no
no
no
no
yes
yes
no
no
yes
no
yes
no
yes
no
no
yes
yes
✓
✓
yes
✓
✓
✓
✓
✓
✓
✓
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Audit of the Annual Financial Report
Having determined that an entity is required to prepare an annual financial report under Part 2M.3 of the
Corporations Act 2001, the following flowchart assists in determining whether the annual financial report is
required to be audited under Part 2M.3 of the Corporations Act 2001.
Disclosing Entity
Registered Scheme
Public Company
Large Proprietary
Company
Foreign Controlled
Small Proprietary
Company
Has the ASIC granted relief from the audit
requirements of the Corporations Act 2001 (eg.
ASIC-CO 98/1417)?
Audit under Part 2M.3 of
the Corporations Act 2001
Required
Not Required
Does the ASIC request or shareholder request require the annual financial report
to be audited (s.293 and s.294)?
yes
yes
yes
yes
yes
no
no
no
no
no
no
Small Proprietary Companies Subject to ASIC/Shareholder Request
yes
yes
✓
✓
✓
✓
✓
✓
✓
✓
Has the ASIC granted relief from the audit
requirements of the Corporations Act 2001 (eg.
ASIC-CO 98/1417)?
yes
no
✓
General Requirements
15
Lodgement of the Annual Financial Report with the ASIC
Having determined that an entity is required to prepare an annual financial report under Part 2M.3 of the
Corporations Act 2001, the following flowchart assists in determining whether the annual financial report is
required to be lodged with the ASIC.
Disclosing Entity
Registered Scheme
Public Company
Large Proprietary
Company
Foreign Controlled
Small Proprietary
Company
Has the company been granted relief from the
requirement to lodge an annual financial report
with the ASIC pursuant to the “grandfathering”
provisions of s.319(4) * or ASIC-CO 98/0099?
Lodge Annual Financial
Report with the ASIC
Required
Not Required
Does the ASIC request require the small proprietary company to lodge a copy of
the annual financial report (s.294)?
yes
yes
yes
yes
yes
no
no
no
no
no
no
Small Proprietary Companies Subject to ASIC Request
yes
yes
✓
✓
✓
✓
✓
✓
✓
* In accordance with the “grandfathering” provisions of the former s.319(4) of the Corporations Law, which
continues to apply in accordance with s.1408(6) of the Corporations Act 2001, a large proprietary company is
not required to lodge an annual financial report with the ASIC provided:
• the company was an exempt proprietary company on 30 June 1994;
• the company continues to meet the definition of “exempt proprietary company” (as in force at 30 June 1994)
at all times since 30 June 1994;
• the company was a large proprietary company at the end of the first financial year after 9 December 1995;
• the company’s financial statements for the financial year ending during 1993 and each later financial year
have been audited before the deadline; and
• within 4 months after the end of the first financial year after 9 December 1995, the company lodged with the
ASIC (using Form 373) a notice that the company has applied the lodgement relief granted by s.319(4).
General Requirements
✓