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6.What reports do Australian companies need to prepare each year?

 
Large and publicly-listed companies must lodge annual financial statements under the Corporations Act, however, there are only a couple of circumstances under which small, private companies must do so.

According to the Corporations Act, a small company will have to prepare an annual statement of its financial performance if it is directed to do so by either:
  1. The Australian Securities and Investments Commission (ASIC), or
  2. Shareholders who hold at least 5% of the company's votes
If a small company does receive such a direction from the regulator or a group of shareholders, it will need to prepare each of the following annually:
  1. A Statement of Financial Performance
  2. Cash Flow Statement
  3. Financial Position Statement
  4. Directors' Report
The Financial Performance Statement, Cash Flow Statement and Financial Position Statement, will need to be prepared in accordance with the relevant Australian accounting standards. This is the case unless the group of shareholders which directs the preparation of the annual financial reports specifies otherwise.

The purpose of the Directors' Report should be to spell out the company's operations, whether it has paid any dividends or recommended the payment of dividends, etc.

Unlike large and public companies, the Corporations Act doesn't direct small, private companies to have their annual financial reports independently audited or sent to each shareholder. Large and public companies also have to lodge their annual financial reports with ASIC.

Irrespective of whether a small company is directed to do so by shareholders or ASIC, it is a very good idea for all companies to prepare annual financial statements. They are useful for the preparation of  required documentation for the payment of taxation. The preparation of annual financial statements is also a very useful management tool.

For instance, the Corporations Act does still specify that small companies must keep adequate financial records to demonstrate and explain their financial position. This ensures the company is able to prepare "true and fair" financial statements if directed to do so; and that those statements can be prepared in a way that would enable them to be independently audited.

A company's status, that is, whether it is classified as large or small, can also change from one year to the next, which is another reason for even very small companies to consistently get into the habit of preparing annual financial statements in accordance with acceptable auditing standards.

How does the Corporations Act define a small company?


A company is considered to be small in a particular financial year if it meets at least two of the following tests:
  1. Gross Operating Revenue less than $10m for that year
  2. Gross assets less than $5m at the end of that financial year
  3. Less than 50 employees (in the company and any controlled entities)
If at least two of the above tests are not applicable, the company will be classified as a large company and will have to produce annual financial statements, have them audited, sent to shareholders and lodged with ASIC.
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