Under the Act, an entity’s financial report is not permitted to include the financial statements of another entity. However, it is the practice of many issuers of stapled securities to include in their financial reports the financial statements of another entity whose securities are stapled to the issuer’s own securities. As the securities can only be traded together, the entities will normally have the same members.
Transactions and operational or financial interrelationships between the entities mean that combined or consolidated financial statements covering the whole stapled group are necessary to give a true and fair view of the financial position and performance of the entities. Under the requirements of the Act,
combined financial statements could only be included in the notes to the financial statements and consolidated financial statements covering the whole stapled group could only be included by the controlling entity in the group.
The relief
ASIC has therefore provided relief from the requirements of the Act to allow combined financial
statements to be issued. ASIC CO 05/0642 Combining financial reports of stapled security issuers allows issuers of stapled securities to include in one financial report, the consolidated or combined financial statements of the entire stapled group, and the financial statements of the other stapled entities (single entity or consolidated depending if these other stapled entities are a parent in a sub-group). The relief applies to full year financial reports, concise financial reports and half-year financial reports.
The class order also permits any combined financial statements included to give a true and fair view to be relocated from the notes and given prominence. The controlling entity in the stapled group is required by accounting standards to present consolidated financial statements covering the entire stapled group.
The conditions
This relief is available only where all of the following apply:
(a) the other reporting group members (but no other entities) were stapled issuers in the same stapled group as the reporting group member at the end of the relevant period and at all times from the end of that period to the date on which the directors’ report required by S298(1) or S306(1) is signed by the directors of the reporting group member;
(b) all of the other reporting group members are required to prepare financial reports for the relevant period in accordance with Chapter 2M;
(c) all of the other reporting group members rely on this order for the relevant period;
(d) one of the following applies:
(i) such financial statements of the reporting group member and all other reporting group members (including any single entity financial statements presented where ASIC CO 10/654 is applied) are presented in adjacent columns in the relevant report;
(ii) financial statements are presented as follows in separate sections of the relevant report:
(A) in the first section – the consolidated financial statements that cover all entities in the stapled group and, where ASIC CO 10/654 is applied, the single entity financial statements of the reporting group member that controls all of the entities in the stapled group; and
(B) in the second section in adjacent columns – all other consolidated financial statements of the reporting group member and all other reporting group members and any single entity financial statements (including those presented where ASIC CO 10/654 is applied); or
(iii) in the case of a financial report for a half-year or a concise report—one of the sets of financial statements permitted under subparagraphs (i) or (ii) (excluding any single entity financial statement that is not required under the Act and the accounting standard applicable to the report) is presented in adjacent columns in the relevant report where, if the set
includes consolidated financial statements covering all of the entities in the stapled group, those financial statements are presented first;
(e) the relevant report contains a summary of the effect of this order.
See section 8.2 for further discussion of CP 217 Presentation of financial statements by stapled entities.
3.3.2.8 Externally administered companies
A company’s financial reporting obligations under Chapter 2M continue to apply when an external administrator is appointed.
ASIC acknowledges that these obligations may be an unreasonable burden, particularly in the first few months of the administrator’s appointment. Furthermore, the cost of distributing an annual report may exceed the benefits, especially where the reports are sent to the shareholders but it is the creditors who ultimately bear the cost.
The table below presents a summary of ASIC CO 03/392 Externally administered companies: Financial reporting relief.
Financial reporting relief for externally administered companies Type of external
administration Nature of relief Conditions
Companies in liquidation (including companies
concurrently in liquidation and controllership)
Exempt from all financial reporting obligations
None
Companies under administration:
OR
Companies where a managing controller has been appointed to the whole of the company’s property
OR
Companies in provisional liquidation
Companies may:
• defer lodging and (where applicable) distributing the Part 2M.3 reports for a period of 6 months after the date of appointment of the relevant external administrator
• use specified alternative methods for distributing an annual report to members at the end of the deferral period.
The relief applied where the external administrator is appointed no earlier than three months before the end of a financial year of half-year.
