In many jurisdictions, financial reports are mandatory, and utilising financial reporting tools can be beneficial to your business. These tools provide a well-informed snapshot of your operations that can be shared both internally and externally, as well as offer metrics and insights to improve the areas that keep your business running. Additionally, the law mandates an audit of your financial statements by someone from your organization.
The purpose of an audit is to obtain an objective assessment of your financial statements. Auditors determine if your financial statements are accurately represented and comply with generally accepted accounting principles. Auditing is crucial to maintaining and promoting confidence and integrity in capital markets, and it encourages consistency and objectivity in financial reporting. This promotes external trust in financial statements, which is vital to the financial health of your business.
In Australia, both financial reporting and audit are legally required for certain entities, and these requirements are governed 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
- 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
- Large proprietary company. Meet two of the following:
- Consolidated revenue higher than $50m;
- Consolidated assets higher than $25m; and
- Companies with more than 100 employees.
- 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.
- 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.
- All SMSF financial reports are required to be audited.
- 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.
If you wish to discuss your financial reporting and audit obligations, please contact our office.