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16RU-008 ASIC financial reporting and audit relief

16RU-008 ASIC financial reporting and audit relief

ASIC has remade two class orders relating to financial reporting relief for wholly owned companies and audit relief for proprietary companies. The new instruments are largely consistent with those they replace, except that APRA regulated companies can no longer be party to the deed of cross guarantee. Pre-existing deeds of cross-guarantee are grandfathered but will need to be varied to reflect revised wording, or new deeds executed, in order to add companies to a deed after the effective date.


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Class orders remade

After public consultation, ASIC has remade three class orders as new legislative instruments relating to financial reporting by companies and audit relief. ASIC has repealed two further class orders.

The instruments remade are:

  • ASIC Corporations (Wholly owned Companies) Instrument 2016/785 – replaces Class Order 98/1418
  • ASIC Corporations (Audit Relief) Instrument 2016/784 – replaces Class Order 98/1417
  • ASIC Corporations (Qualified Accountant) Instrument 2016/786 – replaces Class Order 01/1256.

ASIC also released an update of Regulatory Guide 115 Audit relief for proprietary companies.

The class orders repealed as they are no longer deemed necessary or useful were:

  • Class Order 98/106 Financial reports of superannuation funds, approved deposit funds and pooled superannuation trusts
  • Class Order 99/1225 Financial reporting requirements for benefit fund friendly societies.

New legislative instruments

Wholly owned companies – ASIC Instrument 2016/785

Part 2M.3 of the Corporations Act requires companies (except most small proprietary companies), disclosing entities and registered managed investment schemes to prepare and lodge a financial report, directors’ report and auditor’s report for a financial year.

ASIC Instrument 2016/785 relieves a wholly owned entity from its obligations under Part 2M.3, provided that it enters into a deed of cross guarantee with its holding entity and other wholly owned entities of the group, and meets certain other conditions.

For further details relating to the wholly owned companies relief and the associated terms and conditions refer to the Australian Financial Reporting Manual.

There are two matters to highlight relating to the remade ASIC Instrument 2016/785.

APRA regulated entities

The main change to CO 98/1418 in the remaking as ASIC Instrument 2016/785 is around the inclusion of APRA regulated companies in the deed of cross guarantee.

Under the remade instrument APRA regulated companies can no longer obtain relief from the financial reporting obligations under Part 2M.3.

The instrument now requires that as at the end of a relevant financial year (i.e. current financial year), no member of the extended closed group is a body regulated by APRA. The extended closed group is any entity which is a party to the deed of cross guarantee, irrespective if that entity relies on the financial reporting relief.

It is not expected that this change will have a significant impact in practice as it has been our experience that APRA regulated companies have not generally been included in an extended group. Groups with deeds of cross guarantee should, however, review them to ensure any APRA regulated companies are removed by the effective date of the new instrument. Financial reporting relief could be lost for all companies that are a party to the deed of cross guarantee if this amendment is not made.

Existing deeds of cross guarantee and other documentation

Except for as discussed for APRA regulated bodies above, no changes or updates are required to existing deeds of cross guarantee documentation or the forms for companies that previously obtained relief under CO 98/1418 and will continue to do so under the new instrument.

ASIC has also made minor wording changes to the related Pro Formas. One of the consequences of these wording changes is that the revised Pro Forma 24 Deed of cross guarantee only allows controlled entities to be added to the pre-existing deed of cross guarantee by execution of an assumption deed when those entities are eligible for the benefit of relief of CO 98/1418. Therefore as CO 98/1418 is only effective until 31 December 2016, pre-existing deeds of cross guarantee will need to be varied, or companies will need to execute new deeds, in order to add companies to a deed after that date in order to conform with the revised Pro Forma 24.

Audit relief for proprietary companies – ASIC Instrument 2016/784

CO 98/1417 has been remade as ASIC Instrument 2016/784 with no significant changes.

A large proprietary company or a small proprietary company that is controlled by a foreign company must prepare and lodge with ASIC a financial report, directors’ report and auditor’s report within four months after the end of the company’s financial year: s319(3) of the Corporations Act.

ASIC Instrument 2016/784 provides relief from the audit requirements to proprietary companies that satisfy the conditions in the instrument.

Regulatory Guide 115 Audit relief for proprietary companies, outlines ASIC’s policy approach in relation to audit relief. There have been no significant revisions to the policy approach.

Further details relating to the audit relief for proprietary companies are included in the Australian Financial Reporting Manual.

Qualified accountants – ASIC Instrument 2016/786

ASIC Instrument 2016/786 operates to define persons who are qualified accountants. CO 01/1256 was remade as ASIC Instrument 2016/786 reflecting current ASIC drafting practices without any substantive amendments.

Qualified accountants are referred to in ASIC legislative instruments (such as ASIC Instrument 2016/786) and in various sections of the Corporations Act (such as the provision of disclosure documents).

Transition and effective dates

The new instruments commenced on the day after they are registered, being 30 September 2016.

In order to preserve their effects beyond the sunsetting date of 1 October 2016, ASIC Instrument 2016/784 and ASIC Instrument 2016/785, replacing CO98/1417 and CO 98/1418 respectively, include a transitional provision that extends their effective dates. This means that the existing class orders will continue to apply for reporting periods ending before 1 January 2017.

Entities should ensure references to the relevant instruments are updated as appropriate in any financial reports or directors’ resolutions in relation to reporting periods ending on or after 1 January 2017.

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