There has been a number of discussions recently about the removal of grandfathering under the Corporations Act 2001 (the Act), in this article we are going to look at what has happened and what does it mean as well as answering some frequently asked questions and providing some resources.
What was grandfathering?
The concept of grandfathering (exempting) certain companies from lodging their financial statements with ASIC was introduced as part of an amendment to the Corporations Act in 1995. A grandfathered company was a large proprietary company that met certain criteria including being large since 1995 and have their financial statements audited for all financial years since 1995.
These grandfathered companies had to prepare and have audited their financial statements in accordance with their ‘large proprietary status’ however this information was not put on the public record due to the relief from lodgement.
What has happened?
On 5 August 2022, the Treasury Law Amendment (2022 Measures No. 1) Act 2022 (‘the Act’) was passed by both Houses of Parliament and received royal assent on 10 August 2022.
This Act repealed the 1995 instrument providing grandfathering which means that entities who have had relief from lodgement for 27 years will now their financial information available for inspection through the ASIC registers.
This legislation is effective on a prospective basis immediately and therefore grandfathered companies with a financial year ending on or after 10 August 2022 will not be eligible for lodgement relief (30 June 2022 financial years do not have to lodge).
What changes for these grandfathered companies?
Under the exemption, grandfathered companies were required to prepare financial statements as if they were lodging and have these financial statements audited and therefore the only thing that changes is the lodging on the public record with ASIC of these financial statements.
Frequently asked questions
As discussed above, the only change for grandfathered companies is that they will have to lodge their financial statements on the public record, however we have received a number of questions around these companies which we have answered below – note that the answers assume a 30 June year end.
Are there any issues if the grandfathered company takes advantage of the reporting extension of one month at 30 June 2022 in relation to preparation and audit of their financial statements?
We understand that due to the method in which the grandfathering provisions were amended, if a former grandfathered company does not complete the preparation and audit of the 30 June 2022 financial statements by 31 October 2022 then they will lose the grandfathering for 30 June 2022 and will be required to lodge these financial statements.
Does the former grandfathered company have to lodge general purpose or special purpose financial statements at 30 June 2023?
The former grandfathered company has a legislative requirement to prepare financial statements in accordance with Accounting Standards and therefore in accordance with AASB 1053 Application of Tiers of Australian Accounting Standards, general purpose financial statements will be lodged.
Is there transitional relief at 30 June 2023 for a former grandfathered company moving to general purpose for the first time?
Under AASB 1053, the former grandfathered company should have prepared general purpose financial statements for financial years ending on or after 30 June 2022.
The company should not be preparing general purpose financial statements for the first time at 30 June 2023.
Does the former grandfathered company have to restate the 30 June 2022 financial statements?
Under AASB 1053, the former grandfathered company should have prepared general purpose financial statements for financial years ending on or after 30 June 2022 and should have restated the 30 June 2021 comparatives in those financial statements.
If the financial statements are being audited for the first time, are there any implications?
Companies taking advantage of the grandfathering provisions prior to 30 June 2023 were required to be audited and therefore this is a breach of the Act and therefore the company (and its auditor) will need to consider their reporting obligations to ASIC.
What if the former grandfathered company prepared special purpose financial statements at 30 June 2022?
As noted above, grandfathered companies were required to prepare (and have audited) financial statements in accordance with the Act, i.e., general purpose from 30 June 2022.
If the 30 June 2022 financial statements were special purpose then this is a breach of the Act, and the company (and its auditor) will need to consider their reporting obligations to ASIC.
What if the former grandfathered company is not going to lodge their audited financial statements?
If the grandfathered company is not going to lodge their audited financial statements for financial years ending on or after 10 August 2022 then this is a breach of the Act, and the company (and its auditor) will need to consider their reporting obligations to ASIC.