New requirements for Australian public companies – consolidated entity disclosure statement

New requirements for Australian public companies – consolidated entity disclosure statement

As disclosed in a recent article, changes to the Corporations Act 2001 mean that all public companies (both listed and unlisted) must include a ‘consolidated entity disclosure statement’ as part of the contents of the annual financial report for financial years commencing on or after 1 July 2023.

Under the new requirements, an Australian public company’s annual report will need to include a ‘consolidated entity disclosure statement’, which either: 

  • If the accounting standards require the company to prepare consolidated financial statements, discloses details of each entity within the company’s consolidated group, or
  • If the accounting standards do not require the company to prepare consolidated financial statements, a statement to that effect.

In addition, directors will have to state in the directors’ declaration whether, in their opinion, this consolidated entity disclosure statement is ‘true and correct’, and for listed companies, the chief executive officer (CEO) and chief financial officer (CFO) declaration will also have to confirm the same. 

This article aims to provide preparers of 30 June 2024 financial reports with practical guidance in preparing their consolidated entity disclosure statement. 

Contents of the consolidated entity disclosure statement 

Public companies required by accounting standards to prepare consolidated financial statements must include the following details about each entity that is, at the end of the financial year, part of the consolidated entity: 

  • i. The entity’s name 
  • ii. Whether the entity is a body corporate, partnership, or trust 
  • iii. Whether the entity is:
    • A trustee of a trust within the consolidated entity
    • A partner in a partnership within the consolidated entity, or
    • A participant in a joint venture within the consolidated entity
  • iv. If the entity is a body corporate - the place at which the entity was incorporated or formed 
  • v. If the entity is a body corporate with a share capital - the percentage of the entity’s issued share capital (excluding any part that carries no right to participate beyond a specified amount in a distribution of either profits or capital) that was held, directly or indirectly, by the public company
  • vi. Whether the entity was an Australian resident or a foreign resident (within the meaning of the Income Tax Assessment Act 1997
  • vii. If the entity is a foreign resident as described in (vi) above – a list of each foreign jurisdiction in which the entity was, at that time, a resident for the purposes of the law of the foreign jurisdiction relating to foreign income tax (within the meaning of that Act).  Note: An entity can be an Australian resident for tax purposes, and simultaneously a foreign tax resident or a tax resident of two or more foreign countries at the same time.

Example 

An example of a consolidated entity disclosure statement where consolidated financial statements are prepared is shown below:

Name of entity 

Type of entity 

Trustee, partner or participant in joint venture**

% of share capital held 

Country of incorporation 

Australian resident or foreign resident (for tax purposes) 

Foreign tax jurisdiction(s) of foreign residents

Public Company Limited* 

Body Corporate 

N/A 

N/A 

Australia 

Australian 

N/A 

Sub 1 Pty Ltd

Body Corporate 

N/A 

100 

Australia 

Australian 

N/A 

Sub 2 Unit Trust 

Trust 

N/A 

N/A 

Australia 

Australian 

N/A 

Sub 3 Pty Ltd 

Body Corporate 

Trustee 

60 

Switzerland 

Foreign 

United States of America 

Sub 4 Pty Ltd 

Body Corporate 

N/A 

100 

Bermuda 

Foreign 

N/A 

* Entities listed here are those that are part of the consolidated entity at the end of the financial year. Entities disposed of during the year, or where the entity has lost control by the reporting date, are not included here. This means that entities listed could be different to the ‘Interests in subsidiaries’ note contained in the notes to the financial statements. 

** This means whether, at that time, the entity was a trustee of a trust within the consolidated entity, a partner in a partnership within the consolidated entity, or a participant in a joint venture within the consolidated entity. 

Are all subsidiaries required to be included? 

Yes. All subsidiaries have to be identified and included in the consolidated entity disclosure statement, regardless of whether they are dormant or immaterial. However, entities disposed of during the year, or where the entity has lost control by the reporting date, are not included. 

What has to be disclosed if consolidated financial statements are not required? 

Although it is called a ‘consolidated entity disclosure statement’, the statement must be prepared by all public companies reporting under Part 2M.3 of the Corporations Act 2001, irrespective of whether the company is required to prepare consolidated financial statements. So, when a public company is not required to prepare consolidated financial statements under Australian Accounting Standards, the entity is required to include a statement to that effect in the consolidated entity disclosure statement. Some examples of how this can be presented are shown below: 

Public company has no subsidiaries 

Public Company Limited has no controlled entities and, therefore, is not required by the Australian Accounting Standards to prepare consolidated financial statements. As a result, section 295(3A)(a) of the Corporations Act 2001 does not apply to the entity. 

Public company is an investment entity 

Public Company Limited is an investment entity applying the exemption from consolidation described in AASB 10 Consolidated Financial Statements and has no subsidiaries that are not investment entities. As a result, it is not required by Australian Accounting Standards to prepare consolidated financial statements, and, therefore, section 295(3A)(a) of the Corporations Act 2001 does not apply to the entity. 

Public company is an intermediate parent entity 

Public Company Limited is an intermediate parent applying the exemption from consolidation described in paragraph 4 of AASB 10 Consolidated Financial Statements. As a result, it is not required by Australian Accounting Standards to prepare consolidated financial statements, and, therefore, section 295(3A)(a) of the Corporations Act 2001 does not apply to the entity. 

Where does it go? 

The consolidated entity disclosure statement is part of the annual financial report, alongside the financial statements, notes and the directors’ declaration. However, it is a separate statement and does not form part of the notes to the financial statements (s295(1)(ba)), so it cannot be combined with the note on controlled entities required by accounting standards. 

Basis of preparation 

The following is an example of the wording that might be considered in the basis of preparation for the consolidated entity disclosure statement: 

Basis of Preparation 

This Consolidated Entity Disclosure Statement (CEDS) has been prepared in accordance with the Corporations Act 2001. It includes certain information for each entity that was part of the consolidated entity at the end of the financial year. 

Determination of Tax Residency 

Section 295 (3A) of the Corporation Acts 2001 defines tax residency as having the meaning in the Income Tax Assessment Act 1997. The determination of tax residency involves judgment as there are currently several different interpretations that could be adopted, and which could give rise to a different conclusion on residency. 

In determining tax residency, the consolidated entity has applied the following interpretations: 

Australian tax residency 

The consolidated entity has applied current legislation and judicial precedent, including having regard to the Tax Commissioner's public guidance in Tax Ruling TR 2018/5.

Foreign tax residency 

Where necessary, the consolidated entity has used independent tax advisers in foreign jurisdictions to assist in determining tax residency and ensure compliance with applicable foreign tax legislation. 

Partnerships and Trusts 

Australian tax law does not contain specific residency tests for partnerships and trusts. Generally, these entities are taxed on a flow-through basis, so there is no need for a general residence test. Some provisions treat trusts as residents for certain purposes, but this does not mean the trust itself is an entity that is subject to tax.

Additional disclosures on the tax status of partnerships and trusts have been provided where relevant.

Director’s Declaration 

The directors’ declaration will also have to be amended to refer to the consolidated entity disclosure statement. Regardless of whether the accounting standards require the preparation of consolidated financial statements, a consolidated entity disclosure statement is still required – it is just the amount of disclosure that differs. Therefore, the same ‘true and correct’ declaration is required in all cases. An example of this is as follows: 

‘The information disclosed in the attached consolidated entity disclosure statement is true and correct.’ 

Need help?

Navigating new legislation can be challenging. Reach out to our IFRS & Corporate Reporting team for assistance.