As reported in our LegalTalk Alert on 8 July 2010, the Corporations Amendment (Corporate Reporting Reform) Act 2010 received Royal Asset on 28 June 2010.
In addition to amending the Corporations Act 2001 (Act) in relation to the payment of dividends, the Corporations Amendment (Corporate Reporting Reform) Act 2010 also amends the Act by:
- making it easier for companies, registered schemes and disclosing entities (each an Entity) to change their financial year end-date, and
- relieving parent entities from the requirement to prepare financial statements where consolidated financial statements are also required.
Change of financial year-end date
Prior to the amendments to the Act, an Entity’s financial year was 12 months long (plus or minus seven days) and it was difficult for entities to change their financial year-end date unless the change was to synchronise the financial year-end of an Entity and its controlled Entities to facilitate the preparation of consolidated financial statements.
The amendments to the Act now allow for an Entity’s subsequent financial year – that is one which is subsequent to the Entity’s first financial year – to be a period determined by the directors provided it is less than 12 months and if:
- that subsequent financial year starts at the end of the previous financial year
- there has not been a period during the previous five financial years in which there was a financial year of less than 12 months in reliance on this amendment, and
- the change to the subsequent financial year is made in good faith in the best interests of the Entity.
These amendments apply to subsequent financial years commencing on or after 1 July 2010.
Parent entity reporting
Prior to the amendments to the Act, parent entities (that are public companies, large proprietary companies, registered schemes or disclosing entities) were potentially required to prepare both consolidated financial statements and parent entity financial statements.
The amendments to the Act remove the requirement to prepare parent entity financial statements where the relevant accounting standards require consolidated financial statements to be prepared. However, consequential amendments made to the Corporation Regulations 2001 (Regulations) require the following disclosures to be made in the notes to the annual consolidated financial statements:
- current assets of the parent entity
- total assets of the parent entity
- current liabilities of the parent entity
- total liabilities of the parent entity
- shareholders’ equity in the parent entity separately showing issued capital and each reserve
- profit or loss of the parent entity
- total comprehensive income of the parent entity
- details of any guarantees entered into by the parent entity in relation to the debts of its subsidiaries
- details of any contingent liabilities of the parent entity
- details of any contractual commitments by the parent entity for the acquisition of property, plant or equipment, and
- comparative information for the previous period for each of the above disclosures.
The wording of these amendments effectively prohibits the inclusion of parent entity financial statements in consolidated financial statements. This was an unintended consequence and the Australian Securities and Investments Commission has released Class Order 10/654 which allows for the inclusion of parent entity financial statements in consolidated financial statements. Parent entities which take advantage of this relief will not be required to disclose the information as set out in the Regulations (see above). However, the parent entity must comply with the requirements of Part 2M.3 of the Act, and therefore the directors’ declaration and auditor’s report must include the relevant opinions in relation to the parent entity financial statements and related notes.
These amendments apply to financial years and half-years ending on or after 30 June 2010.