ASIC is in the midst of a concerted campaign targeting private companies that have outgrown the reporting exemptions.
ASIC requires companies to prepare and lodge a financial report and a directors’ report each financial year, and have the accounts audited unless the company is exempt. Most small companies are exempt from the compliance requirements as are small foreign owned companies in certain circumstances.
Utilising data from the Australian Taxation Office (ATO), ASIC is contacting companies that have moved beyond or not complied with the exemption and are now in breach of their reporting requirements.
If your company has never had to lodge financial reports with ASIC in the past, it’s very easy to breach the rules without realising it. The reporting requirements are hard and fast and ASIC is not overly sympathetic to “oops” as a reason for a breach.
What is a small company?
Small companies are exempt if they satisfy at least two of the following:
- The consolidated gross revenue for the financial year for the company and any entities the company controls is less than $25 million
- The value of consolidated gross assets at the end of the financial year of the company and any entities it controls is less than $12.5 million, and
- The company and any entities it controls have fewer than 50 employees (full-time equivalent) at the end of the financial year.
No longer a small company? Then you are a large company and are required to lodge audited financial statements.
Will the auditor want to audit the previous year’s figures when we were still a small company? Yes.
This exemption is for companies not controlled by a foreign entity or disclosing entities.
Failure to lodge annual accounts with ASIC may result in penalties and potentially the company being deregistered.
The rules for foreign controlled companies
Small companies controlled by a foreign company may also be exempt in some circumstances.
For small companies that are not part of a large consolidated group, the directors must resolve to rely on relief provided by ASIC and lodge this resolution (form 384). Timing is everything to be eligible for this exemption, if the right form is not lodged between the period starting 3 months prior to the start of the financial year relief is first applied and ending 4 months after the end of the relevant financial year, the exemption is unlikely to apply.
ASIC warns that, “in most cases, relief is not granted for financial reports that were due in the past”.
Foreign companies that fail to lodge the appropriate financials and are not exempt may be deregistered.
Again, if you have a requirement to lodge financial statements with ASIC, they must be audited.