Your financial reporting obligations – be pro-active

You’ve got a clear strategy for growth, and have just raised capital through Snowball Effect to execute the plan. You also (probably for the first time) have a large number of shareholders who want to know what is happening in your business. There are many ways of communicating with your shareholders (which we won’t go into here), but importantly there are also statutory financial reporting obligations. So what are your obligations, and what does it mean for you?

Your statutory obligations

You’re probably required to prepare annual financial statements that go to your shareholders. Further, your annual financial statements will probably require an audit. The following tables outline the likely financial reporting requirements for entities that raise capital through Snowball Effect. The obligations are different depending upon your circumstances – if you do not meet any of the criteria below please feel free to contact me through the details at the end of this blog

Entity Type

Preparation

Audit

Filing with Companies Office

Large company with less than 25% overseas ownership

Large is more than $60m assets or $30m revenue (note these criteria for large kick in when one of the size criteria is exceeded for each of the two preceding periods)

Within 5 months of balance date


(can opt out)

X

Large company with more than 25% overseas ownership but not a subsidiary of an overseas company

Large is more than $60m assets or $30m revenue


Within 5 months of balance date


(can opt out)


Within 5 months of balance date

Every other company with 10 or more shareholders


Within 5 months of balance date

(can opt out)


(can opt out)

X

Every other company with fewer than 10 shareholders

X

(can opt in)

X

(can opt in)

X

Opting out can be quite hard:

  • Must be via a shareholders meeting by way of a resolution approved by not less than 95% of the votes of those shareholders entitled to vote and voting on the matter
  • Must be during the “opting period”, which is defined as the period from the start of the accounting period until the close of the earliest of the following dates:
    • 6 months after the start of the accounting period
    • date of the annual meeting
    • if your next balance date is shorter than 6 months (due to a change in balance date), then it is the next balance date
  • You also need to check that your constitution allows you to opt out.

Generally when shareholders make their initial investment via Snowball Effect they vote to opt out of auditing financial statements for the first accounting period after the equity raise. However as you can see from the above, unless another resolution is passed you are likely to need an audit of your second set of financial statements post your equity raise. With a large portfolio of shareholders it can be good practice to obtain an audit, and many shareholders would want one.

So you need an audit – what does that mean?

Someone independent of you will conduct an examination of your annual financial statements. Your auditor’s aim is to provide an opinion as to whether the information in your annual financial statements (taken as a whole) reflects your financial position at year end. An audit can never provide 100% assurance, because auditors do not look at every transaction, or check every figure in the financial statements (audits are based on selective testing). However it does provide the highest level of independent assurance you can obtain. There are significant benefits that an audit can bring to you:

  • You, your shareholders, lenders, or potential shareholders can have greater confidence in your financial statements.
  • It means that someone independent is coming in and looking at the way your finance function runs - an auditor will bring insights on your operations and procedures, based on their experience with other entities and knowledge of best practice.
  • Your finance function will benefit from the processes they are required to undertake to meet audit requirements, and therefore make your numbers more robust.

Next steps

Selecting the right auditor is an important choice. The financial reporting and audit process is complex, with auditors providing a vital link in the financial reporting chain. As you continue to grow the best auditors become trusted advisors as they are in the privileged position of seeing many other entities at different stages of their life cycle. If you make the right choice of auditor you will have a long-term relationship that provides great benefit to you.

If you do decide (and obtain shareholder approval) to opt out of an audit, there are other assurance options you could look into. Again the key is finding the right auditor to help you with these.

The earlier you can make your choice of auditor, the better, because the best audits are where your auditor has really got to know about you and your business before undertaking their work.