Financial Reporting is a vital part of corporate governance. It provides reliable information about an organisation’s financial performance to management, shareholders, investors, consumers, and regulators.

This financial reporting quick guide provides an overview of Australian requirements.

What should a complete set of financial reports include?

Director’s Report
Audit Committee Report and Remuneration Report (Listed entity)
Statement of profit/loss and other comprehensive income (separately disclosed or combined)
Statement of financial position
Statement of changes in equity
Statement of cash flows
Notes to the financial statements
Directors declaration about the statement and the notes
Auditor Independence Declaration
Auditor’s Report.

What are the types of financial reports?

General Purpose Financial Report or Tier 1 (under Tier Reporting of AASB)
General Purpose Financial Report – Reduced Disclosure Regime (RDR) or Tier 2 (similar approach by IFRS for SME reporting)
Special Purpose Financial Report – compliance with mandatory Accounting Standards –
Other Agreed Upon Financial Report – not lodged with ASIC.

Who is required to prepare financial reports?

The Australian Securities and Investments Commission (ASIC) is Australia’s corporate, financial markets and financial services regulator. Companies operating in Australia are required to prepare and lodge financial reports with ASIC under Australia’s Corporations Act 2001 if they are:

Disclosing entities e.g. listed entities
Public companies e.g. companies limited by guarantee
Large proprietary companies
Registered schemes.

A proprietary company is defined as large where two of the following conditions are met:

Consolidated revenue for the year > $25m
Consolidated gross assets at the end of the year > $12.5m
Employee at the end of the financial year > 50 (full time equivalent).

For small proprietary companies (ie not defined as large above) , there is no requirement to prepare a financial report unless:

Shareholders with at least 5% of the votes direct the company to do so in writing
ASIC directs the company to prepare
The company is controlled by a foreign company and wasn’t consolidated into the financial statements lodged with ASIC.

Financial reporting requirements for ‘Reporting’ vs ‘Non-reporting’ entities

According to ASIC’s RG 85 reporting requirements, the primary factors used to determine whether the entity is a reporting entity include its economic or political influence, financial characteristics and size. However, the ultimate decision as to whether the entity is a reporting entity rests with the company directors, not the auditor.

According to the Public Sector Accounting Standards Board (PSASB), where it is reasonable to expect that stakeholders will be dependent on financial reports to make decisions about the allocation of scarce resources, reporting entities must prepare general purpose financial reports complying with all accounting standards, whilst non-reporting entities may prepare special purpose financial reports.

Mandatory Accounting Standards

Regardless of whether an entity is reporting or non-reporting, the following standards are compulsory to prepare financial reports:

AASB 101 Presentation of Financial Statements
AASB 107 Cash Flow Statements
AASB 108 Accounting Policies, Changes in Accounting Estimates and Error
AASB 1048 Interpretation and Application of Standards
AASB 1054 Australian Additional Disclosures

If special purpose financial reports are prepared, they must still comply with the above at a minimum and present a true and fair view of the entity’s financial position and performance.

Different ‘Tiers’ of financial reporting requirements

Australia’s tiered reporting framework is designed to reduce the reporting burden for certain entities.

Tier 1 includes for-profit private sector entities with public accountability and Federal, State, Territory and Local Governments. They must prepare general purpose financial reports using the full set of International Financial Reporting Standards adopted by the AASB.
Tier 2 includes for-profit private sector entities with no public accountability, not-for-profit private sector entities, all other public sector entities. They can either prepare general purpose financial reports or use reduced disclosure requirements (RDR).

Significant Global Entities (SGEs)

A Significant Global Entity is defined as either:

The global parent entity with annual global income >$1 billion AUD or;
A subsidiary of a group with consolidated annual global income > $1 billion AUD.

From 1 July 2016, non-reporting entities of SGEs will need to prepare general purpose financial reports and lodge them with ASIC and the ATO if they are:

A corporate tax entity that forms part of a ‘Significant Global Entity’ for the income year
An Australian resident or a foreign resident operating an Australian permanent establishment (per Pt IVA of ITAA 1936)
They do not already lodge general purpose financial reports with ASIC in the time frame per s319(3) of the Corporations Act 2001.

Benefits of financial reporting

Apart from meeting the compliance obligations outlined in this quick guide, there are many other benefits of financial reporting which we cover in our article Can an audit actually benefit your business?

In Sydney, Accru Felsers specialises in audited financial reports for German-speaking businesses, international hotels & other international groups, not-for-profits and financial services organisations. Our clients typically perform above industry benchmarks. Please contact us for a confidential discussion about your audit and financial reporting needs.