The financial reporting size thresholds for Large Proprietary Companies under the Corporations Act 2001 (the Act) have been doubled effective for reporting periods on or after 1 July 2019.
The thresholds which have remained unchanged for almost 12 years determine whether a Company is deemed to be “small” or “large” under the Act. If a Company is deemed to be large, it is required to prepare and lodge its financial report with ASIC, and, subject to certain limited exceptions, also have an audit performed of that financial report.
The thresholds, and therefore a Company’s reporting obligations, remain unchanged for reporting periods up to 30 June 2019.
The amendments are contained in the Corporations Amendment (Proprietary Company Thresholds) Regulations 2019.
What are the thresholds?
The table below summarises the updated reporting thresholds. A Company is deemed to be “large” under the Act if it satisfies at least two out of the three parameters below:
|Parameter *||Thresholds applicable up to 30 June 2019||Threshold applicable on or after 1 July 2019
|Consolidated revenue for the year
|$25 million or above||$50 million or above|
|Consolidated Gross Assets as at year end
|$12.5 million or above||$25 million or above|
|Number of employees at the end of the year
|50 employees or more||100 employees or more|
*Each of the thresholds must be assessed for the Company and any entities it controlled for the year on a consolidated basis
Why have the thresholds been changed?
The Government has noted that the purpose of increasing the reporting thresholds is to reduce the regulatory burden and associated costs for small and mediums sized businesses.
The timing of the change in thresholds also coincides with a significant push by the Australian Accounting Standards Board (AASB) towards streamlining the financial reporting standards and, in particular, address the unique anomaly in the Australian reporting requirements under the Special Purpose Reporting Framework – which has for some time been seen as not aligning to the spirit of the international reporting framework.
The AASB has been working on a major project of removing the provisions of the special purpose reporting framework with the underlying aim of ensuring that where financial reports are needing to be produced, they are more aligned to a general-purpose format so that it contains sufficient information for its users to be able to make their decisions. The special purpose reporting framework did not provide for an adequate means of comparability and usability for such purposes.
We can therefore expect that the special purpose reporting framework will likely be withdrawn in the very near future – possibly as early as 1 July 2020.
What you should also be aware of?
Whilst the doubling of the thresholds is expected to mean almost a third of large proprietary companies that have been reporting to ASIC will no longer be required to lodge their financial reports post 1 July 2019, the following will most likely still require financial reports to be produced in accordance with the Accounting Standards:
- Entities that have bank covenants that require financial statements to be prepared in accordance with the Accounting Standards;
- Entities that are directed by ASIC or 5% or more of the shareholders to produce a financial report (and possibly have it audited)
- Certain foreign controlled entities
- Entities deemed to be part of Significant Global Entities (SGEs).
A further impact on the above is that if the special purpose reporting framework is removed, compliance with Accounting Standards will require preparation of general-purpose financial reports with limited disclosure reliefs.
If you would like to learn more about the above changes and their impact, please contact your S&W advisor.