ASIC extends legislative instruments for auditor independence and parent entity financial reporting

The Australian Securities and Investments Commission (ASIC) issues legislative instruments to exempt a person(s) or entity(s) from specific provisions of the Corporations Act 2001. Legislative instruments expire after a set period, usually five years, after which ASIC must extend their operation. Before 2015, legislative instruments were referred to as class orders.

On 23 March 2024, ASIC amended and extended legislative instruments dealing with parent entity financial reporting and auditor independence for five years. The scope of both instruments has been expanded to cover registrable superannuation entities, and both expire in April 2029.

Parent entity financial reporting

Where group financial statements are required by AASB 10 Consolidated Financial Statements, a company, registered scheme, registrable superannuation entity, or disclosing entity must only prepare consolidated financial statements in relation to the consolidated entity (refer to section 295(2)(b)). Therefore, these entities must present a two-column financial report showing consolidated amounts in the primary financial statements and notes.

ASIC Corporations (Parent Entity Financial Statements) Instrument 2021/195 (LI 2021/195) allows an entity to present a four-column financial report containing both consolidated and parent entity-only numbers. In such cases, LI 2021/195:

  • Permits the entity to present four columns in its annual and half-year financial statements if it wishes
  • Relieves the entity from complying with the parent entity note disclosures required by Regulation 2M.3.01 in the annual financial statements.

Why is it needed?

In addition to some entities voluntarily wishing to adopt a four-column approach in their financial reports, LI 2021/195 is necessary to enable Australian Financial Services Licensees (AFSLs) to do so. Chapter 7 of the Corporations Act 2001 (section 989B) requires AFSLs to prepare and lodge a ‘true and fair' profit and loss statement and balance sheet for each financial year. In cases where the licensee is the consolidated group’s parent entity, the parent entity financial statements are presented alongside the consolidated financial statements.

In the past, AFSLs may have prepared special purpose financial statements as stand-alone (separate) financial statements. In 2022, ASIC revised Form FS70 Australian financial services licensee profit and loss statement and balance sheet (Form FS70), requiring all AFSLs to prepare general purpose financial statements (GPFS), Tier 1 or Tier 2, depending on the circumstances. If the AFSL is a parent entity in a group, subject to transitional provisions, it must now prepare consolidated financial statements unless a consolidation exemption applies, and it must also present parent entity financial statements.

Conditions

If the entity presents the parent entity’s financial information alongside the consolidation, the financial statements and notes for the parent entity must be prepared on the same basis as if they were required by section 295(2) for the annual financial statements and section 303(2) for the half-year financial statements. In other words, ‘cherry-picking’ bits and pieces of information for the parent entity is not permitted.

Auditor independence relief

ASIC Corporations (Auditor Independence) Instrument 2021/75 (LI 2021/75) relieves the lead auditor from having to make a negative independence declaration under section 307C(3)(d) of the Corporations Act 2001 for an audit or review engagement where there has been a contravention of paragraph R510.4(c) of APES 110 Code of Ethics for Professional Accountants (including Independence Standards) in relation to financial interests. The relief only applies if specific strict criteria outlined in section 5(3) of Part 2 of LI 2021/75 are met.

Need help?

Several legislative instruments are available that provide relief from various aspects of financial reporting which could reduce your financial reporting burden. Please contact our IFRS & Corporate Reporting team for help.