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Company Audits

 

 

 

 

Annual Audit Requirement

All disclosing entities, public companies, large proprietary companies and managed investment schemes are required by Section 301 of the Corporations Act (the Act) to have their annual financial reports audited and lodged with ASIC.

A small proprietary company does not have to have its accounts audited unless:

  • It is a disclosing entity;
  • It is controlled by a foreign company and its financial results are not included in any consolidated accounts of the foreign company lodged with ASIC; or
  • It is required by ASIC to prepare audited financial reports.

Section 319 of the Act requires a disclosing entity or registered scheme to lodge the financial reports within three months of the end of the financial year. All other companies must lodge their financial reports within four months of the end of the financial year.

What classifies as a large proprietary company?

Section 45(A)3 defines a large proprietary company as follows:

“A proprietary company is a large proprietary company for a financial year if it satisfies at least 2 of the following paragraphs:

  • The consolidated gross operating revenue for the financial year of the company and the entities it controls (if any) is $10 million or more;
  • The value of the consolidated gross assets at the end of the financial year of the company and The entities it controls (if any) is $5 million or more;
  • The company and the entities it controls (if any) have 50 or more employees at the end of the financial year. “

 

Can I qualify for an exemption?

In limited circumstances, some companies are exempt from the requirement to lodge financial reports.

For instance:

  • If the company has already lodged financial reports with the Stock Exchange
  • If the company has been granted relief by ASIC from the requirement to lodge financial reports
  • If the company is foreign controlled but the foreign company that is in charge is registered with ASIC as a foreign company and lodges consolidated financial reports that include the activities of the Australian company.

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Where do you start?

To start with, make sure that your corporation keeps good records for the whole year. If this is done from the beginning of the year, the job of finishing the end of year reports is much easier and quicker.

If your corporation has an accountant or bookkeeper as an employee, then they would normally prepare some of the reports or at least prepare the information that goes into the reports.

Generally, most corporations would use an external accountant to assist them in preparing the final reports.

The Quinn Group can assist you in preparing your financial reports and ensure they are in line with the obligations and regulations instilled by ASIC.

What records must you make sure your company keeps?

You must see that the company keeps up-to-date financial records that:

  • Correctly record and explain its transactions (including any transactions as a trustee), and
  • Explain the company’s financial position and performance.

Even the smallest company must have financial records so that:

  • True and fair financial statements of the company can be prepared if needed,
  • Financial statements can be conveniently and properly audited if necessary, and
  • The company can obey the tax laws.

If your company is a ‘small proprietary company’ (as defined in the Corporations Act 2001) it will generally not have to prepare formal financial reports under the Corporations Act each year.

However, you must still keep financial records, and may need financial reports for managing and measuring your company’s progress, tax purposes or raising finance.

Large proprietary companies and public companies – even non-profit public companies – must prepare financial reports, have them audited and lodge them with ASIC.

What are financial records?

Some basic financial records that accountants might expect a company to keep:

  • General ledger, recording all the company’s transactions and balances (revenues, expenses, assets, liabilities etc.) or summarising transactions and balances detailed in other records
  • Cash records – e.g. bank statements, deposit books, cheque butts, petty cash records
  • Debtor and sales records – e.g. a list of debtors and their balances, delivery dockets, invoices and statements issued, a list of all sales transactions
  • Creditor and purchases records – e.g. purchase orders, invoices and statements received and paid, unpaid invoices, a list of all purchases, a list of all creditors and their balances
  • Wages and superannuation records
  • A register of property, plant and equipment showing transactions and balances in relation to individual items
  • Inventory records
  • Investment records – e.g. contract notes, dividend or interest notices, certificates
  • Tax returns and calculations – e.g. income tax, group tax, fringe benefits tax and GST returns and statements
  • Deeds, contracts and agreements.

All Audit Solutions can give you professional advice if you have any doubt about the content or type of financial records to keep. The list above gives examples only, because the financial records you need will vary from company to company.

You may keep some financial records electronically, but you must be able to convert them into hard copy so that you can give them to anyone entitled to inspect them. Make backup copies of electronic records regularly, for example weekly or daily.

A company would also normally prepare the following statements regularly (say, monthly) for management purposes, providing to lenders etc:

  • Statement of Financial Performance – a statement showing the company’s revenues and expenses and the profit or loss that results from these items
  • Statement of Financial Position – a statement showing the things of value the company owns and the debts the company owes, and
  • Statement of Cash Flows – a statement summarising cash inflows and outflows.

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What do corporations have to submit to ASIC?

To meet all requirements of the Act, the corporation must send their financial reports to ASIC within three months of the end of the financial year. All other companies must lodge their financial reports within four months of the end of the financial year.

