2. Company reporting obligations

2.1 Concise reporting requirements

The concise report is an alternative to providing shareholders with full financial statements, auditor’s report and directors’ report. The concise report contains the full directors’ report, concise financial statements and only key information from the auditor.

There is a concern that the objective of concise financial reporting is being eroded by the increasing amount of material included in the report. The information is considered too lengthy and detailed. A particular issue is the volume of information that is included in the directors’ report, including the remuneration report.

The Australian Institute of Company Directors recently released a template for a ‘shareholder friendly’ report. This example contains some key information, reviews by the Chairman and CEO, summarised financial statements and summarised reports from divisions.

It is proposed that consideration be given to reducing the amount of information required to be contained in the concise report. Consideration could be given to separating the remuneration report from the rest of the directors’ report, in order to reduce the length of the concise report. In this case, only summary information on director and executive remuneration would need to be included in the concise report. In addition, consideration could be given to whether summarised information from the directors’ report could be included in the concise report.

Consultation Issue Comments are sought on separating the remuneration report from the directors' report and requiring it to be a stand-alone report. The concise report would only include summary remuneration information. In addition, comments are sought on whether the concise report should only contain summary information from the directors' report. Comments are sought on what summary information in both cases would be appropriate.

 

2.2 Executive remuneration — disclosure requirements

Currently, the legislative requirements in relation to executive and director remuneration disclosures are contained in the Corporations Act (and associated Corporations Regulations) and in accounting standards.

The accounting standards set out a range of quantitative and qualitative disclosures for executive and director remuneration.

The quantitative disclosures include the amount of short-term employee benefits, post-employment benefits, long-term benefits, termination benefits and share based payments (for example, share options) given to executives and directors.

The qualitative disclosures include information about the board policy for determining the amount of remuneration, the relationship between remuneration and entity performance, and the performance conditions in remuneration contracts.

The Corporations Act and Regulations, as closely as possible, replicate the requirements in the accounting standards so as to streamline requirements for preparers and to ensure that consistent information is provided to investors.

While the Government and the Australian Accounting Standards Board (AASB) have worked towards aligning the requirements, differences in key definitions and requirements remain, giving rise to uncertainty for preparers of financial statements. The Government proposes to consult with the AASB to ensure there is greater consistency between the accounting standards and the law and where possible to remove any duplication. The primary intention is to ensure that current levels of disclosure are retained and that the remuneration report continues to be the subject of the non binding shareholder vote. The Government is keen to receive proposals as to how these objectives could be achieved.

Consultation Issue Comments are sought on the most effective means of harmonising and removing duplication in the remuneration disclosure requirements in relation to directors and executives without any dilution of disclosure.

 

2.3 CEO/CFO sign-off

Currently both the Corporations Act and the ASX Corporate Governance Guidelines contain requirements that the CEO/CFO make declarations to the board of directors that the financial reports present a true and fair view and have been prepared in accordance with accounting standards.

The duplication could be addressed by removing the requirement for such declarations from the ASX Corporate Governance Guidelines.

Consultation Issue Comments are sought as to whether the obligation in the ASX Corporate Governance Guidelines can be removed and replaced with a cross-reference to the similar requirement in the Corporations Act.

 

2.4 Thresholds for financial reporting of large proprietary companies

Under section 45A of the Corporations Act, a proprietary company is currently classified as ‘large’ if it satisfies at least two of the following criteria:

• the consolidated gross operating revenue of the company and any entities it controls is $10 million or more;
• the value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $5 million or more; and
• the company and any entities it controls have more than 50 employees at the end of the financial year.

A large proprietary company is required to prepare annual financial reports and directors’ reports. Small proprietary companies are exempt from having to prepare financial reports and directors’ reports, except in certain limited circumstances.

The thresholds for determining whether a proprietary company is ‘large’ have not been updated in the last 10 years.

Consultation Issue Comments are sought on whether the revenue and asset thresholds for financial reporting of large proprietary companies should be increased.

 

2.5 Removal of duplication in notifications

2.5.1 Change in officeholders

Currently the Corporations Act requires a company officeholder to advise ASIC of their resignation via form 370, however the company is also obliged to notify ASIC of the resignation via form 484. If ASIC has not received a form from the company within 14 days of the form from the officeholder, a ‘trigger letter’ is sent to the company reminding it of the 28 day period. If the company fails to notify within 28 days, a late fee is payable.

There is duplication in notification requirements, resulting in an unnecessary compliance burden.

Consultation Issue Comments are sought on whether the requirement for a company to notify ASIC of a change in officeholder, where the officeholder has already notified ASIC, should be removed.

2.5.2 Maintenance of registered office address

About half of all companies appoint a registered agent via form 361. The processing creates a ‘service address’ for the company, which is the agent’s business address. This will also serve as the company’s registered office. Currently, a company must send a separate document (form 484) to make the agent’s business address the registered office of the company.

These requirements create duplication in the notifications required, resulting in an unnecessary compliance burden.

Consultation Issue Comments are sought on whether a single process for notification of an update of a company's service address and registered office, via the information provided by the agent to ASIC, should be implemented.

 

2.6 Share and member reporting requirements

Public companies are required to notify ASIC of the top 20 members in each class of shares as part of the annual review process. The information is also available in the members’ register which companies are required to maintain and which is publicly available.

Consultation Issue Comments are sought on whether the requirement to notify ASIC should be removed, given the availability of the same information from an alternative source.

 

2.7 Removal of annual review fees for companies approved for voluntary deregistration

Companies that have applied for voluntary deregistration prior to their annual review date, and have had the application approved, are still subject to annual review obligations up until the point of deregistration. These obligations include the requirement to pay the annual review fee. Deregistration takes place two months after the application has been approved by ASIC (subsection 601AA(4)). Similar provisions are already in place for companies under liquidation.

Consultation Issue Comments are sought on whether to remove the obligation to pay the annual review fee for those companies that have applied for voluntary deregistration and had this approved by ASIC.

 

2.8 Parent entity financial statements

Currently, the Corporations Act requires companies to lodge parent entity financial statements in addition to financial statements for the consolidated corporate group. New Zealand, Japan, Germany and France require the provision of parent entity and consolidated financial statements. Requirements in the United Kingdom allow for the provision of summarised parent entity financial information. The United States and Canada do not require any separate parent entity financial information to be disclosed.

It is acknowledged that for some users of financial statements, separate parent entity information is relevant, however, it is questionable whether the preparation of full financial statements is necessary. In relation to a parent entity whose operations are consolidated in the financial statements of a corporate group, only summary financial information regarding the parent entity may be required.

Consultation Issue Comments are sought on whether only summary financial information should be required in relation to the parent entity. Comments are also sought on the type of information that should be required to be disclosed.

 

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