Financial Reporting Obligations

 

One of the common problems entrepreneurs experience in running a business is keeping appropriate financial records both to assist themselves in running and understanding the performance of their business and also to satisfy the compliance requirements of recordkeeping under the tax and companies acts. Understanding how your individual products and services contribute to the bottom line and having the ability to articulate that internally and externally to banks, potential partners and in a sales process is one of the most important aspects of running a business.

 

The best approach is to understand what you want and come up with a simple and efficient system to provide for this. Many people find the administration tedious and very quickly loose interest and fall behind if the system they adopt is not something that can be regularly maintained.

 

How FinservCo can help you

 

We assist clients in choosing and implementing a financial system and training staff on its functionality. From an accounting perspective we can prepare your financial and management accounts and provide technical GAAP accounting guidance where needed to assist for external financing, audits or business marketing.

 

What financial records need to be maintained?

 

Note: this section refers to financial records not financial reports.

 

Only select companies need to prepare financial reports whereas all companies need to keep financial records without exception.

 

Section 286(1) of the Corporations Act states that a company must keep written financial records that:

 

  • correctly record and explain its transactions and financial position and performance; and

     

  • would enable true and fair financial statements to be prepared and audited.

     

  • Large Withholder: Businesses or Individuals Withholding > $1,000,000 in a previous income year

 

Financial records are defined in s9 of the Corporations Act as including:

 

  • invoices, receipts orders for the payment of money, bills of exchange, cheques, promissory notes and vouchers; and

     

  • documents of prime entry; and

     

  • working papers and other documents needed to explain:

 

the methods by which financial statements are made up; and adjustments to be made in preparing financial statements.

 

Refer to ASIC guidance

 

Financial records need not be kept electronically but under Section 288 of the Corporations Act ,if financial records are kept in electronic form, they must be convertible into hard copy. Hard copy must be made available within a reasonable time to a person who is entitled to inspect the records. If financial records are kept on a computer which is owned and operated by a third party e.g. your company's accountant, you still have the responsibility to provide a hard copy. Business records need to be kept for 5 years and in a form that can be understood.

 

The ATO has also supplied detail guidance on both the need for maintaining records and the form they should be in. The requirements differ depending on the type of tax (i.e. PAYG , GST, CGT , income tax etc) but in all instances Business records need to be kept for 5 years and in a form that can be understood. Read more at Recordkeeping for small businesses (i.e. turnover < $2 million) and Recordkeeping Essentials

 

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Who must prepare financial reports?

 

Note: this section refers to financial reports not financial records. All companies need to keep financial records without exception.

 

Section 292 of the Corporations Act requires the following entities to prepare financial reports

 

  • public companies or disclosing entities

     

  • large proprietary companies. (i.e. at least 2 of 3 conditions apply: (1) >50 staff. (2) > $12.5 million Gross consolidated assets. (3) > $25 million consolidated annual revenue). This would also require an audit. read more

     

  • Managed investment schemes.

     

  • Small proprietary companies that are foreign-controlled (unless the parent lodges consolidated financials).

 

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What financial reports need to be prepared?

 

Financial reports need to be prepared and submitted to ASIC within 3 months of the end of the financial year. Financial reports are prepared by the company and audited by the independent auditors. Financial reports consist of :

 

  • Balance sheet

     

  • Income statement for the year

     

  • Statement of cash flows for the year

     

  • Statement of changes in equity

     

  • Consolidated financial statement, if required

     

  • Notes to financial statements

     

  • Directors' 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 Corporations Act

     

  • Directors' report, including the auditor's independence declaration

     

  • Auditor's report.
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Also in this section...

 

 

Useful External Links...

 

Relevant Client Services

  • Full financial statement preparation
  • systems implementation and training
  • Technical GAAP assistance
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