More financial reporting class orders replaced with new instruments

On 15 August 2016, the Australian Securities and Investments Commission (ASIC) reissued the following Legislative Instruments (instruments) (previously referred to as Class Orders) that impact financial reporting. The new instruments are all effective from 26 August 2016.

Old Class Order New Instrument

CO 98/96 Synchronisation of financial year with foreign parent company

ASIC Corporations (Synchronisation of Financial Years) Instrument 2016/189

CO 98/101 Members of companies, registered schemes and disclosing entities who are uncontactable

ASIC Corporations (Uncontactable Members) Instrument 2016/187

CO 98/2395 Transfer of information from the directors’ report

ASIC Corporations (Directors’ Report Relief) Instrument 2016/188

CO 98/2016 Disclosing entities – half-year financial reporting relief

ASIC Corporations (Disclosing Entities) Instrument 2016/190

CO 08/15 Disclosing entities – half-year financial reporting relief

The relief provided by the respective Legislative Instruments is essentially the same as the superseded Class Orders. These are summarised briefly below.

Synchronisation of financial years with a foreign parent

Legislative Instrument 2016/189 permits Australian companies, registered schemes and disclosing entities to have a financial year that is not 12 months long (s323D(2)) where they synchronise their year end with their foreign parent (not being longer than 18 months in the year of change). The relief is available if the entity or a director reasonably believes that:

  • The foreign parent is required by the foreign law to cause the financial year of the entity to be changed, and
  • The change is made in accordance with that requirement.

Some of the conditions for relief include:

  • If the financial year being synchronised is for a period longer than 12 months, between 12 and 15 months after the beginning of that financial year, the directors must have formed the opinion that there are reasonable grounds to believe that the entity will be able to pay its debts as and when they become due and payable (this must be minuted in a directors’ meeting)
  • If the financial year being synchronised is for a period less than 12 months, the revenue threshold to determine whether the entity is a large or small proprietary company for the purposes of Chapter 2M financial reporting is based on a 12 month period
  • The notes to the financial statements must include a brief statement about the relief provided by this instrument (annual and half years).

Uncontactable members

Legislative Instrument 2016/187 relieves entities from sending hard copy annual financial reports to members that have elected to receive these if the entity has:

  • Reasonable grounds to believe that the member does not reside at the address shown in the register of members, and
  • After exercising reasonable diligence, not been able to find out the current address of the member.

For the first six years after the above applies, the entity must send to the address shown in the register of members, a notice stating that dispatch of financial reports, directors’ reports and auditor’s reports has been suspended but will resume on receipt of a current address.

Directors’ report relief

This instrument allows certain directors’ report information to be disclosed elsewhere in the annual report document (accompanying document) that includes the directors’ report and financial report if:

  • The directors’ report includes a placeholder for the information disclosed elsewhere, as well as a cross reference to the page(s) where the relevant information can be found in the annual report
  • The directors’ report is not distributed without the accompanying document
  • The accompanying document is lodged with ASIC as if it were part of the financial report, directors’ report and audit report lodged for the full year (s319) and the half-year (s320).

Annual reports

The specific information required by s300 can be disclosed/included elsewhere in the accompanying document, including in the financial report itself (permitted by s300(2)).

However, the items listed below can be disclosed elsewhere in the accompanying document, but not within the financial report itself:

  • Auditor’s independence declarations
  • General information (s299)
  • Additional general requirements for listed entities (s299A)
  • Companies limited by guarantee (s300B).

It should be noted that details of non-audit services provided by the auditor of a listed company must be disclosed in the directors’ report itself, under a separate heading called ‘Non-audit services’ as required by s300(11B). It appears that the general permission by s300(2) to disclose s300 specific information in the financial report itself does not apply to non-audit services disclosure.

Half-year reports

The directors’ report information for a half-year required by s306 can also be disclosed elsewhere in the half-year report, but not in the half-year financial report.

Disclosing entities

Legislative Instrument 2019/190 provides relief in two areas which are summarised below:

  • Entities that stop being a disclosing entity before the reporting deadline
  • Disclosing entities with short first financial years.

Entities that stop being disclosing entities

Entities that are disclosing entities at the end of the financial year, but which are no longer disclosing entities when they lodge with ASIC and report to members (i.e. they stop being a disclosing entity before the earlier of three months after year end, and 21 days before the next AGM after year end) are relieved by Legislative Instrument 2016/190 from having to comply with the Chapter 2M reporting requirements for disclosing entities.

This means that they will lodge within time frames for entities that are not disclosing entities, and the financial report will not include any specific disclosures for disclosing entities, e.g. remuneration report for listed companies, s299A detailed review of operations for listed entities and s300(12) information for listed registered schemes.

The directors of the entity must resolve before the earlier of the time frames mentioned above that there are no reasons to believe that the entity may become a disclosing entity before the end of the next financial year.

Disclosing entities with short first financial years

Where a disclosing entity’s first financial year is for a period of eight months or less, no half-year financial report and directors’ report need to be lodged with ASIC.

However, to obtain the relief, the first directors’ report for the annual period (less than eight months) must explain the relief available in Legislative Instrument 2016/190 and state that the entity has relied on this relief. In addition:

  • Listed disclosing entities – For each official list on which the entity is included, the entity needs to give the market operator a notice explaining the relief available and the fact that the entity intends to rely on it
  • Unlisted disclosing entities – Provide ASIC with a notice stating that the entity intends to rely on this relief.

Reminder on rounding class order 98/100

Also remember that for years ending on or after 30 June 2016, the rounding Class Order, 98/100 has been replaced by ASIC Corporations (Rounding in Financial/Directors’ Reports) Instrument 2016/191. This means that references to Class Order 98/100 in the directors’ report and financial statements need to be updated to refer to the new instrument.