On 16 November 2018, the Government announced proposals to double the thresholds for entities required to prepare, have audited, and lodge financial statements with the Australian Securities and Investments Commission (ASIC).
In a joint media release by the Hon Josh Frydenberg MP (Treasurer of the Commonwealth of Australia) and Senator the Hon Michaelia Cash (Minister for Small and Family Business, Skills and Vocational Education), the Government noted the purpose of increasing the reporting thresholds is to cut more red tape for small businesses.
‘Small and medium businesses will save more than $300 million over the next four years, as the Liberal National Government cuts more red tape.
The Government will reduce the reporting burden for small and medium businesses by raising financial reporting thresholds which have not been adjusted since 2007.’
Extract from joint media release
The existing and proposed new thresholds for ‘large’ proprietary companies under s45A(3) of the Corporations Act 2001 are summarised in the table below (at least two out of three of the thresholds must be met in order to be ‘large’):
|$25 million or more in consolidated revenue
||$50 million or more in consolidated revenue
|$12.5 million or more in consolidated gross assets
||$25 million or more in consolidated gross assets
|50 or more employees.
||100 or more employees.
These ‘large’ proprietary companies are required to prepare, have audited, and lodge a financial report, a directors’ report and an auditor’s report with ASIC each financial year (subject to limit exceptions for lodgement and audit requirements in certain circumstances).
How will the thresholds be amended?
The Exposure Draft, Corporations Amendment (Proprietary Company Thresholds) Regulations 2018 Regulation 1.0.02B of the Corporations Act 2001, which sets the thresholds for s45A.
When will the new thresholds apply?
The Exposure Draft is proposing that the revised Regulation commence from 1 July 2019, and apply to financial years beginning on or after 1 July 2019.
Impacts of the proposals
Some of the anticipated impacts of these proposals include:
- Approximately one third of proprietary companies that are currently ‘large’ (i.e. approximately 2,200 out of 6,600) will no longer be classified as ‘large’, and will therefore no longer be required to report
- The regulatory cost for these businesses is expected to reduce by $81.3 million annually, as the average cost of preparing and auditing financial reports is approximately $36,950 per company, per year
- Small proprietary companies will still be required by law to keep written financial records and may be required to prepare or audit financial reports if directed by ASIC or 5% or more of their shareholders
- All other corporate obligations that apply to propriety companies will continue to apply.
Will there be any changes for ‘grandfathered’ large proprietary companies?
It should be noted that no changes are proposed to ‘grandfathering’.
Provided these 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.