ASIC has updated two Class Orders which offer financial reporting and auditing relief to proprietary companies:
- CO 98/1417 has been replaced with ASIC Corporations (Audit Relief) Instrument 2016/784 (ASIC Instrument 2016/784); and
- CO 98/1418 has been replaced with ASIC Corporations (Wholly owned Companies) Instrument 2016/785 (ASIC Instrument 2016/785).
What relief do these instruments offer?
Preparing financial statements and reports and having them audited can be a significant burden on companies. The relief provided under these ASIC Instruments can save substantial time and money. The recent changes are a timely reminder to review the eligibility requirements for relief in light of a company’s circumstances.
ASIC Instrument 2016/784 relieves large proprietary companies from the requirement to have its financial report audited.
ASIC Instrument 2016/785 relieves wholly-owned entities from the requirement to prepare a financial report and have it audited.
What has changed?
In short, not a lot. The ASIC instruments are largely consistent with the Class Orders they replaced.
One change of significance is that bodies regulated by APRA (which includes certain insurers, trustees of superannuation entities and authorised deposit-taking institutions) are no longer eligible for financial reporting relief.
Effect of the changes on deeds of cross-guarantee
In order to obtain financial reporting relief for wholly-owned entities, a company must enter into a deed of cross-guarantee with its holding entity and any other entities wholly owned by that holding entity. This deed must comply with the ASIC Pro Forma deed.
The revised Pro Forma deed of cross-guarantee now only allows entities to be added as a party to an existing deed of cross-guarantee through the execution of an assumption deed. A consequence of the amendments is that while pre-existing deeds of cross-guarantee continue to be valid, in order to add any new companies to an existing deed the terms of the deed must reflect the updated provisions. This will require either a variation of the deed (if there is a power to vary) or the parties to execute a new deed altogether.
As APRA-regulated bodies can no longer obtain financial reporting relief, if an APRA-regulated body is party to an existing deed of cross-guarantee it will need to be removed from the deed, even if it does not actually rely on the relief.
When do the changes apply?
The new ASIC Instruments apply in relation to any financial year ending on or after 1 January 2017. For financial years ending before 1 January 2017, the old ASIC Class Orders continue to apply.
How can mcinnes wilson lawyers help?
- Advise on your company’s eligibility for class order relief.
- Prepare your application for auditing and financial reporting relief and supporting documentation.
- Prepare and update deeds of cross-guarantee for wholly-owned entities.
The author wishes to acknowledge Law Clerk Luke Gallant for his contribution to this article.