Good news for small businesses

Blog source Australian Institute of Company Directors

An increase in the thresholds that define a large proprietary company will mean that about 2,220 small companies will no longer have to lodge publicly available financial statements with ASIC. According to Treasury estimates, this change will save small business $81.3 million a year.

The thresholds were last revised in 2007 and an update was long overdue. The AICD, with member support, has been advocating for an increase in these thresholds for some time, along with other major stakeholders.

From 1 July 2019, a large proprietary company will be defined as an entity that meets two of the three thresholds set out below:

  • Revenue of at least $50 million;
  • Assets of at least $25 million; and
  • At least 100 employees.

This doubles the existing thresholds and will apply from the 2019-2020 financial year onwards. The existing thresholds will still apply for 2018-2019 financial year ends. Some exceptions, based on the existing legal requirements, will apply. These include for a small proprietary company subject to a direction to prepare and lodge financial statements from ASIC and/or its shareholders, a small foreign controlled company or a company with one or more crowd-sourced funding shareholders at any time during the financial year.

What else does this impact?

The increase in thresholds for a large proprietary company will also impact on the number of entities that need to consider the changes to Australia’s whistleblowing laws that are due to commence on 1 July 2019. Under these reforms, public companies and large proprietary companies will have until 1 January 2020 to implement a compliant whistleblowing policy. Companies will need to refer to the new thresholds to determine whether they are a large proprietary company and therefore need to implement compliant whistleblowing policies by the deadline.

Small proprietary companies wishing to continue to prepare financial reports

Small proprietary companies (not subject to the exceptions above) can continue to prepare financial statements if they wish for their own use or the use of stakeholders (such as their shareholders, financial institutions or the Australian Taxation Office). However, they will not be required to lodge these financial statements on the public record. The format of these financial statements can be determined by directors, considering user needs of the financial statements. This means, they will not necessarily have to comply with all (or any) Australian Accounting Standards.

What’s next?

The report Strengthening for Purpose: Australian Charities and not-for-profits Commission – Legislative Review 2018 recommended an increase in financial reporting thresholds for charities from the current $250,000 of annual revenue to $1 million of annual revenue determined on a rolling three-year basis. The AICD will support this recommendation and continue to advocate for consistency in thresholds across the whole not-for-profit sector.

The AICD has a new program designed to empower small-to-medium business owners and leaders by providing the tools to create value in their business and pave the way for sustainable growth and expansion.

The increase in the thresholds is seen by standard setters as a stepping stone for the Australian Accounting Standards Board (AASB) to remove the ability for companies regulated by ASIC to lodge special purpose financial statements (in contrast to general purpose financial statements).

This will require the adoption of the recognition and measurement of all accounting standards (including consolidation and equity accounting) as well as a minimum set of disclosures for all entities lodging financial statements on the public record (approximately 10,000 entities). It will likely increase the reporting burden of those companies that currently lodge special purpose financial statements – including large proprietary companies and some public companies. It may also impact a broader range of entities that are required to prepare financial statements in accordance with Australian Accounting Standards. The AASB will be undertaking further consultation on this matter through an Exposure Draft to be issued later this year.

Separate to the consultation above related to ‘for-profit’ entities, the AASB is still considering the financial reporting requirements that will be applicable for NFPs. It is doing this in conjunction with the Australian Charities and Not-for-profits Commission as well as State and Territory consumer protection agencies.