In today’s complex regulatory environment, understanding and maintaining audit relief status is crucial for large proprietary companies. Did you know that ASIC’s audit relief provisions have saved Australian businesses an estimated $40 million annually in compliance costs since their introduction?
Understanding the Basics
Large proprietary companies must prepare and audit their financial reports according to Accounting Standards unless granted relief by ASIC. A company is classified as large when it meets two or more of these thresholds:
- Revenue: The consolidated revenue for the financial year of the company and any entities it controls is $50 million or more.
- Assets: The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $25 million or more.
- Employees: The company and any entities it controls have 100 or more employees at the end of the financial year.
Interestingly, these thresholds were last updated in July 2019, doubling from their previous levels to reflect modern business economics.
Key Requirements for Audit Relief
To maintain audit relief status, companies must satisfy several critical conditions. The foundational requirements include obtaining unanimous resolutions from directors and members, maintaining sound management practices with quarterly accounting systems, and ensuring financial reports are prepared by a prescribed accountant.
Financial Health Criteria
The “sound financial condition” requirement warrants special attention. Companies must consistently:
- Keep total liabilities below 70% of total assets (excluding intangibles)
- Demonstrate profitability in either the current or previous financial year
- Maintain ability to pay debts as they become due
The 70% liability-to-asset ratio requirement was specifically designed to ensure companies maintain a sufficient buffer against economic downturns while still allowing for reasonable leverage.
Common Pitfalls to Avoid
Many companies lose their audit relief status due to:
- Missing quarterly review deadlines
- Failing to properly document unanimous resolutions
- Overlooking the impact of significant transactions on their liability-to-asset ratio
- Not maintaining adequate management accounting systems
Ongoing Compliance
Meeting these requirements isn’t a one-time achievement. Companies must continuously monitor their financial position and ensure timely lodgement of all required reports. Any proposed modified auditor’s reports or material disagreements must be addressed promptly.
Industry Trends
Recent data shows that approximately 35% of eligible large proprietary companies successfully maintain their audit relief status, highlighting both the value and the challenge of meeting these requirements.
How KrestonSW Can Help
Navigating audit relief requirements can be complex, and the consequences of non-compliance can be significant. At KrestonSW, our experienced team can help you assess your current eligibility for audit relief, implement robust monitoring systems, prepare required financial reports, and maintain ongoing compliance.
We’ve helped clients successfully transition to and maintain their audit relief status, potentially saving them tens of thousands of dollars annually in audit fees. With the end of year approaching, now is the perfect time to review your audit relief status and ensure your company’s compliance framework is robust and effective.
Contact KrestonSW today to ensure your company remains compliant while maximising the benefits of audit relief.
Author – Kamal Thakkar
*Correct as of 19 December 2024
*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.