This includes the following financial reports:

  • Statement of Financial Position (formerly called Balance Sheet)
  • Statement of Financial Performance (formerly called Profit and Loss Statement)
  • Statement of Cash Flows
  • Notes to Financial Statements (disclosure required by the regulations, notes required by the accounting standards, and any other information necessary to give a true and fair view)
  • Director’s declaration (that the financial statements comply with accounting standards, give a true and fair view, there are reasonable grounds to believe the company/scheme/entity will be able to pay its debts, the financial statements have been made in accordance with the Act)
  • Director’s report
  • Auditor’s report

The above reports will need to be lodged along with ASIC’s Form 388 Copy of financial statements and reports.

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Do Corporations always have to file audited financial statements?

Your corporation may, in certain circumstances, be granted an exemption from preparing and filing audited financial statements. Refer to above section can I qualify for an exemption.

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What is involved in an Audit?

An auditor does not in any way become involved with the business or other affairs of the corporation.

The Quinn Group has certified auditors within the firm and conducts the audit in a streamlined process that simplifies your effort needed in meeting your obligations. During an audit, Quinns checks the records of the corporation to give the members an opinion as to whether the financial reports are true and fair. This helps the members to know what all the assets and liabilities are, and what has happened to the money of the corporation during the last twelve months.

Quinns then checks the financial records on a test basis and gets other information about the corporation’s assets and liabilities. The auditor would normally check a sample of the receipts and the payments.

Can my accountant be my Auditor?

An auditor must be independent of the company, therefore, a person cannot be appointed as an auditor if they are:

  • An officer or employee of the company or an associated company;
  • A partner or employee of such a person, or a partnership of which such as person is a partner

If your accountant does not fall into one of the above categories and if he or she has a current audit-practicing certificate issued by a recognised supervisory body, they may act as the company’s auditors. Michael Quinn is a registered company auditor (registered by ASIC) and this allows Quinns to assist corporations in ensuring their financial reports meet ASIC’s regulations as well as undertake the audit, making the reporting process a simple step.

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What records does the auditor need for the audit?

Essentially, the auditor will need all the information that is listed below. It is best if you have this information already prepared, and then meet with the auditor before the auditor starts any work.

The auditor will need:

  • Receipts issued during the year
  • Bank deposit book
  • Cash book recording the receipts for the year
  • Bank statements for the whole year for all bank accounts
  • Cheque butts
  • Cash book recording payments for the year
  • File of invoices and other documents you have that support each of the payments made. It is normally best to have this in a file in the same order as the cheque butt numbers.
  • Wages book
  • Employee files that have the history of annual leave, long service leave, and sick leave taken
  • Group certificates and the Tax office end of year reconciliation
  • Assets register, or details of all the assets that the corporation bought or sold during the last twelve months
  • Copy of the insurance policy documents and the insurance invoices
  • List of any debtors at June 30 (money owed to the corporation)
  • List of any creditors at June 30 (money owed by the corporation to another organisation or person for goods or services that had not yet been paid for at June 30)
  • Minutes of meetings of the Directors, special general meetings, or annual meetings held in the last twelve months

There may be other records needed. Some of your records may also be on your computer. You should check with Quinns as to exactly what is needed.

Is an auditor only concerned with annual accounts?

Yes. However, there is nothing to stop you employing an auditor for other purposes, such as keeping the books or compiling the tax return, provided the auditor does not take part in the management of the company. You should agree to an engagement letter that sets out the auditor’s duties.

At Quinns we can offer a range of services to streamline your financial reporting. For instance, Quinns can prepare a management report after an audit, listing all the minor faults that were found even if they have been corrected.

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The Auditor’s Report

The auditor is required by the Act to examine and provide the corporation with a report (to accompany the financial statements) which states whether:

  • The Directors and the corporation have complied with the Act and the regulations and the constitution.
  • The balance sheet and the income and expenditure statement are based on proper accounts and records and are in agreement with those accounts and records.

The Quinn Group has a specialist auditing division with the experience and qualifications required to conduct and issue such Audit Reports and can assist you preparing for your reporting obligations. For more information complete our online enquiry form and a consultant will contact you on the next business day.

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What to do after the Audit

After the audit is finished and the reports are ready, the Directors will need to call an annual general meeting of members. At this meeting the members will approve the audited financial statements and returns forming part of the Director’s report.

Once this is done, a copy of the audited financial statements, a statement of declaration by the Director’s and a report for the year must be sent to ASIC.

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Our dedicated team can assist you with all your auditing needs. Complete and submit the Express Enquiry form on the top right hand side of this page and we will contact you to discuss your enquiry or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.