Financial report audit relief doesn’t automatically extend to the sustainability report
Financial report audit relief doesn’t automatically extend to the sustainability report
With mandatory sustainability reporting preparation well underway for Group 1 entities for 31 December 2025 year-ends, smaller Group 2 and Group 3 entities are also starting to consider their sustainability reporting obligations.
In particular, preparers are asking about the requirements for audit or assurance over this information. Although there is no requirement for an audit of the sustainability information until the fourth year, selected disclosures must be reviewed (limited assurance) in the first year, with all disclosures subject to a review engagement in the second and third years.
Large proprietary companies with audit relief for the financial report
Some large proprietary companies, although required to prepare and lodge a financial report with the Australian Securities and Investments Commission (ASIC), are eligible for audit relief under the ASIC Corporations (Audit Relief) Instrument 2016/784 (Instrument). Provided they meet all the conditions set out in the Instrument, the financial report does not require auditing.
Large proprietary companies that were previously small and whose financial statements were never audited may wish to seek relief under this Instrument so that their financial statements don’t have to be audited when lodged with ASIC. The criteria for audit relief are onerous. They include, but are not limited to:
- The financial statements have never been audited for a financial year ending 1993 or later
- The directors’ declaration for every single year having an unqualified solvency declaration
- Quarterly management accounts are produced within one month after the end of each quarter
- In each quarter’s management accounts, the directors resolved that total liabilities of the company did not exceed 70 per cent of the total tangible assets of the company, and that the company was able to pay its debts as and when they became due and payable.
Is audit relief over the sustainability report automatic?
No. Audit relief over the sustainability report is not automatic. The same applies to any limited assurance required in the first three years.
While it may seem odd to have an audit requirement for the sustainability report when the financial statements themselves are not audited, ASIC’s Regulatory Guide 280 Sustainability reporting, paragraph 161, says that ASIC will not necessarily grant sustainability reporting relief merely because a reporting entity has been granted, or has the benefit of, comparable financial reporting relief. This includes where relief in ASIC Corporations (Audit Relief) Instrument 2016/784 has been applied.
Therefore, entities seeking audit relief for the sustainability report, must follow the procedures set out in Regulatory Guide 280 Sustainability reporting, paragraphs 156 to 165.
ASIC’s power to grant relief
ASIC has the power, under Part 2M.6 of the Corporations Act 2001, to relieve entities from preparing a sustainability report or from having their sustainability report audited. ASIC can grant relief in one of two ways:
- On a ‘class basis’ by issuing a legislative instrument that would provide relief to entities that meet the eligibility criteria set out in the instrument (section 341(1)), or
- On an individual basis (section 340(1)). In such cases, the entity must lodge an application for relief with ASIC.
At the time of writing, ASIC had issued only two legislative instruments with respect to sustainability reporting, and neither of these addresses audit relief.
The two legislative instruments issued by ASIC in relation to sustainability reporting:
Entities will, therefore, need to make individual applications to ASIC if they wish to obtain relief from having to have the sustainability report audited.
Content of applications for individual audit relief
Large proprietary companies seeking individual relief from the requirement to have the sustainability information audited should refer to the guidance set out in Regulatory Guide 280 Sustainability reporting, paragraphs 172 to 183.
Applications for audit relief would need to satisfy ASIC that one of the jurisdictional thresholds in section 342(1) has been met, i.e. the requirement to have an audit of the sustainability report would either:
- Make the sustainability report or other reports misleading (see s342(1)(a))
- Be inappropriate in the circumstances (s342(1)(b)), or
- Impose unreasonable burdens (s342(1)(c)).
You can find more guidance on meeting criteria (a) to (c) in Regulatory Guide 280 Sustainability reporting, paragraphs 176 to 183.
Additional consideration in relief applications
Before granting audit relief for proprietary company sustainability reports on the basis that the audit requirements impose an unreasonable burden (refer (c) above), ASIC must consider:
- The expected costs of complying with the audit requirements
- The expected benefits of having the entity comply with the audit requirements
- Any practical difficulties that the entity faces in complying effectively with the audit requirements (for example, because the entity is likely to move frequently between meeting the thresholds for sustainability reporting in one year and then not meeting them in a subsequent year)
- Any unusual aspects of the entity during the financial year concerned
- The number of creditors and potential creditors
- The position of creditors and potential creditors (in particular, their ability to independently obtain financial information about the entity), and
- The nature and extent of the liabilities of the entity.
Proprietary companies seeking audit relief for the sustainability report should, therefore, also address the above matters in their individual application for relief.
When should applications for audit relief be submitted?
Time is of the essence. ASIC encourages entities to apply for relief as early as possible because sustainability reporting and audit relief are new processes and issues may arise, causing delays.
Entities should also note that ASIC cannot grant retrospective relief, so there is no point applying for relief after the reporting deadline (four months after year-end). Also, ASIC has discretion to grant relief. Submitting an application does not guarantee that relief will be granted.
If ASIC has a backlog of applications and approval is not received prior to the reporting deadline (e.g. 30 April 2026 for first-time Group 1 entities), this will likely result in late lodgement for both the financial report and the sustainability report because of the interconnectivity between the two. Entities that wish to do so should apply for relief now.
Example
Large Proprietary Company ABC is a Group 1 entity for sustainability reporting purposes and has a 31 December 2025 reporting date.
The financial report and the sustainability report must be lodged with ASIC at the same time, with the deadline for lodgement being 30 April 2026 (i.e. four months after the end of the reporting period).
Large Proprietary Company ABC applies the audit relief for its financial report in ASIC Corporations (Audit Relief) Instrument 2016/784 and wishes to obtain audit relief for its sustainability report as well.
What should Large Proprietary Company do?
Large Proprietary Company ABC should apply to ASIC for audit relief for the sustainability report now to ensure it is obtained prior to the lodgement deadline of 30 April 2026.
How to lodge an application for relief?
Relief applications should be lodged through the ASIC portal, be in writing, be resolved by the board and signed by a director.
A register of past relief decisions is available on the ASIC website.
How much does a relief application cost?
Application fees for audit relief will be $3,487 per entity.
More information
Entities should refer to Regulatory Guide 280 Sustainability reporting, for detailed information about ASIC’s process for granting relief from some or all of the new sustainability reporting requirements.
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