Australian Audit Exemptions: Audit exemptions for small companies controlled by a foreign company, and important ASIC requirements in Australia
You need to determine if your company is still small or large enough to be eligible for the Australian audit exemptions.
The Australian Securities and Investments Commission (ASIC), has defined the differences between small and large companies. The regulator will require companies to file a financial and directors’ report every financial year unless they meet the Australian audit exemptions requirements. These reports must be audited and reviewed by the regulator.
For listed entities and those registered with Australian Charities and Not-for-profits Commissions (ACNC), there may be different lodgement requirements.
When is my company not allowed for the Australian audit exemptions, and is required to conduct a financial audit?
An audit is an independent review of financial statements for a company or organization, and the auditors are responsible for ensuring that financial statements are fair and consistent with generally accepted accounting principles.
Auditing encourages consistency and objectivity when it comes to financial reporting and allows outside parties to verify that financial statements are fair and true.
Below are some examples of situations where the Australian audit exemptions are not allowed, and an audit might be necessary.
Regulatory requirements for the Australian audit exemptions.
A registered auditor must audit certain types of entities’ financial reports. The Australian Securities and Investment Commission, (ASIC) requires that all entities (other than small proprietary companies), managed investment schemes (registered schemes) and disclosing entities (bodies that hold enhanced disclosure securities) have their financial reports audited annually.
Medium-sized charities that have an annual revenue greater than $250,000 should have their financial statements audited. Large charities that have annual revenues of over $1 million and those under the Incorporated Association Act must have their financial records audited.
No audit exemptions for large proprietary companies.
A company that becomes a large proprietorship must be audited under the Corporations Act.
The Australian Securities and Investments Commission (ASIC), has defined a proprietary company “large” as one that meets two of three criteria.
- A consolidated revenue exceeding $50 million
- Consolidated gross assets greater than $25 million
- 100 employees or more
To get a grant, investment, or other you might need to have an audit.
Audits may be required for charities or companies seeking government grants. The government will require proof that the financial statements they have prepared are accurate and fair. An independent audit could also be added credence to your application if your company is looking for investment.
Audit if you intend to sell your business.
Potential buyers will want to be able to rely on financial data if you plan to sell your business. It’s a smart idea to have your financial statements audited. Auditing can add value to your company.
Audit to be eligible for a loan.
If a company wants to borrow money, lenders require that financial statements be audited. This is to protect the lender and ensure that the figures in the financial statements are correct.
Australian audit exemptions for a small company.
If two of these criteria are met, a proprietary company is considered small.
- The company’s consolidated revenue and the revenues of any other entities it owns are less than $25 Million.
- The company’s consolidated gross assets, including any entities it owns, at the end of the financial year is $12.5million or less.
- The company or any other entities it controls has fewer than 50 employees as of the end of the financial year.
A small company that is not a proprietary entity is generally exempt from the obligation to prepare financial reports unless it has been directed by ASIC or shareholders. In certain situations, small companies can be exempted from compliance requirements. A company may be able to ignore the requirements, especially if they have never filed financial reports with ASIC.
Larger company legislative requirements.
Large proprietary companies must comply with the Corporations Act 2001.
- Prepare a financial report each year (which includes the financial statement, the notes to financial statements, and the directors’ declaration);
- Make an annual report for directors;
- Ensure that the auditor is appointed and that the financial report is audited;
- Within 4 months of the year-end, lodge your financial report with ASIC;
- Within four months of the year-end, distribute the financial report to all members.
ASIC defines a large company as:
- The company’s consolidated revenue and any entities it owns (if any) total $50 million or more.
- $25 million is the company’s consolidated gross assets at year-end.
- The company or any entities it controls has 100 or more employees (full-time equivalent) at the close of the financial year.
This is, of course, the opposite of what was stated above when defining a small business.
A new definition of a large company was adopted in July 2019 to ensure that large companies’ financial reporting requirements are met.
What’s a foreign company considered by Australian rules?
A foreign company is one that is established in another country than Australia.
Is it a small, proprietary company owned by a foreign corporation?
The Class Order uses the accounting standard AASB 127 – Consolidated and Separate financial statements – as the definition of control.
If a foreign company has control over a small company, it will be able to influence the returns by influencing the investee.
Australian audit exemptions and relief that you are eligible.
ASIC can exempt eligible companies from the obligation to:
- Appoint an auditor;
- Audit the financial reports of your company;
- ASIC will accept a report from an auditor;
- Shareholders should be provided with an auditor’s report;
- The auditor should provide a statement in relation to any concise financial reports.
What relief is available, and what will ASIC consider and look at.
ASIC can exercise the above power if it is satisfied that compliance would be:
- Don’t be deceitful;
- You should not be inappropriate given the circumstances of your company;
- Do not place an unreasonable burden on the company, its employees, or the auditor;
- Expected costs and benefits of meeting audit requirements;
- Any circumstance that could make it difficult to comply with the law;
- Any unusual aspects of company operations that are not consistent with the financial year.
ASIC requirements for Australian audit exemptions.
- Directors and shareholders unanimously agree that no audit is required, provided the resolutions are made within three months prior to the start of each financial year and end four months after the close of the financial years;
- ASIC is satisfied that the company applying to audit relief is in good financial management and is in a position to pay creditors the most directly;
- A prescribed accountant compiles the company’s financial report for the year end;
- The corporation files its financial report within the deadlines set out in the Corporations Act.
Main benefits of the Australian audit exemptions.
The Class Order was created to help small, proprietary companies controlled by foreign companies avoid having their financial audits. This can result in significant cost savings.
A company that fails to meet any conditions for the relief in a financial year will not be eligible for the Australian audit exemptions.
If you found this article helpful, please go to the rest of the website for more about accounting in Australia, an overview of Financial Reporting in Australia, understanding the Australian income tax, or more accounting and financial topics in International Accounting, Audit, Taxation, Accounting Software, Cloud Accounting and Accounting Automation.
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