Proposed reporting changes for Not for Profit Companies limited by guarantee

By Andrew Lind, Partner (December 2009)

The Federal Government Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP released draft reforms in relation to Australia's corporate reporting framework on 4 December 2009.

These draft reforms have significant implications for Not for Profit organisations which are structured as Companies limited by guarantee under the Corporations Act 2000.

Companies limited by guarantee are public Companies and are currently required to comply with the same reporting obligations as large listed Companies. 

The reforms propose a three tier reporting system for Companies limited by guarantee.

The first tier - Companies limited by guarantee with annual revenue under $250,000.00 and no DGR status

The first tier Companies would be exempt from:

• Preparing the currently required annual financial report and director's report;

• Auditing obligations.

Second tier - Companies limited by guarantee with annual revenue of less than $250,000.00 that are a DGR OR with an annual review of between $250,000.00 and $1,000,000.00 (whether or not they are DGR)

These Companies would:

• Prepare a financial report;

• Could elect to have their financial report "reviewed" rather than audited;

• Prepare a "streamlined director's report" rather than a full director's report; and

• Be able to adopt a streamlined process for distributing the annual report to Members

Third tier - Companies limited by guarantee with an annual revenue of $1,000,000.00 or more (irrespective of whether they are a DGR)

These Companies would:

• Continue to prepare a financial report and have it audited;

• Prepare a "streamlined director's report" rather than a full director's report; and

• Be able to adopt the streamlined process for distributing the annual report to Members.

Audit's and reviews

The explanatory material highlights the difference between a review and audit at paragraph 1.23 as follows:

"A review, in contrast to an audit, is not designed to obtain reasonable assurance that the financial information reported by the Company is free from material misstatement.  A review consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review may bring significant matters effecting the financial information to the assurance practitioner's attention, but does not provide all of the evidence that would be required in an audit."

The review in contrast to an audit, may be conducted by a Chartered Accountant (CA) or Certified Practising Accountant (CPA) who is not a registered Company auditor.

Accountants will need to consider carefully the scope of what would be included in a "review" and directors of Companies will need to take care to ensure that if a review rather than an audit is conducted that this is clearly disclosed together with the limitation on scope of the review as opposed to the audit.

Streamlined director's report

The "streamlined/simplified director's report" proposed by the reforms in our assessment requires greater public disclosure by the directors of Not for Profit Companies limited by guarantee than is currently required.

The simplified director's report would contain the following disclosures:

• "A description of the short and long term objectives of the entity;

• The entity's strategy for achieving those objectives;

• The entity's principled activities during the year;

• How those activities assisted in achieving the entity's objectives;

• How the entity measures its performance, including any key performance indicators used by the entity;

• The name of each person who has been a director of the Company at any time during or since the end of the year and the period for which that person was a director;

• Each director's qualifications, experience and special responsibilities;

• The number of meetings of the board of directors held during the year and each director's attendance at those meetings;

• For each class of membership in the Company the amount which a member of that class is liable to contribute to the Company if the Company is wound up; and

• The total amount that members of the Company are liable to contribute to the Company is wound up."

The simplified director's report seems to be designed in our view to be an additional measure of compliance with the ongoing tax endorsement requirements from the Australian Taxation Office.

Submissions

The closing date for submissions in relation to the proposed reforms is Wednesday 3 February 2010.

Written submissions should be addressed to:

The Manager

Corporate Reporting & Accountability Unit

Corporations & Financial Services Division

The Treasury

Langton Crescent

PARKES ACT 2600

Or via email to corporatereportingreforms@treasury.gov.au

More information can be obtained from the Australian Government Treasury website.  Click here.  

Anticipated implementation date

We understand that these reforms are intended to be introduced to the parliament in the Autumn session in 2010.

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