From 1 July 2019, thousands of private companies may be relieved of certain financial reporting obligations under the Corporations Act 2001 (Cth).
In an announcement on 16 November 2018, Treasurer Josh Frydenberg confirmed the Government's proposal to amend the financial thresholds that determine when a private company is considered 'large', thereby reducing the financial reporting burden on small to medium-sized private companies. The current thresholds have not been reviewed since 2007.
What are the key changes?
Under the current regime, 'large' proprietary companies must lodge a financial report, director's report and an auditor's report with ASIC each financial year. Smaller proprietary companies, on the other hand, are merely required to keep written financial records.
The draft regulations will change the definition of what constitutes a 'large' proprietary company by raising the financial reporting thresholds. As it stands, a company is considered 'large' for ASIC reporting purposes if they meet at least two of the three thresholds within a given financial year:
- $25 million or more in consolidated revenue
- $12.5 million or more in consolidated gross assets, or
- 50 or more employees.
The draft regulation proposes to double these thresholds,
- $50 million or more in consolidated revenue
- $25 million or more in consolidated gross assets, or
- 100 or more employees.
If approved, the changes would apply in respect of 2019-20 financial year onwards.
What are the outcomes?
The Government estimates the changes would reduce SME regulatory costs by $81.3 million annually, with a third of proprietary companies currently classified as large expected to fall below the mandatory reporting thresholds.
While the changes can be expected to have a positive impact on smaller enterprises, relieving them of what can be a costly administrative exercise (preparing and auditing financial reports averages $39,950 per company per year), they will also reduce financial transparency, limiting the amount of public facing financial data available in respect of smaller companies. The increases may also have flow on effects for the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 – if approved, the changes will reduce the number of private companies required to adopt a whistleblower policy under that Bill (if passed by Parliament).
Timeframe for comment
The draft amendments are open for comment until 14 December 2018
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.