Company record keeping and audit requirements
All companies are required under the Corporations Act 2001 to keep financial records. These records are also used to manage the business and meet Australian Taxation Office obligations. In addition, some companies need to prepare and lodge financial reports with the Australian Securities and Investments Commission (ASIC).
Generally, companies are required to lodge reports with ASIC and have them audited where there are substantial sums of money involved, the general public has invested funds with the company, or the company exists for charitable purposes only and is not intended to make a profit.
Section 292 of the Corporations Act 2001 requires the following entities to prepare financial reports and have them audited: (1) all disclosing entities, (2) public companies, (3) all large proprietary companies, (4) small proprietary companies that are foreign-controlled, and (5) ‘others’ categories.
A company is defined as a small proprietary company (and doesn’t have to comply with section 292 above) if it satisfies at least two of the following: annual revenue less than $25 million, consolidate gross assets less than $12.5 million, and less than 50 employees at the end of the financial year.
Although the preparation of financial reports and their auditing involves costs, the benefits to small proprietary companies include:
- Identifies weaknesses in internal control.
- Lends credibility to financial statements. Audited financial statements are considered more reliable to lenders, investors and potential clients.
- An external auditor works with the single-minded purpose of improving the business process. They provide independent and objective analysis.
See www.asic.gov.au for further details.