Recent changes to the Corporations Regulations will free more small Australian companies from annual financial reporting and audit requirements, helping directors and management concentrate on the big issues for their businesses.
- As the financial reporting period for ASX-listed companies with a June balance date draws to a close, many other organisations are still working to complete their year-end accounts. Most have until 31 October to lodge their audited financial statements with the corporate regulator.
- This year, there’s some good news around the corner for thousands of privately-owned companies that are facing this obligation for the final time. That’s because the Australian Government recently doubled the thresholds that determine the size of proprietary companies.
- The new thresholds apply from 1 July 2019, benefiting companies from their FY20 financial year-ends onwards. Private companies that are below at least two of these thresholds do not need to lodge audited annual financial statements with ASIC, subject to certain exceptions1. They are also exempt from new Corporations Act requirements to have a whistle-blower policy.
|Measure||New Threshold||Previous Threshold|
|Consolidated revenue||$50 million or more||$25 million or more|
|Consolidated gross assets||$25 million or more||$12.5 million or more|
|Employees||100 or more||50 or more|
- Since the last update back in 2007, economic growth and inflation have gradually resulted in more private companies exceeding the previous thresholds. Around 2200 companies – or one-third of large proprietary companies under the previous threshold – are expected to be better off due to the change.
What it means for you
- Enjoy ongoing savings
The increased thresholds are a welcome change for small business, saving time and money. Treasury estimates total savings from the change will amount to $81.3 million per year in preparation costs and audit fees.
- Focus on the bigger issues
With a lower compliance burden, directors and management have greater capacity to focus on strategy, risk management and fundamentals. That includes building a scalable business, strong leadership, and robust systems and processes. The impact on stakeholders also needs to be considered and may require a different approach to engagement and demonstrating accountability beyond providing annual financial statements.
- Money still matters
Just because formal annual accounts are no longer required doesn’t mean directors and managers can take their eyes off the ball when it comes to financial matters. It’s as important as ever to closely monitor revenue, cash flow and other key performance measures. There are also ongoing legal obligations to prevent insolvent trading, keep written financial records, and to produce audited accounts if directed2.
- Benefits for bigger businesses
While the changes relate to small companies, numerous bigger businesses also stand to benefit. Corporate groups will gain relief for a greater range of entities that are unable to be included in deeds of cross guarantee with their parent, including:
- Companies with a partial ownership interest outside the group (i.e. non-wholly-owned subsidiaries)
- Companies regulated by APRA (since 2016 changes excluded them)
- Companies acquired during the period.
Governance expertise for every business
Diligent provides solutions relied on by directors and executives around the world to engage seamlessly with their organisations and each other, wherever they are, at any time of day. Our leading technology saves them time to focus on critical issues and keep pace with the demands of modern governance.
- These include small private companies that are foreign controlled, have crowdsourced funding during the year, or hold an Australian financial services licence.
- ASIC can still direct a company to prepare or audit financial statements, as can 5% or more of the company’s shareholders.
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