Public companies must disclose more information about subsidiaries and their tax residency in 30 June 2024 financial reports

Why is the consolidated entity disclosure statement needed?

The thinking behind these amendments is that increased public disclosures will enhance scrutiny of multinational companies and how they structure their tax arrangements via their subsidiaries operating in different jurisdictions. This form of reporting aligns with international approaches to improve corporate tax transparency, such as in the United Kingdom.

Is the consolidated entity disclosure statement required for all public companies?

An example where the consolidated entity disclosure statement will be brief is an intermediate parent entity in an Australian group that can and chooses to apply the consolidation exemption contained in AASB 10 Consolidated Financial Statements, paragraph 4.1(a). However, its ultimate Australian parent entity must prepare a full consolidated entity disclosure statement if required to present consolidated financial statements (AASB 10, paragraph Aus 4.2). The ultimate parent entity is only exempt from presenting consolidated financial statements if it is an investment entity measuring its investments in subsidiaries at fair value through profit or loss, and has no other subsidiaries.

Only groups reporting under Part 2M of the Corporations Act 2001 require a consolidated entity disclosure statement. Entities preparing financial statements voluntarily for other purposes are not affected.

Contents of the consolidated entity disclosure statement

In addition to the financial statements, notes and a directors’ declaration, all public companies must prepare a consolidated entity disclosure statement as part of their annual financial report.

Public companies required by accounting standards to prepare consolidated financial statements must include the following details about each entity that is, at the end of the financial year, part of the consolidated entity:

1. The entity’s name (if any)
2. Whether the entity was a body corporate, partnership, or trust
3. Whether the entity was:
   • A trustee of a trust within the consolidated entity
   • A partner in a partnership within the consolidated entity, or
   • A participant in a joint venture within the consolidated entity
4. If the entity is a body corporate - the place at which the entity was incorporated or formed
5. If the entity is a body corporate with a share capital - the percentage of the entity’s issued share capital (excluding any part that carries no right to participate beyond a specified amount in a distribution of either profits or capital) that was held, directly or indirectly, by the public company
6. Whether the entity was an Australian resident or a foreign resident (within the meaning of the Income Tax Assessment Act 1997)
7. If the entity is a foreign resident as described in (vi) above – a list of each foreign jurisdiction in which the entity was, at that time, a resident for the purposes of the law of the foreign jurisdiction relating to foreign income tax (within the meaning of that Act). Note: An entity can be an Australian resident for tax purposes, and simultaneously a foreign tax resident or a tax resident of two or more foreign countries at the same time.

What about investments in associates and joint ventures?

The consolidated entity disclosure statement does not require information for investments in associates and joint ventures as they are not consolidated and, therefore, not a part of the consolidated group.

Where does it go?

The consolidated entity disclosure statement is part of the annual financial report, alongside the financial statement, notes and the directors’ declaration. We believe that it should be presented after the notes to the financial statements, rather than as a note to the financial statements, because the directors’ declaration and the CEO and CFO declaration (if required) must certify that this information is ‘true and correct’ instead of ‘true and fair’. Clearly distinguishing this information will make it easier for them to limit the ‘true and correct’ certification to the consolidation entity disclosure statement only.

While combining this information with the ‘Interests in subsidiaries’ note may be possible, we don’t recommend this because the information requirements are similar, but different:

Consolidated entity disclosure statement	AASB 12 Disclosure of Interests in Other Entities
Information about subsidiaries required at the end of the financial year	Information required for subsidiaries during the year
No comparative information	Comparative information required
N/A	Additional financial information for non-controlling interests
N/A	Additional information about changes in group structure (change in ownership interest without losing control and where control is lost)
Includes dormant and immaterial subsidiaries	Dormant and immaterial subsidiaries may be omitted
‘True and correct’ certification	‘True and fair’

In our view, trying to combine this information into one note, contained in the financial statements, may unnecessarily complicate the ‘Interests in subsidiaries’ note, and it could prove difficult trying to delineate information for the different levels of certification.

Audit requirements

The consolidated entity disclosure statement forms part of the annual financial report and is subject to audit. The Auditing and Assurance Standards Board and the firms are still considering the audit implications.

When do the changes become effective?

The amendments to sections 295 and 295A apply for the first time to financial years beginning on or after 1 July 2023. This will apply to most entities’ 30 June 2024 annual financial reports.

Preparing for 30 June 2024

Given we are less than three months from 30 June 2024, entities have limited time to prepare their consolidated entity disclosure statements. While some structures may be streamlined and orderly, others may be complicated and extensive. Entities need to start preparing now to ensure all subsidiaries are identified and documented, including tax residencies. This applies regardless of whether the entities are dormant or immaterial.

Need help?

Implementing the requirements of any new legislation can be a daunting task. Please contact our IFRS & Corporate Reporting team  for help.