FAQs: Financial reporting and audit

1. What is the new financial reporting framework for AFS licensees?

A new financial reporting framework applies to Australian financial services (AFS) licensees under Chapter 7 of the Corporations Act from years commencing 1 July 2021. The new framework is consistent with the framework in accounting standards for full-year financial reports of companies, registered schemes and disclosing entities under Chapter 2M of the Corporations Act.

The accounting standards allow entities that do not have public accountability to use a simplified disclosure regime (Tier 2 reporting). Entities that have public accountability must comply with the disclosure requirements of the full standards (Tier 1 reporting). All entities must apply the full recognition and measurement requirements for assets, liabilities, income and expenses.

An entity has public accountability where:

• its debt or equity instruments are traded in a public market, or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or

• it holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses (this would include AFS licensees that hold client money).

Public accountability is used in determining whether AFS licensees must apply the full accounting standards (Tier 1 reporting) or the simplified disclosure regime (Tier 2 reporting) in their Chapter 7 financial statements. However, some specified types of licensees (e.g. licensees that are regulated by the Australian Prudential Regulation Authority and responsible entities of registered schemes) must apply the full accounting standards (Tier 1 reporting).

Accounting standards apply to full-year Chapter 2M financial reports under section 296 of the Corporations Act. Accounting standards apply to Chapter 7 financial reports under the certification section of Form FS70 Australian financial services licensee profit and loss statement and balance sheet (which has the force of law). Section 989C requires a licensee to follow reporting requirements specified by the Corporations Regulations 2001 (Corporations Regulations) on disclosure and accounting principles. Regulations 7.8.13(1) and 7.8.13A(a) of the Corporations Regulations and section 350 of the Corporations Act allow ASIC to prescribe reporting requirements through Form FS70.

2. What are the transitional arrangements?

AFS licensees may be able to apply certain transitional arrangements relating to disclosures in their Chapter 7 financial statements for a financial year commencing 1 July 2021 to 23 June 2022 (the first year) and/or the comparative information in financial statements for financial years commencing before 23 June 2023 (the first and second years). They will be able to apply the transitional arrangements if they:

• are not reporting entities (within the meaning of the first paragraph of the definition of ‘reporting entity’ in Accounting Standard AASB 1057 Application of Australian Accounting Standards), and

Note: AASB 1057 can be downloaded from the Accounting Standards webpage on the Australian Accounting Standards Board (AASB) website.

• prepared a special purpose financial report for the immediately preceding financial year.

The full recognition and measurement requirements of accounting standards continue to apply.

Under the transitional arrangements:

• a licensee that is not required to prepare a Chapter 2M financial report can choose to only disclose the profit and loss account, balance sheet, and information necessary to give a true and fair view for the first year. They can also do this for comparatives in the second year
• a licensee that is required to report under Chapter 2M and does not have public accountability can report under Tier 2 requirements for the first year and in comparatives for the second year, even where Tier 1 reporting would otherwise have been required for that licensee by Form FS70.

While reporting current year figures on a Tier 1 basis and comparatives on a Tier 2 basis may be possible under the transitional arrangements for Chapter 7 reporting, that is not permitted for Chapter 2M reporting. This is because accounting standards require comparative information for all amounts reported in the current period’s financial statements and for narrative and descriptive information if it is relevant to understanding the current period’s financial statements (see paragraph 38 of Accounting Standard AASB 101 Presentation of financial statements).

Note: AASB 101 can be downloaded from the Accounting Standards webpage on the AASB website.

3. How do I describe the basis of preparation of the financial statements?

The basis of preparation note for an AFS licensee that reports only under Chapter 7 and applies the transitional arrangements should refer to compliance with the reporting requirements specified in Form FS70. The note should state:

• that the full recognition and measurement requirements have been applied
• whether the disclosures for the current year figures are on a Tier 1, Tier 2 or special purpose financial reporting basis
• that the comparative disclosures are on a special purpose financial reporting basis
• for special purpose financial reporting, the accounting standards for which disclosure requirements were not applied.

Otherwise, the basis of preparation note in a Chapter 7 financial report that complies with Form FS70 could refer to compliance with accounting standards. This includes financial reports that comply with Chapter 2M, irrespective of the Chapter 7 transitional arrangements for licensees without public accountability.

In all cases, the accounting policy note should also refer to compliance with the true and fair view requirement (section 989B of the Corporations Act).

4. How is the auditor’s report affected by the transitional arrangements?

Where an AFS licensee that reports only under Chapter 7 reports on a special purpose financial reporting basis under the transitional arrangements in the current year and/or comparative information, the audit opinion should refer to compliance with the basis of preparation outlined in the notes to the financial report. The auditor should first ensure that the basis of preparation is appropriately disclosed.

In other cases, the auditor’s report should include an opinion concerning compliance with the accounting standards.

Further information can be found in AUASB Bulletin, Audit considerations on the removal of special purpose financial statements for certain for-profit private sector entities (PDF 306 KB), April 2021 and AUASB Bulletin, Auditor’s responsibilities and the financial reporting framework (PDF 230 KB), 22 July 2019 (updated April 2021).

This FAQ refers to the audit opinion attached to the financial report, rather than Form FS71 Auditor’s report for AFS licensee.

