Australian Public companies - the new consolidated entity disclosure statement - are you ready!
Vik Bhandari
Partner and Director at FRS. IFRS Specialist, lecturer and co-author of Accurri Example Financial Statements
What’s changed?
Australian public companies (both listed and unlisted) will be required to include a new consolidated entity disclosure statement (‘CEDS’) in their financial report and make a statement in the directors’ declaration that the CEDS it true and correct.
This includes not-for-profit companies limited by guarantee who are not ACNC registered.
The CEDS requires details of all consolidated entities as at the end of the financial year, including the entity’s name, type (body corporate, partnership or trust), place of incorporation/formed, percentage of ownership interest (held directly or indirectly), tax residency (Australian or foreign (including location of domicile) and information on whether the entity was a trustee, a partner or a participant in a joint venture.
However, where consolidated financial statements are not required to be prepared, the CEDS will only require a statement to that effect (that is, there are no subsidiaries to disclose).
The CEDS forms part of the financial report and therefore will be subject to audit.
For listed public companies, the chief the chief executive officer ('CEO') and chief financial officer ('CFO') declaration under Section 295A will also need to add a statement that the CEDS is true and correct.
When does it apply?
Accounting periods beginning on or after 1 July 2023, so impact financial years ended 30 June 2024 onwards.
Why?
As part of the Federal Labour Government's implementation of its multinational tax policy, on 27 March 2023, the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023 was passed by both Houses and is awaiting Royal Assent.
The Bill introduced new disclosure requirements on subsidiaries and their tax domicile.
Where in the financial report should the CEDS go?
If you follow the layout of section 295(1) of the Corporations Act 2001, it should be a separate statement positioned after the notes to the financials but before the directors’ declaration, instead of incorporating it as part of ‘Interest in Subsidiaries’ note, for the following reasons:?
What if I want to combine the CEDS with my 'Interest in Subsidiary' note?
Although it may be possible to combine the CEDS information with the information on subsidiaries, we suggest that they remain separate as the disclosures are different i.e, interest in subsidiaries note is based on Accounting Standards whereas the CEDS is a Corporations Act requirement. Further we understand that ASIC will shortly be issuing guidance saying the CEDS is a separate statement and not combined.
Is the CEDS required if the public company does not prepare consolidated financial statements?
The CEDS is still required. However, if the entity does not have any subsidiaries or is taken the exemption in scoping paragraph 4 of AASB 10 ‘Consolidated Financial Statements’ not to present consolidated financial statements, due to a ultimate or intermediate parent producing consolidated financial statements, the company should make a statement to that effect.
What if the public company voluntarily prepares consolidated financial statements?
There is no requirement to have a CEDS if the public company voluntarily prepares consolidated financial statements. Section 205(3A)(a) of the Corporations Act 2001 refers to where consolidated financial statements are ‘required’ to be prepared. However, the public entity could still include the CEDS and state its inclusion is on a voluntary basis.
I am an proprietary company, does this change impact me?
No, it only applies to public companies whether listed or unlisted.
Example for a public entity that is required to prepare consolidated financial statements
Example for a public entity that does not have subsidiaries or is not required to prepare consolidated financial statements
Example of director's declaration
Amendments to Corporations Act 2001, due to Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023
Below is the extract of the Corporations Act 2001 with some the amendments, to illustrate the CEDS changes which has been added in bold and italics:
Basic contents
295 (1) The financial report for a financial year consists of:
(a) the financial statements for the year; and
(b) the notes to the financial statements; and
(ba) for a public company—the consolidated entity disclosure statement required by subsection (3A); and
(c) the directors’ declaration about the statements and notes.?
Consolidated entity disclosure statement
295 (3A) The consolidated entity disclosure statement for a public company’s financial report for a financial year is: ?
(a) if the accounting standards require the public company to ?prepare financial statements in relation to a consolidated ?entity—a statement that includes the following information ?for each entity that was, at the end of the financial year, part ?of the consolidated entity:
(i) the entity’s name (if any) at that time;
(ii) whether, at that time, the entity was a body corporate, partnership, or trust;
(iii) whether, at that time, 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;
(iv) if the entity is a body corporate—the place at which the ?entity was incorporated or formed;
(v) if the entity is a body corporate with a share capital— the percentage of the entity’s issued share capital (excluding any part that carries no right to participate ?beyond a specified amount in a distribution of either profits or capital) that was held, directly or indirectly, by the public company at that time;
(vi) whether, at that time, the entity was an Australian ?resident (within the meaning of the Income Tax ?Assessment Act 1997) or a foreign resident (within the ?meaning of that Act);
(vii) if the entity was a foreign resident as described in subparagraph (vi)—a list of each foreign jurisdiction in which the entity was, at that time, a resident for the purposes of the law of the foreign jurisdiction relating to ?foreign income tax (within the meaning of that Act); or
(b) if paragraph (a) does not apply—a statement to that effect.
Directors’ declaration
295 (4) The directors’ declaration is a declaration by the directors:
(c) whether, in the directors’ opinion, there are reasonable grounds to believe that the company, registered scheme or disclosing entity will be able to pay its debts as and when they become due and payable; and
(ca) if the company, registered scheme or disclosing entity has included in the notes to the financial statements, in compliance with the accounting standards, an explicit and unreserved statement of compliance with international financial reporting standards—that this statement has been included in the notes to the financial statements; and
(d) whether, in the directors’ opinion, the financial statement and notes are in accordance with this Act, including:
(i) section 296 (compliance with accounting standards); and
(ii) section 297 (true and fair view); and
(da) whether, in the directors’ opinion, the consolidated entity disclosure statement required by subsection (3A) is true and correct; and
(e) if the company, disclosing entity or registered scheme is listed—that the directors have been given the declarations required by section 295A.?
Author: Vik Bhandari, Managing Director, Financial Reporting Specialists ('FRS') (visit our website).