Why is it so Important to Lodge Financial Reports on Time?

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Why is it important to update your financials

Over the past few years, the ASIC has been actively targeting companies that breach their financial reporting obligations. During the six months between 1 July to 31 December 2020, three companies were prosecuted by ASIC for failing to comply with their financial reporting obligations including the failure to lodge financial reports.

AFS Licensees in particular should be aware of ASIC’s concern regarding the financial reporting obligations and its powers to cancel your licence should you fail to lodge the required reports. ASIC’s former Deputy Chair noted in 2016 that:

“We are disappointed that some licensees have not heeded the message that their failure to lodge audited financial statements may result in the cancellation of their AFS licence. We continue to focus on this obligation and will take further action where licensees do not comply.”[1]

Which companies are caught by the financial reporting obligations?

All entities that meet the definition of a “reporting entity” as defined in Section 292 of the Corporations Act 2001 (Cth) (“Corporations Act”) must lodge financial reports with ASIC. These entities include

  • Public companies;
  • Large proprietary companies;
  • Registered foreign companies;
  • Australian Financial Services Licensees (“AFS Licensees”);
  • Registered schemes;
  • Disclosing entities;
  • Companies limited by guarantee (except small companies limited by guarantee);
  • Small proprietary companies that are directed to do so by its shareholders or by ASIC, pursuant to Section 293 or 294 of the Corporations Act;
  • Small proprietary companies that are controlled by a foreign company for all or part of the financial year and that are not consolidated for that period in financial statements for that year lodged with ASIC by a either a registered foreign company or a company, registered scheme or disclosing entity; and
  • Small proprietary companies have one or more crow-sourced funding shareholder at any time during the year.

If you are unsure whether your company falls into the above categories, you should seek professional advice as soon as possible.

When must financial reports be lodged?

Type of Reporting Entities Deadline for Lodging Financial Reports
Disclosing Entities 3 months after the end of the financial year
Registered Schemes 3 months after the end of the financial year
All other types of Reporting Entities 4 months after the end of the financial year

ASIC has recently advised it will extend the deadline for both listed and unlisted entities to lodge financial reports by one month, for balance dates from 23 June to 7 July 2021 (inclusive).  The reason for the extension is to alleviate pressure on audit resources that may be present due to COVID-19 conditions, including travel restrictions and an increase in staff turnover. 

What are ASIC’s powers and enforcement options?

A company that breaches financial reporting obligations may expose itself and/or its directors and officers to a range of civil and criminal penalties.

ASIC has the power to impose civil penalties on a company and/or its director and officers, including deregistering a company and cancelling an AFS Licence held by a company. ASIC may, as demonstrated by the three prosecutions last year, initiate court proceedings against a company and/or its directors and officers for contravention of the Corporations Act for failing to take reasonable steps to comply with, or secure compliance with, their reporting obligations under the Corporations Act.

In circumstances where a company’s directors and officers have acted dishonestly or fraudulently in breaching their financial reporting obligations under the Corporations Act, criminal penalties may be imposed by the court.

How can Sophie Grace assist you?

Sophie Grace can assist you by providing legal and compliance advice and/or support to:

  • determine whether you are a reporting entity under the Corporations Act;
  • determine what financial documents you are required to lodge and the specified timeframe;
  • prepare or update your compliance documentation in preparation for your annual audit; and
  • provide advice to you in circumstances where you have breached the financial reporting obligations including assisting you to report these breaches to ASIC.

Further reading

If you would like to discuss further how we can assist you, please contact us.

About The Author

Melody Gao

Melody assists in preparing, reviewing and negotiating legal documentation for participants in the financial services industry. Melody also assists with developing, reviewing and amending compliance documentation. She also supports the Compliance Consultants with the preparation of AFSL and ACL applications, variations and compliance reviews. Melody provides ongoing legal support and also assists in implementing ongoing compliance support, updating procedural documentation and preparing compliance reporting for Compliance Committees and Boards of Directors.

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