5. Are consolidated financial statements required for intermediate parent entities?

This FAQ originally clarified that paragraph 11(a)(iii) of the certification in the version of Form FS70 released on 22 August 2022 was not intended to override the exemption that applies, in certain circumstances, to an intermediate parent in a group from preparing consolidated financial statements under paragraph 4(a) of Accounting Standard AASB 10 Consolidated financial statements. Form FS70 was reissued on 19 September 2022 with an amended paragraph 11(a)(iii) that clarifies the situation.

Note: AASB 10 can be downloaded from the Accounting Standards webpage on the AASB website.

7. If ASIC's public database shows that a proprietary company has provided notice concerning financial report lodgement or audit relief, does that mean ASIC has approved the relief?

No. Most of the notifications required under class orders dealing with financial report lodgement relief or audit relief are notifications for the public record. One purpose is so that persons dealing with the company may be able to determine that the company intends to take advantage of relief under the relevant order.

Relief under the ASIC class orders is dependent upon the company concerned meeting all of the conditions of those orders. The onus is on the company and its directors to ensure that all of these conditions are met.

The fact that such a notification required by a class order appears on the public record does not mean that ASIC has considered or approved relief. Nor does ASIC inform companies that these notifications have been received and processed.

8. Can a company get relief under an ASIC class order if it meets most, but not all of the conditions?

No. The conditions under ASIC class orders complement each other and should not be regarded as substitutes. The conditions are part of a package and are included after careful consideration by ASIC.

A company is only entitled to rely on a class order if it fully meets all of the conditions for relief. For example, failure to meet a timing requirement contained in a class order would mean that a company does not qualify for relief under the order.

9. Does ASIC consider costs and inconvenience when deciding whether to give a company relief from financial reporting requirements?

Under the Corporations Act 2001 (Corporations Act), ASIC can give relief from one of the financial reporting requirements only if it is satisfied that one of three pre-conditions for relief are met. One of these pre-conditions is that compliance with a requirement of the Act would impose unreasonable burdens on the company. This takes into account the costs of compliance but regard must also be given to the benefits of compliance to users of the company's financial reports.

See ASIC Regulatory Guide 43 for more information.

10. If a company lodges a late Form 382 or Form 384, does it qualify for relief?

No. The company has not met the conditions of the relevant class orders and is not entitled to relief. If a company is required to lodge a Form 382 or Form 384 it must do so during the period commencing 3 months before the commencement of the relevant financial year and ending 4 months after the end of the relevant financial year. ASIC has a power to approve the late lodgement of Forms 394 and 396 under Class Orders [CO 98/98](c) and [CO 98/1417](fa).

See ASIC Regulatory Guides RG 115 and RG 58 for more information.

11. When should a proprietary company that does not meet the requirements for audit relief under ASIC [Class Order 98/1417] apply for individual relief?

See ASIC RG 115 for more information.

12. My company changed type during the financial year. Does the company need to prepare and lodge a financial statement?

Yes. The reporting obligation under Chapter 2M of the Corporations Act 2001 crystallises at balance date and it is the status of the company at balance date that is relevant.

To find out what types of companies are required to prepare and lodge financial report, see our Financial Reports page.

ASIC has given class order relief in relation to entities that cease to be disclosing entities after balance date. See ASIC Regulatory Guide 68 for more information.

13. How do I apply for an extension of time to prepare, lodge and/or distribute a financial report?

ASIC can only give an entity reporting under Chapter 2M an extension of time to prepare, lodge and/or distribute its financial report using the relief power under s340 of the Corporations Act 2001 (the Act). Subsection 340(3) requires applications to be authorised by a resolution of the directors, be in writing and be signed by a director. Applications must outline the reasons for seeking the extension of time and state why the directors believe that one of the pre-conditions for relief set out in s342(1) of the Act is satisfied (see also ASIC Regulatory Guide 43).

Applying for relief from the corporate financial provisions

Some other points to note are:

• ASIC is not empowered to give an extension of time after the deadline for lodging the financial report (as previously extended, where applicable) has passed.
• ASIC expects that entities will plan their financial reporting and audit processes to meet the reporting deadlines under the Act and that applications will normally relate to events that could not be reasonably foreseen.
• It is unlikely that the absence of directors from Australia will be a basis for an extension of time. Suitable alternative arrangements should be made to enable the financial report to be signed by a director. In any event, any application would need to be signed by a director.
• It is highly unlikely that ASIC would grant relief to enable an entity to wait for the outcome of future transactions or agreements (eg negotiations to extend loans or seek new lines of funding) before lodging its financial report.
• Where necessary, a separate application for extension of time to hold an Annual General Meeting must also be sought in accordance with s250P(2) (see also ASIC Regulatory Guide 44).

For more information, see our Applying for relief from the corporate finance provisions page.

14. Will ASIC give relief from compliance with IFRS requirements?

No. We will be unlikely to provide relief from compliance with the requirements of IFRS. The decision by the FRC for Australia to adopt IFRS is part of a strategy to ensure consistency and comparability of Australian financial reporting with financial reporting across the global financial markets.

Providing relief from the requirements of IFRS would not be consistent with the aims of this convergence process.