Companies must:
• notify ASIC that they are relying on the class order
• if listed; notify the relevant market operator(s) that they are relying on the class order
• answer free of charge reasonable inquiries from members during the deferral period about the external administration.
ASIC will also grant individual relief from the financial reporting requirements on a case-by-case basis.
ASIC RG 174 Externally administered companies: Financial reporting and AGMs discusses ASIC CO 03/392, the matters that ASIC will consider and the nature of the individual relief it will give.
3.3.2.9 Inclusion of parent entity financial statements in financial reports
ASIC CO 10/654 Inclusion of parent entity financial statements in financial reports permits entities to continue to include parent entity financial statements in their consolidated financial reports (See section 3.1.4). Entities taking advantage of the relief are not required to present the summary parent entity information otherwise required by Reg 2M.3.01.
The directors’ declaration and auditor’s report must include the relevant opinions in relation to the parent entity financial statements and related notes.
The class order may be applied to an entity’s annual financial report, concise report or half-year financial
3.3.2.10 Entities ceasing to be a disclosing entity before their deadline
ASIC CO 98/2016 Entities which cease to be disclosing entities before their deadline provides conditional relief from compliance with the requirements of Chapter 2M of the Act to the extent that the requirements apply to a disclosing entity. This relief applies when an entity was a disclosing entity at the end of its financial year but ceases to be a disclosing entity before the earlier of:
• 3 months after the end of the financial year; and
• 21 days before the date of the next annual general meeting after the end of the financial year, if the entity is required to have an annual general meeting.
The above is also conditional on the directors of the entity resolving that there are no reasons to believe that the entity may become a disclosing entity before the end of the next financial year.
In relation to half-year financial reports S302 provides that if an entity is not a disclosing entity when lodgement of the half-year financial report is due then a half-year financial report is not required to be prepared.
3.3.3 Grandfathered companies
Large proprietary companies that were exempt proprietary companies under the old Corporations Law are not required to lodge their audited financial reports with ASIC, provided they met certain conditions. These companies must still prepare audited financial reports and distribute them to members.
The ‘grandfathered’ exemption exists by virtue of S1408 which gives effect to the transitional provisions under the old Corporations Law S319(4). To take advantage of the grandfather exemption, a company must:
• meet and continue to meet at all times the definition of exempt proprietary company* in operation at 30 June 1994
• have lodged an election for S317B(3), as in force at that time, to apply to the company. The election must have been lodged with ASIC within four months of the end of the first financial year after commencement of the First Corporate Law Simplification Act
• have been a large proprietary company at the end of the first financial year after commencement of the Act (i.e. 9 December 1995)
• have prepared and continue to prepare an audited financial report within four months of the end of each financial year since 1993.
If the company does not meet any of these conditions at any time, the benefit of the grandfathered exemption is lost permanently.
ASIC CO 05/638 Anomalies preventing certain large proprietary companies from being grandfathered ensured that certain grandfathered proprietary companies retained their grandfathered status even though they did not meet the above conditions in certain circumstances. For example, in the year of transition to IFRS, ASIC gave all unlisted companies an extra month to lodge and distribute their annual financial reports. ASIC CO 05/638 ensured that grandfathered large proprietary companies did not lose the benefit of grandfathering if they took advantage of the additional month to report.
Grandfathered companies preparing special purpose consolidated financial statements should continue to prepare separate parent entity financial statements to ensure they do not lose their grandfathered status. Technically the exemption from preparing separate parent entity financial statements (see section 3.1.4) only applies when consolidation is required by accounting standards.
Special purpose consolidated financial statements are not required by accounting standards.
* An exempt proprietary company under the old Corporations Law means a proprietary company, no member of which is a non- exempt person, and a non-exempt person owns no share in the company. A non-exempt person is:
• a body corporate other than a company or an exempt foreign company (which is a foreign company declared exempt by ASIC)
• a public company
• a private company, a share in which is owned by a private company, or a share in which is owned by a person other than a natural person (a generational shareholder test), or
• a private company (other than an exempt foreign company) a share in which is owned by a body corporate that is a non-exempt person.