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Corporations Amendment (Corporate Reporting Reform) Act 2010
On 28 June 2010, the Corporations Amendment (Corporate Reporting Reform) Act 2010 received Royal Assent. As a consequence, some significant statutory changes have been made that will affect areas such as financial reporting as at 30 June 2010. The Corporations Amendment Regulations 2010 (No. 6) were also enacted on 29 June 2010 which impact the disclosures in consolidated financial reports.
The purpose of the reforms was to reduce red-tape, improve accountability and transparency of disclosures and refine the reporting framework. An outline of the amendments and their effective date are included below.
Companies limited by guarantee
The amendments have introduced a three-tiered reporting structure based upon revenue and deductible gift recipient status (see table below). Features of the new framework are:-
- A review rather than a full audit is permitted in some cases;
- New ‘reduced' requirements for directors' reports;
- Newly incorporated companies limited by guarantee are prohibited from paying dividends;
- Prevention from preparing concise financial reports; and
- Streamlined arrangements for reporting to members.
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Tier
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Criteria
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Reporting Obligations
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1
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Small companies limited by guarantee with annual revenue, or if part of a consolidated entity, annual consolidated revenue of less than $250,000 which do not have deductible gift recipient status under tax legislation.
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Exempt from reporting and auditing requirements.
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2
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Companies limited by guarantee with:
- annual revenue, or if part of a consolidated entity, annual consolidated revenue of less than $250,000 that have deductible gift recipient status;
- annual revenue or if part of a consolidated entity, annual consolidated revenue of between $250,000 and $1million irrespective of deductible gift recipient status.
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- Prepare financial statements which they could elect to have reviewed rather than audited;
- Prepare a streamlined directors' report; and
- Streamlined reporting to members.
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3
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Companies limited by guarantee with:
- Annual revenue or if part of a consolidated entity, annual consolidated revenue of >$1million irrespective of whether the company has deductible gift recipient status.
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- Continue to prepare audited financial statements;
- Prepare a streamlined directors' report; and
- Streamlined reporting to members.
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Note: applies to reporting periods ending on or after 28 June 2010.
Notes
Under new sections 294A and 294B to the Corporations Act 2001, members holding at least 5% of the votes, or ASIC, may request that a small company limited by guarantee (prima facie exempt from financial reporting) prepare audited/reviewed financial reports.
Under the streamlined reporting to members, a member may, by notice in writing to the company, elect to receive a hard copy or an electronic copy of the company's financial report. This is a standing election for each subsequent financial year until the member notifies otherwise.
The following entities are excluded from the application of the revised financial reporting requirements detailed above: a Commonwealth company (or subsidiary thereof); a subsidiary of a Commonwealth authority; a building society, credit society, or credit union (pursuant to s.66 of the Banking Act).
A review engagement may be undertaken by either a registered company auditor or member of the ICAA, NIA, or CPA Australia holding a prescribed practising certificate.
For an example of a streamlined directors' report, see HERE...
The Auditing and Assurance Standards Board has issued ASRE 2415 "Review of Financial Report" Company Limited by Guarantee' in response to the amendments to the Corporations Act 2001 to provide application and other explanatory guidance with respect to review engagements referred to in the table above. This standard is applicible for financial reporting periods ending on or after 30 June 2010 and is considered a 'transitional standard' that refers to other existing review standards. For an example 'Review Report' see HERE...
Companies that wish to have their financial report subject to a review engagement instead of an audit engagement need to consider any requirements in their constitution which may require an audit.
Changing Financial Years
- Entities will be able to change financial year end (without applying to ASIC) such that a financial year may last for a period of less than 12 months provided the following criteria are met:
- the subsequent financial year starts at the end of the previous financial year; and
- there has not been a period during the previous five financial years in which there was a financial year of less than 12 months in reliance on this subsection; and
- the change to the subsequent financial year is made in good faith in the best interests of the company, registered scheme or disclosing entity.
- A consequential change of tax year is not automatically proposed.
Note: applies to financial years ending on or after 28 June 2010.
International Financial Reporting Standards (IFRS) Declaration
Companies, registered schemes and disclosing entities making an explicit and unreserved statement of compliance with IFRS must include reference to this statement in their directors' declaration. Note: applies to financial years ending on or after 28 June 2010.
Changes
Expansion of existing listed public company requirements for directors' reports (s.299A) from listed public companies to all listed entities (for example, listed managed investment schemes). Note: applies to financial years ending on or after 28 June 2010.
Part two of these changes covering parent entities and dividends will be sent in September. For further information on this topic, please contact Moore Stephens Accountants on www.moorestephens.com.au or phone (03) 9614 4444
IMPORTANT Disclaimer: This is not legal or other professional advice. Readers should not act solely on the basis of the material contained in this newsletter. Articles are general comments only and do not constitute or convey advice per se. Formal professional advice should be obtained before applying information in this article to particular circumstances. Enterprise Care is not in any way responsible for any loss or liability by anyone acting on the basis of information in this article or for any error in or omission from it. © Copyright 2010
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