Regulation approved to double size thresholds for large private companies reporting to ASIC

For years beginning on or after 1 July 2019, some large private companies will no longer be required to prepare, have audited, and lodge annual financial statements with the Australian Securities and Investments Commission (ASIC) because the thresholds for determining whether such entities are ‘large’ or ‘small’ have been doubled.

What are the new thresholds?

Proprietary companies are ‘large’ if two of the three thresholds in s45A of the Corporations Act 2001 are met. The Corporations Amendment (Proprietary Company Thresholds) Regulations 2019 introduces new Regulation 1.0.02B which increase these size thresholds for the purposes of s45A(3) as follows:

  Current thresholds Thresholds applying from 1 July 2019
Consolidated revenue for the financial year $25 million $50 million
Consolidated gross assets $12.5 million $25 million
Employees of the consolidated group 501 1001
1 Part-time employees as an appropriate fraction of a full-time equivalent

Implications

Despite no longer having to prepare, have audited, and lodge annual financial statements with ASIC within four months of the year-end, proprietary companies that become small:

  • Will still be required by law to keep written financial records (s286 of the Corporations Act 2001), and
  • May nevertheless be required to prepare and/or audit financial reports if directed by ASIC or shareholders with at least 5% of the votes.

Rather than relying on the size tests noted above, directors should also continue to consider other circumstances which may trigger the need to prepare audited financial reports. Such circumstances may include bank reporting obligations or financial reporting obligations resulting from control by a foreign company, for example.

What about ‘grandfathered’ large proprietary companies?

There are no changes to the requirements for ‘grandfathered’ large proprietary companies.

Provided such entities have been audited since 1995, they will continue to be exempt from the requirement to lodge financial statements with ASIC. However, ‘grandfathered’ entities that become ‘small’ as a result of the proposed higher thresholds should consider continuing to have an audit in order to maintain their ‘grandfathered’ status should the business grow and become ‘large’ again in future.