The regulatory and compliance requirements imposed by the Australian Securities and Investments Commission (ASIC) for Companies can sometimes be perceived as burdensome; however, they can also serve as valuable data for entrepreneurs and accountants in Sydney alike.
Aside from providing investors with safeguards in the manner in which directors carry out their duties in running a financially sound company, the financial reporting obligations for certain companies mean the availability of crucial financial information of competitors in your industry and marketplace.
Other than a few rare entities, a large proprietary company must lodge its financial report with ASIC four months after the end of the year. Furthermore, the financial report must be audited unless relief has been obtained. (See further guidance below).
This financial report must be prepared in accordance with the requirements of the Corporations Act 2001 – and, therefore, must comply with all recognition and measurement criteria of the Australian Accounting Standards. This is important to note because it means the information in the financial report is comparable to other companies due to the consistency in applying the Standards. For example, it should mean that recognised revenue is comparable between one company and the next in the same industry/market.
At a minimum, the financial report will contain a directors’ report, a profit or loss, a balance sheet and a cash flow statement, and supporting accounting policies and notes. Reviewing the financial report and possibly enlisting a little assistance from your accountant in Sydney will enable you to compare the performance of your competitors to your own. The fact that the financial information will have been prepared in accordance with consistent accounting standards lends accuracy to the data. Your accountant will be able to advise whether crucial policies such as revenue recognition, work in progress or asset impairment are consistent with your own and allow qualitative interrogation of the company’s results.
To access this information, search for the Company using its name and/or Australian Company Number (ACN) on the ASIC Register of Organisations. Once on the Company page, you will see the history of documents lodged with ASIC by the Company. The annual financial statements are lodged with Form 388 and will usually be prefixed as:
“Financial Report Financial Report – Large Proprietary Company That Is Not A Disclosing Entity (FR YYYY) (388H)”.
You can obtain a copy of this report for $38.
It should be noted that your competitor’s trading entity may be owned by an ultimate parent company. It may therefore be the case that the trading entity is not lodging its financial report, but the ultimate holding entity is lodging a consolidated report – and it is, therefore, this entity’s financial report that will be available on ASIC’s register.
Who must lodge financial reports, what is a “Large Company”, and what must be lodged with ASIC?
The following entities are required to prepare financial reports in accordance with the Corporations Act and lodge with ASIC
- all disclosing entities
- public companies
- companies limited by guarantee (except small companies limited by guarantee)
- all large proprietary companies that are not disclosing entities (see below)
- all registered managed investment schemes
- small proprietary companies that are foreign-controlled.
A proprietary company is defined as significant for a financial year if it satisfies at least two of the following paragraphs:
- The consolidated revenue for the financial year of the company and any entities it controls is $25 million or more
- the value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $12.5 million or more, and
- the company and any entities it controls have 50 or more employees at the end of the financial year.
Large proprietary companies must prepare and lodge financial and directors’ reports for each financial year.
“Consolidated” in the above criteria is defined by the Accounting Standards and broadly means that the revenues, assets and/or number of employees should be amalgamated across all entities under the control of a common parent.
The financial report must be audited unless relief is obtained from ASIC. Audit relief is available under certain circumstances whereby it is demonstrable that the Company is in sound financial condition and meets specific other strict criteria.
Audit relief does not mean the Company obtains relief from lodging its financial report.
Usually, only the following types of sizeable proprietary companies may obtain relief from the lodgement of their financial report:
- Wholly owned companies (by a holding company) that enter into a deed of cross-guarantee with every other company in the group, and the holding entity lodges consolidated financial reports with ASIC;
- Large proprietary companies that are “grandfathered” proprietary companies – this is a rare transitional relief that was available to entities that were former exempt proprietary companies (broadly speaking privately owned) as defined under the old corporations’ law (1994).
Non-compliance with the above requirements carries penalties and can have implications for breaching directors’ duties under the Corporations Act. There are also strict time requirements around the lodgement of the relevant reliefs with ASIC.
For further information and guidance, please get in touch with your client manager.
Kreston Stanley Williamson Team
*Correct as of April 2017
*Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.