ASIC CO 98/98 Foreign controlled small proprietary companies relieves small foreign controlled proprietary companies from the requirement to prepare financial reports if they are not part of a large group. Refer section 3.3.2.2 for the definition of a large group.
The directors must resolve to apply the relief annually, no earlier than three months before the commencement of the financial year.
A notice (Form 384) of this resolution must be lodged for the first financial year that the relief will be applied. The notice must be lodged no earlier than three months before the beginning of the financial year and no later than four months after the end of the financial year.
If a company ceases to rely on CO 98/98 for a financial year, it must either lodge an annual financial report prepared under Chapter 2M for that financial year or lodge a Form 394 during the period commencing three months before the beginning of the first non-reliance financial year and no later than four months after the end of that year.
See the Appendices for example Minutes of meeting of directors where a resolution to rely on the relief is made.
See section 3.1.2.2 for further consideration of financial reporting requirements for small proprietary companies controlled by a foreign company.
3.3.2.4 Audit relief
As a general rule, financial reports prepared under the Act must be audited.
ASIC CO 98/1417 Audit relief for proprietary companies relieves proprietary companies from the audit requirements subject to a number of conditions relating to:
• shareholder and director approvals
• solvency
• management and financial condition
• preparation of the year end financial report by a prescribed accountant
• lodgement of the financial report within the deadlines.
These conditions must be met at all times. If they are not met, the company automatically loses the benefit of the class order and will need to have its financial report audited.
Under the class order the lodgement deadline for requests is four months after the relevant financial year. Further the lodgement of the directors’ and shareholders’ resolution to dispense with an audit is only required when first making the resolution (note however that the requirement to make the annual resolution continues).
ASIC CO 98/1417 applies to:
• a small proprietary company controlled by a foreign company for all or part of the relevant financial year (see section 3.1.2.2)
• a large proprietary company that is not grandfathered (see section 3.1.2.1)
• a company that has not had its financial report audited for any financial year ending 1993 or since (except for a financial year which ended after 9 December 1995 and before 24 April 1997 if the company was a small proprietary company for that financial year and was controlled by a foreign company for all or part of that financial year)
• a company that was not, at any time during the financial year, a disclosing entity, a borrower or guarantor of a borrower, a licensed securities dealer or a futures broker.
Relief under the class order is only available to companies that have not been audited in 1993 or any later year, apart from the exception noted above. Companies that were registered or incorporated since 1993 and have not had an audit since registration or incorporation may use the class order. For example, a small proprietary company that becomes large would not have been audited before and the directors may want to consider whether the class order would suit the circumstances of the company.
Other proprietary companies that have been audited in the past may apply to ASIC for relief. Any application for relief will need to include an explanation of why changes in the company’s
circumstances mean that an audit will impose unreasonable burdens in the financial year but did not impose unreasonable burdens in prior years.
ASIC RG 115 and the Editorial Note to the class order include guidelines on the factors that ASIC will consider and the conditions it is likely to impose on any entity seeking relief.
If ASIC grants audit relief, the conditions are likely to be similar to those set out in CO 98/1417.
A summary of the conditions for the relief is set out below.
Approvals
• All directors and shareholders must resolve that an audit is not required within three months before the beginning of each financial year and one month after the beginning of the financial year. For example, if a company has a financial year commencing on 1 January 2014, the directors and shareholders must make the resolutions and lodge them between 1 October 2013 and 31 January 2014. Different periods apply for newly incorporated companies and small proprietary companies that become foreign controlled.
• In the information presented to shareholders with the proposed resolution, the directors must state whether in their opinion, the cost of having the financial report audited outweighs the expected benefits of the audit and give their reasons for this view.
Notice requiring an audit
• A written notice requiring an audit has not been served on the company by a director, shareholders controlling 5% or more of the vote, a person who is owed subordinated debt, or ASIC.
Solvency
• The directors’ declarations in the past and for the current financial year must include unqualified solvency statements.
• The company must have adequate procedures in place to allow the directors to monitor and assess the solvency of the company.
