Prepare for new disclosures in financial reports of listed and unlisted public companies likely to be finalised in the coming weeks and applying for June 2024 financial reports
Background
During the week commencing 5 February 2024, the Parliament was scheduled to debate and finalise Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023. Following on from our discussion of the original proposal in our April 2023 newsletter, the bill includes amendments to the Corporations Act 2001 to require public companies (listed and unlisted) to include a “consolidated entity disclosure statement” as part of their financial reports.
Parliament did not finalise the bill in early February, but we expect the bill may be considered and finalised by the Senate when it next sits in the week beginning 26 February 2024, or if not, the March sittings.
The new requirements would apply to financial years commencing 1 July 2023 and so will first apply in financial reports for years ending 30 June 2024.
Given this is an important change to financial statements for June 2024, we want to remind you of the requirements so that preparations for compliance can begin.
What are the new requirements?
The amendments would require public companies that are required to prepare consolidated financial statements to include the following information in their consolidated entity disclosure statement about each entity that is part of the consolidated entity at the end of the financial year:
- The entity’s name
- Whether the entity is a body corporate, partnership or trust
- Whether the entity was a trustee of a trust within the consolidated entity, a partner in a partnership within the consolidated entity, or a participant in a joint venture within the consolidated entity
- Where the entity was incorporated or formed (if the entity is a body corporate)
- Where the entity is a body corporate with share capital, the percentage of the entity’s issued share capital held directly or indirectly, by the public company
- Whether the entity was an Australian resident or a foreign resident within the meaning of the Income Tax Assessment Act 1997
- If the entity is a foreign resident, a list of each foreign jurisdiction in which the entity was a resident for the purposes of the law of the foreign jurisdiction.
Where a public company is not required to prepare consolidated financial statements, a consolidated entity disclosure statement would be required, but it would only make a statement that the entity is not required to prepare consolidated financial statements, rather than including information about each subsidiary.
The directors’ declaration would be required to include a statement about whether, in the directors’ opinion, the consolidated entity disclosure statement is true and correct. In addition, for listed public companies, the chief executive officer and chief financial officer would include a statement in their declaration to the directors that the consolidated entity disclosure statement is true and correct.
Preparing for compliance
Public companies should begin planning to meet the new requirements by:
- Establishing governance over the process
- Establishing systems and controls to collate information about the group’s subsidiaries
- Implementing a project team to collate the information, which may involve both financial reporting and tax personnel
- Reviewing group structures and identifying entities which can be liquidated, deregistered or otherwise disposed
- Determining and responding to areas of judgement (e.g. tax residency status) which may require the engagement of experts
- Preparing for the information to be audited (and possibly subject to regulatory scrutiny) with appropriate position papers and documentation.