Financial Reporting and Audit Requirements

Financial analysis and reporting are one of the bedrocks of modern business.

Financial reports are often legally required in various jurisdictions, and financial reporting tools could serve to benefit your business by providing an informed snapshot of your activities to assist in sharing vital information both internally and externally, as well as leverage metrics or insights to make significant improvements to the very areas that allow your business to flow. Furthermore, an audit is required by law in addition to the financial reporting by someone independent of that organisation.

The purpose of an audit is to obtain an independent opinion on the financial statements of a business or organisation. Specifically, auditors establish whether the financial statements are fairly presented and in accordance with generally accepted accounting principles. Auditing plays an important role in maintaining and promoting confidence and integrity in capital markets, and promotes consistency and objectivity in financial reporting to provide external parties confidence that financial statements are true and fair.

In Australia, both financial reporting and audit are legally required for certain types of entities and are regulated by various legislations, including the Corporations Act 2001. The entities required to produce financial reports and perform an audit in Australia are as follows:

• Public interest entities
  • Disclosing entities, public companies, registered schemes
• Large proprietary company
  • 2 of the following:
  • Consolidated revenue higher than $50m;
  • Consolidated assets higher than $25m; and
  • Companies with more than 100 employees.
• An audit is generally not required for small proprietary companies; however, the following scenarios would have an impact on their audit and financial reporting obligations:
  • Controlled by a foreign company
  • ASIC requests a financial report
  • Shareholders request a financial report
• Company limited by guarantee
  • A financial report with a review performed is required where revenue is higher than $250k and less than $1m. An audit is required for a company limited by guarantee with revenue higher than $1m.
• Large ACNC Registered Charities
  • Charity organisations must prepare financial reports, with an audit required for any charity organisation with revenue higher than $1m. An audit or a review are accepted for charity organisations with revenue higher than $250k and less than $1m.
• SMSF
  • All SMSF financial reports are required to be audited.
• Incorporated Associations
  • In Australia, each state has its own rules and thresholds on classifying large or small associations.
  • Generally, audited financial reports are required to be prepared for large-size associations. The financial report of a medium-size association is required to be audited or reviewed, and in some states, small associations’ financial reports are required to be audited or reviewed.
• Co-operatives National Law and Regulations
  • Criteria are as follows:
  • Revenue higher than $8m;
  • Gross assets higher than $4m; and
  • Companies with more than 30 employees
  • Has issued shares to >20 prospective members and raised >2m from that issue; has had securities on issue to non-members during the year.
• Otherwise, an audited or reviewed financial report is only required if there’s member direction.

Generally the auditor must be a Registered Company Auditor (RCA) to perform the audit.

Please contact your local Accru office if you have any questions regarding financial reporting and audit requirements.