New requirements for Australian public companies – consolidated entity disclosure statement

This article, originally published on 10 July 2024, has been updated for current developments.

As disclosed in a recent article, all public companies (both listed and unlisted) reporting under Chapter 2M.3 of the Corporations Act 2001 must include a ‘consolidated entity disclosure statement’ as part of the contents of the annual financial report for financial years commencing on or after 1 July 2023.

Under the new requirements, an Australian public company’s annual report will need to include a ‘consolidated entity disclosure statement’, which either: 

• If the accounting standards require the company to prepare consolidated financial statements, discloses details of each entity within the company’s consolidated group, or
• If the accounting standards do not require the company to prepare consolidated financial statements, a statement to that effect.

In addition, directors will have to state in the directors’ declaration whether, in their opinion, this consolidated entity disclosure statement is ‘true and correct’, and for listed companies, the chief executive officer (CEO) and chief financial officer (CFO) declaration will also have to confirm the same. 

This article aims to provide preparers of 30 June 2024 financial reports with practical guidance in preparing their consolidated entity disclosure statement. 

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

The consolidated entity disclosure statement is required for public companies reporting under Chapter 2M.3 of the Corporations Act 2001. This includes listed companies and unlisted public companies, as well as companies limited by guarantee that are not registered with the Australian Charities and Not-for-profits Commission (ACNC).

Contents of the consolidated entity disclosure statement 

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 
2. Whether the entity is a body corporate, partnership, or trust 
3. Whether the entity is:
   • 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 (ITAA 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.

Example 

An example of a consolidated entity disclosure statement where consolidated financial statements are prepared is shown below:

Name of entity*	Type of entity	Trustee, partner or participant in joint venture**	% of share capital held	Country of incorporation	Australian resident or foreign resident***	Foreign tax jurisdiction(s) of foreign residents***
Public Company Limited	Body Corporate	-	N/A	Australia	Australian	N/A
Sub 1 Pty Ltd	Body Corporate	-	100	Australia	Australian	N/A1
Sub 2 Unit Trust	Trust	-	N/A	Australia	Australian	N/A
Sub 3 Pty Ltd	Body Corporate	Trustee	60	Switzerland	Foreign	United States of America
Sub 4 Pty Ltd	Body Corporate	-	100	Bermuda	Foreign	N/A
Public Company Share Trust	Trust	-	N/A	Australia	Australian	N/A

¹Sub 1 Pty Ltd is classified as an Australian tax resident under the ITAA 1997, but is a tax resident of Country X under the laws of Country X

* Entities listed here are those that are part of the consolidated entity at the end of the financial year. Entities disposed of during the year, or where the entity has lost control by the reporting date, are not included here. This means that entities listed could be different to the ‘Interests in subsidiaries’ note contained in the notes to the financial statements.

** This means whether, at that time, 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.

*** The definitions of ‘Australian resident’ and ‘foreign resident’ in the ITAA 1997 are mutually exclusive.  This means if an entity is an ‘Australian resident’ it cannot be a ‘foreign resident’ for the purposes of the public company disclosures in the consolidated entity disclosure statement.

Information for the comparative period is not required.

Are all subsidiaries required to be included? 

Yes. A public company that consolidates subsidiaries has to identify all of its subsidiaries and include them in the consolidated entity disclosure statement, regardless of whether they are dormant or immaterial. However, entities disposed of during the year, or where the entity has lost control by the reporting date, are not included.

A public company that prepares consolidated financial statements is not required to identify those subsidiaries that are not consolidated because of the ‘investment entity exemption’ in AASB 10 Consolidated Financial Statements.

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 part of the consolidated group.

What has to be disclosed if consolidated financial statements are not required? 

Although it is called a ‘consolidated entity disclosure statement’, the statement must be prepared by all public companies reporting under Part 2M.3 of the Corporations Act 2001, irrespective of whether the company is required to prepare consolidated financial statements. So, when a public company is not required to prepare consolidated financial statements under Australian Accounting Standards, the entity is required to include a statement to that effect in the consolidated entity disclosure statement. Some examples of how this can be presented are shown below: 

Public company has no subsidiaries 

Public Company Limited has no controlled entities and, therefore, is not required by the Australian Accounting Standards to prepare consolidated financial statements. As a result, section 295(3A)(a) of the Corporations Act 2001 does not apply to the entity. 

Public company is an investment entity 

Public Company Limited is an investment entity applying the exemption from consolidation described in AASB 10 Consolidated Financial Statements and has no subsidiaries that are not investment entities. As a result, it is not required by Australian Accounting Standards to prepare consolidated financial statements, and, therefore, section 295(3A)(a) of the Corporations Act 2001 does not apply to the entity. 

Public company is an intermediate parent entity 

Public Company Limited is an intermediate parent applying the exemption from consolidation described in paragraph 4 of AASB 10 Consolidated Financial Statements. As a result, it is not required by Australian Accounting Standards to prepare consolidated financial statements, and, therefore, section 295(3A)(a) of the Corporations Act 2001 does not apply to the entity. 

Where does it go? 

The consolidated entity disclosure statement is part of the annual financial report, alongside the financial statements, notes and the directors’ declaration. However, it is a separate statement and does not form part of the notes to the financial statements (s295(1)(ba)), so it cannot be combined with the note on controlled entities required by accounting standards. 

Basis of preparation 

The following is an example of the wording that might be considered in the basis of preparation for the consolidated entity disclosure statement: 

Director’s Declaration 

The directors’ declaration will also have to be amended to refer to the consolidated entity disclosure statement. Regardless of whether the accounting standards require the preparation of consolidated financial statements, a consolidated entity disclosure statement is still required – it is just the amount of disclosure that differs. Therefore, the same ‘true and correct’ declaration is required in all cases. An example of this is as follows: 

Directors (and the CEO and CFO of listed companies) should note that a ‘true and correct’ certification for the consolidated entity disclosure statement is a higher hurdle than the ‘true and fair’ declaration used in declarations regarding the financial statements. While ‘true and fair’ means that information is not materially misstated, ‘true and correct’ implies that disclosures are more precise, i.e. they are complete and accurate.

Is a consolidated entity disclosure statement required in half-year financial statements?

No. The requirements for a consolidated entity disclosure statement are contained in section 295(3A) of the Corporations Act 2001, which falls within Division 1 of Part 2M.3 – the section that covers the requirements for annual financial reports. Section 303 of Division 2, which covers the requirements for half-year financial reports, has not been amended. Therefore, a consolidated entity disclosure statement is not required in half-year financial reports.

Need help?

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