House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Treasurer, the Hon J. B. Hockey MP)

Chapter 4 - Streamlining auditor appointment requirements for companies limited by guarantee

Outline of chapter

4.1 Items 7 to 9 of Schedule 1 to this Bill amends the Corporations Act 2001 (Corporations Act) to exempt certain companies limited by guarantee from the need to appoint or retain an auditor.

4.2 All references in this Chapter are to the Corporations Act unless otherwise specified.

Context of amendments

4.3 In 2010 the Corporations Amendment (Corporate Reporting Reform) Act 2010 removed the need for certain companies limited by guarantee to have their financial reports audited, in order to reflect their limited resources. Consequently:

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subsection 292(3) exempts small companies limited by guarantee (that is, those companies limited by guarantee with annual revenue of less than $250,000) from having to prepare a financial report and directors' report unless directed to do so by the Australian Securities and Investments Commission (ASIC) or by members with at least five per cent of the votes that may be cast at the general meeting; and

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subsection 301(3) allows a company limited by guarantee to elect to have its financial report for a financial year reviewed, rather than audited, if it has annual revenue of less than $1 million and certain other criteria are met.

4.4 Despite these amendments, companies limited by guarantee that are not required to undertake an audit remained subject to provisions requiring that an auditor is appointed and retained. Section 327A requires public companies, including companies limited by guarantee, to appoint an auditor within one month of registration. Section 327B requires public companies to appoint an auditor at their first annual general meeting. Section 327C requires public companies to appoint an auditor where vacancies arise.

Summary of new law

4.5 Certain companies limited by guarantee are no longer required to appoint or retain an auditor where they are not required to undertake an audit.

Comparison of key features of new law and current law

Detailed explanation of new law

4.6 Subsection 327A(1A) is inserted into the Corporations Act to exempt the following companies from having to appoint an auditor within one month of registration as a company:

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companies limited by guarantee whose directors reasonably believe that subsection 301(3) will apply to the company's financial reports; and

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small companies limited by guarantee.

[Schedule 1, item 7, subsection 327A(1A)]

4.7 Subsection 327B(1A) is inserted into the Corporations Act to exempt companies limited by guarantee who elect to have their accounts reviewed rather than audited, and small companies limited by guarantee, from having to appoint an auditor at their first annual general meeting. [Schedule 1, item 8, subsection 327B(1A)]

4.8 These amendments provide consistency with subsections 292(3) and subsection 301(3).

4.9 A Note is inserted at the end of subsection 327C(1) to clarify that companies limited by guarantee who elect to have their accounts reviewed rather than audited, and small companies limited by guarantee, do not have to retain an auditor if not required to appoint an auditor. [Schedule 1, item 9, Note at the end of subsection 327C(1)]