Sound financial condition
• Quarterly management accounts must be prepared within one month after the end of each quarter (or such other time as approved in writing by ASIC). The financial statements must include a statement of financial position, a statement of profit or loss and other comprehensive income and a statement of cash flows.
• The directors must consider the management accounts and any other information that has become available since the end of the quarter that is material to the assessment of the financial statements and resolve that at the end of the quarter, and the time the resolution was made:
- total liabilities did not exceed 70% of total tangible assets, on a company and consolidated basis
- the company was able to pay all its debts as and when they become due and payable.
When making the directors’ declaration for the year end financial report, the directors must again separately resolve that total liabilities did not exceed 70% of total tangible assets, on a company and consolidated basis.
Profitability
• The company or group does not report a loss two years in succession, on a company and consolidated basis. If a company, or the group, makes a loss two years in a row it must have an audit in the second year.
Accounting standards
• Asset, liability and profit figures must be determined in accordance with applicable accounting standards, (whether or not the company is a reporting entity), except that liabilities may exclude
‘approved subordinated debt.’
Approved subordinated debt means debt which:
• has been subordinated under an agreement that has been executed by the company and the creditor and lodged with ASIC prior to the commencement of the financial year
• has been subordinated under an agreement that has been approved by ASIC in writing
• is not provided by a controlled entity of the company or funded directly or indirectly by the company or one of its controlled entities.
Compilation of financial reports
• The year end financial report must be compiled by a ‘prescribed accountant’ and a compilation report prepared in accordance with APS 9 Statement on Compilation of Financial Reports (the class order refers to APS 9, however, APS 9 has been replaced by APES 315). This report must be attached to the financial report distributed to members and lodged with ASIC. The prescribed accountant may be a company employee.
• The company lodges its current financial report and has lodged its prior year financial reports with ASIC by the due date, i.e., within four months after the end of the financial year.
[S319(1) and S319(3)(b)]
• The directors’ report includes a statement that the financial report has not been audited in reliance on the class order and that the requirements of the order have been complied with.
• The financial report and directors’ report for the current and previous financial year comply substantially with Chapter 2M.
3.3.2.5 AFS licensees
Financial services licensees must prepare and lodge audited financial statements in accordance with S989B using prescribed forms (financial statements: Form 70 and audit report: Form 71) (see section 3.1.3). ASIC has issued several class orders which vary this requirement. These class orders are:
• ASIC CO 03/823 Relief from licensing, accounting and audit requirements for foreign authorised deposit-taking institutions (ADIs) relieves foreign ADIs from the requirement to prepare audited financial statements and certain record keeping requirements, provided equivalent financial statements prepared for the foreign ADI’s overseas regulator, and an auditor’s report, are lodged with ASIC at least once in every calendar year and at intervals of not more than 15 months.
• ASIC CO 06/68 Conditional relief for foreign licensees from financial reporting and record keeping obligations relieves a foreign company AFS licensee (other than a foreign ADI) from the
requirement to prepare audited financial statements and certain record keeping requirements, provided equivalent financial statements prepared for the foreign company’s overseas regulator, and an auditor’s report, are lodged with ASIC at least once in every calendar year and at intervals of not more than 15 months.
• ASIC CO 03/748 Reporting requirements under S989B permits a financial services licensee who is a natural person to exclude any revenue and losses that do not relate to a financial services business carried on by the licensee from the financial report prepared under S989B(1).
3.3.2.6 Disclosing entities
Disclosing entities must prepare half-year financial reports and directors’ reports. However, ASIC CO 08/15 Disclosing entities – Half-year financial reporting relief relieves disclosing entities from preparing their first half-year report where their first financial year is eight months or less.
The exemption is only available where the following apply:
• in the case of a listed disclosing entity – the entity gives a notice to ASX or another prescribed market operator on or before the deadline for lodging the half-year report, that the entity intends to rely on the order and an explanation of the effect of the order
• in the case of an unlisted disclosing entity – the entity gives a notice to ASIC, on or before the deadline for lodging the half-year report, that the entity intends to rely on the order
• the directors’ report for the first financial year of the disclosing entity explains the effect of this order and states that the entity relied on it.