How to measure revenue, assets and number of employees for sustainability reporting thresholds

Australian entities required to prepare and lodge a financial report with the Australian Securities and Investments Commission (ASIC) under Chapter 2M of the Corporations Act 2001 must prepare a sustainability report if they meet certain criteria, as shown in the diagram below.

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Revenue, assets and number of employees drive mandatory sustainability reporting for most entities

Other than if the entity is an NGER reporter, all the three size thresholds as illustrated in the diagram above require an entity to consider the following three measures, which are derived from the financial statements:

  • Consolidated revenues for the financial year of the entity and the entities it controls (if any)
  • Value of consolidated gross assets at the end of the financial year of the entity and the entities it controls (if any)
  • How many employees were employed by the entity and the entities it controls (if any) at the end of the financial year?

Most proprietary companies should already have systems and processes to assess these criteria on an annual basis because the tests required by size threshold #3 in the above diagram are the same as the requirements for financial reporting by large proprietary companies under s45A(3).

However, other types of entities preparing financial statements under Chapter 2M (s292), such as listed entities, disclosing entities, unlisted public companies, registered schemes and registrable superannuation entities, have to prepare financial statements under Chapter 2M, regardless of these measures. Therefore, many entities may be unaware of the critical role revenues, assets and employee measures play in driving mandatory sustainability reporting obligations, both during the phase-in period and ongoing as Group 3 entities.

ASIC guidance for determining revenue, assets and number of employees

While it doesn’t go as far as most preparers and auditors would have liked, ASIC’s Regulatory Guide 280 Sustainability reporting (RG 280), published 31 March 2025, includes some comments about how entities can assess whether they have met any of the size criteria referred to above.

To measure revenues and assets for the size threshold for mandatory sustainability reporting, S292A(7)(a) requires that the question of whether one entity controls another entity is to be decided in accordance with accounting standards (this will be AASB 10 Consolidated Financial Statements).

However, ASIC’s guidance in RG 280.43(a) states that if an entity has controlled entities, it should refer to consolidated financial statements prepared in accordance with AASB 10. This seems inconsistent with s292A(7)(a), which merely requires reference to AASB 10 for identifying controlled entities.

AASB 10, paragraphs 4 and Aus 4.2 provide relief to intermediate parent entities from preparing consolidated financial statements in certain circumstances. These entities would not prepare consolidated financial statements but, under s292A(7)(a), the assessment of whether a sustainability report is required is based on consolidated numbers. Therefore, referring to consolidated financial statements would not be possible. In these instances, a notional consolidation will need to be prepared, determining consolidated revenues and assets aggregating amounts for all controlled group entities, subject to consolidation adjustments such as inter-entity eliminations. 

Gross assets

ASIC’s guidance in RG 280.43(b) notes that total assets should be as reported in the standalone statement of financial position or consolidated statement of financial position, as appropriate.

Similar to the inconsistency noted above, the consolidation relief available to certain intermediate parent entities will require them to calculate the value of consolidated gross assets at the end of the financial year, even though they do not prepare consolidated financial statements.

The guidance also applies to calculating assets under the ‘value of assets’ threshold for registered schemes, RSEs and retail CCIVs.

Revenue

‘What is revenue?’ for the purposes of determining whether a company is a large proprietary company for Chapter 2M financial reporting purposes.

The narrow scope of AASB 15 Revenues from Contracts with Customers has meant more and more clients are asking what to include as ‘revenue’ for the purposes of the size thresholds in s45A(3) for large proprietary companies and now for sustainability reporting as well. Is it just revenue recognised under AASB 15, or should it also include interest revenue earned by a financial institution, rental income earned by companies with investment properties, and fair value gains and losses on investments held by investment funds?

RG 280.43(c) clarifies that revenue should be determined by referring to the definitions of ‘income’ and ‘revenue’ in AASB 15 Revenue from Contracts with Customers.

‘Income arising in the course of an entity’s ordinary activities.’

Definition of ‘revenue’ in AASB 15, Appendix A (emphasis added)

‘Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.’

Definition of ‘income’ in AASB 15, Appendix A

Given the broad definition of ‘income’, RG 280.43(c) notes that the revenue threshold for sustainability reporting should, depending on the entity’s ordinary activities, also include income recognised under other standards, for example:

  • AASB 9 Financial Instruments
  • AASB 11 Joint Arrangements
  • AASB 17 Insurance Contracts
  • AASB 140 Investment Property
  • AASB 141 Agriculture.

While RG 280.43 does not elaborate further on the types of items that could be included as revenue under the above standards, depending on the entity’s ordinary activities, examples could include:

  • Interest income earned by a financial institution
  • Gains and losses on subsequent remeasurements of certain investments to fair value
  • A joint operator’s share of the revenue from the sale of output by a joint operation
  • Equity accounted profits from associates and joint ventures
  • Insurance revenue and finance income
  • Rental income from investment properties
  • Gains and losses on subsequent remeasurements of investment property to fair value
  • Gains and losses on subsequent remeasurements of biological assets at fair value less costs to sell.

Note that not all entities will include these amounts as revenue per the above standards. For example, the following amounts recognised in profit or loss by a manufacturing entity may not be considered revenue for the purposes of the sustainability reporting size test:

  • Interest income, or fair value gains and losses on investments held and surplus to the entity’s day-to-day cash flow requirements
  • Rental income from the old administration building held as an investment property until the market improves.

While RG 280.43(c) now provides some source references, entities will have to apply judgement to determine their revenue linked to their ordinary activities, and not only by reference to AASB 15. 

Employees

In counting the number of employees, s292A(4) requires that part-time employees be taken into account as an appropriate fraction of a full-time equivalent. Traditionally, entities have included permanent part-time employees in this assessment, but there is diversity in the way entities treat casual employees. As a further complication, ‘employees’ are not defined in the Corporations Act.

Given that many types of entities operate with most of their workforce being casuals, understanding who is in and who is out is critical to ensuring the size thresholds are applied appropriately.

RG 280.43(d) notes that it may be helpful, as a starting point, to refer to section (a) of the definition of ‘employees and others providing similar services’ contained in Appendix A of AASB 2 Share-based Payment. These are individuals who render personal services to the entity and are regarded as employees for legal or tax purposes.

Many entities may clearly meet the revenue and assets tests and, therefore, not need to consider employee numbers. However, this guidance may result in entities having to seek legal advice if the number of employees is determinative for the sustainability reporting size test thresholds.

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