More than half of grandfathered proprietary companies failing to lodge financial reports - ASIC to investigate
Recent surveillance by ASIC has found that more than half of entities that were previously grandfathered have failed to lodge financial reports.
Since August 2022, large proprietary companies that were previously ‘grandfathered’ have been required to comply with the reporting requirements applicable to large proprietary companies, i.e. lodge their audited financial reports with the Australian Securities and Investments Commission (ASIC) within four months of the end of the financial year.
This applies to financial years ending on or after 10 August 2022, with affected entities typically having to lodge a general purpose financial report with ASIC for 31 December 2022 (for entities with 31 December year-ends) or 30 June 2023 (for entities with 30 June year-ends), and subsequent years.
What is a grandfathered large proprietary company?
Until 9 August 2022, a ‘grandfathered’ large proprietary company was exempt from the lodgement requirements for large proprietary companies, provided it met all of the following criteria:
- Met the ‘exempt proprietary company’ definition at all times since 30 June 1994
- Was large at the end of the first financial year ending after 9 December 1995
- Its financial report was audited for the 1993 financial year and all subsequent financial years within the four-month deadline
- It lodged a notice within four months of the end of the first financial year ending after 9 December 1995 (i.e. opted to be a grandfathered large proprietary company).
General purpose financial statements are required
Since 30 June 2022, special purpose financial statements are no longer permitted for entities required to prepare financial statements by legislation (such as the Corporations Act 2001) in accordance with Australian Accounting Standards. Therefore, previously grandfathered large proprietary companies must prepare general purpose financial statements (GPFS) for lodgement with ASIC.
Can the GPFS be Tier 2 Simplified Disclosures?
Yes. The GPFS to be lodged with ASIC by previously grandfathered large proprietary companies can be prepared using the Tier 2 framework, AASB 1060 General Purpose Financial Statements – Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities. It is unlikely that these entities, whose financial statements were previously not available for public inspection, would be considered ‘publicly accountable’, and therefore, full GPFS (Tier 1) would typically not be required.
ASIC’s initial surveillance – 2023 and 2024 financial years
As part of its initial surveillance in 2023 and 2024, ASIC noted instances of previously grandfathered companies lodging their financial reports without comparatives, and failing to prepare consolidated financial statements when required by AASB 10 Consolidated Financial Statements.
As discussed above, GPFS must be prepared and audited, and at a minimum, comply with AASB 1060 (Tier 2 Simplified Disclosures). GPFS, whether Tier 1 or Tier 2, requires comparatives, including in the first year, and if a parent entity, consolidated financial statements if required by AASB 10.
64% of previously grandfathered proprietary companies haven’t lodged their financial reports
Out of 1,166 previously grandfathered proprietary companies, ASIC found that 64% (755) did not lodge their financial reports in the 2023 and 2024 financial years. The population size of 1,166 is likely derived from the initial forms lodged by companies opting in to be grandfathered back in 1995 or 1996 and other data sources. Some of these entities may no longer be large due to the company size thresholds in the Corporations Act 2001 increasing twice since they were first introduced in 1995.
What did ASIC do about previously grandfathered proprietary companies that failed to lodge in 2023 and 2024?
ASIC made inquiries with 58 of the 755 non-lodging companies that it considered may still be large proprietary companies, asking for documentation to substantiate why they are no longer required to lodge GPFS.
32 of them had failed to lodge their financial reports. The rest were considered small.
Most of those 32 companies have since lodged their financial reports following ASIC’s intervention, but others remain outstanding.
ASIC’s future actions
‘High levels of non-compliance by previously grandfathered companies to lodge their financial reports has prompted ASIC to increase its intensity of reviews and launch a broader crackdown.’
As a result of the high levels of non-compliance from inquiries of the 58 companies, ASIC has launched a broader surveillance, focussing on non-lodgement of financial reports by large proprietary companies.
ASIC expects to complete this surveillance in the first quarter of 2026, and will use its full range of enforcement and compliance tools in response to non-lodgement. This includes taking regulatory action when needed. ASIC’s willingness to take regulatory action is demonstrated by action taken in the Supreme Court to force large proprietary companies to lodge their financial reports, as well as issuing infringement notices for non-lodgement of financial reports.
ASIC’s media release advises companies to proactively review their financial reporting obligations and address any instances of non-compliance before ASIC begins the surveillance. To date, ASIC has taken action to address non-compliance with reporting obligations of large and small foreign-controlled proprietary companies with one entity recently being fined $187,800 as a consequence of their non-lodgement of financial statements for a number of years.
Auditor’s responsibility regarding non-lodgement
ASIC’s media release also reminds auditors of their obligation under section 311 of the Corporations Act 2001 to notify ASIC if they suspect that a company is not complying with its lodgement obligations.
We are here to help
Please contact our IFRS & Corporate Reporting team if you need support catching up on overdue financial statements for lodgement with ASIC.