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The Corporations Code has created a specific type of private company known as a ‘large propriety company’.

A ‘large propriety company’ is a company that has two of the following:

• The consolidated revenue for the financial year of the company and any entities it controls is $25million or more.
• The value of the consolidated gross assets at the end of the financial year of the company and any entities it controls is $12.5million or more.
• The company or any entities it controls have 50 or more employees at the end of the financial year.

The company that complies with any two of these statements is classified as a ‘large propriety company’.

Large propriety companies must prepare and lodge a financial report and director’s report for each financial year.  The accounts must be audited, unless Australian Securities & Investments Commission (ASIC) grants relief.

A large propriety company can apply to ASIC for audit relief.  ASIC will generally only give audit relief if:

• all the directors and shareholders of the company agreed that an audit is not required;
• ASIC is satisfied that the company is well managed and in a sound financial condition, mostly directly relevant to the interest of the creditors;
• the company’s total liabilities must not exceed 70% of the total assets;
• the company must be profitable from ordinary activities and remain solvent;
• the company’s financial report must be prepared by a prescribed accountant;
• the company’s financial reports must be lodged on time;
• there is no proposed modified audit report or material disagreement with any auditor; and
• the company lodges its financial report within the deadlines in the Corporation’s Code (ie four months after the end of the financial year).

A company applying for audit relief is required to lodge a form (Form 382) with ASIC after the resolutions of directors and shareholders are obtained.

A notice must be lodged during the period commencing three months before the start and ending four months after the end of the first financial year in which relief is to be applied or re-applied.

The ASIC Class Order indicates that ASIC will not grant extensions of time to lodge Form 382 or to pass annual resolutions of directors and shareholders.

The Class Order indicates that audit relief is a privilege rather than a right.

The ASIC Class Order indicates that the items that will be taken into account to determine whether to approve an application, to dispense for the appointment of an auditor include, ‘does the company have appropriate internal management systems, which enable the directors to assess the financial condition and the solvency of the firm promptly?’

The Class Order indicates that, as a minimum, the assessment by directors must include:

• a quarterly assessment of profit and loss statement;
• balance sheet; and
• cashflow statement,

prepared for management purposes.

If you would like to discuss any aspect of a large propriety company’s obligations, please contact us.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents.  Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.