The Government announced on Friday that it proposes to reduce the regulatory burden for some private companies by increasing the thresholds for what constitutes a “large” proprietary company under the Corporations Act 2001. This would exempt thousands of private companies from having to lodge financial reports with Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC).
Currently, large private companies are required to prepare and lodge a financial report, director’s report and an auditor’s report with ASIC each year. A private company is considered to be “large” if it meets any two of the following three thresholds for a particular financial year:
- $25 million or more in consolidated revenue;
- $12.5 million in or more in consolidated gross assets; or
- 50 or more employees at the end of the financial year.
Under the exposure draft released for public consultation, these thresholds would be doubled with effect from 1 July 2019 as follows:
- $50 million or more in consolidated revenue;
- $25 million in or more in consolidated gross assets; or
- 100 or more employees at the end of the financial year.
The existing thresholds have not been reviewed since 2007 and the changes will ensure that financial reporting obligations are aimed at more economically significant companies whilst reducing costs for smaller sized companies. Under the exposure draft, the new regulations will commence on 1 July 2019 and apply in relation to financial years beginning on or after 1 July 2019.
The timing of the proposed reforms to the thresholds is noteworthy bearing in mind the Australian Accounting Standards Board (AASB) currently has a multi-phased project underway aimed at enhancing financial reporting in Australia which could ultimately see the end of special purpose financial statements as we know it.
While affected businesses would benefit from reduced regulatory costs associated with preparing financial reports and having these audited, the benefits of an audit should be considered in light of each company’s underlying circumstances. Such benefits include:
- Enhanced credibility and reliability of the financial statements which becomes particularly important when thinking about listing or selling the business in future
- Assistance in reducing the scope for fraud and poor accounting
- Identification of weaknesses in the accounting systems and suggestions for improvements
- Assurance to directors and business owners not involved in the day-to-day accounting functions that the business is running in line with the information presented to them
For more information contact your HLB Mann Judd representative.