Audit relief for foreign subsidiaries

Understanding when your Australian subsidiary’s accounts do not need to be audited could save your business money and man hours.

An increasing number of companies are finding it easier to sell their ideas in markets far beyond their home countries. Some may find the Australian market lucrative enough to set up an office and employ locals to assist in servicing their clients.

Ordinarily the easiest way to go about this is to set up an Australian company that bears all of the burden for employing locals and invoicing in the country. With that comes a number of responsibilities, one of which may include the requirement to prepare an audited financial report each financial year.

Under the Corporations Act, any Australian company that is controlled by a foreign entity is required to prepare and lodge a financial report with Australian Securities and Investment Commission (“ASIC”) at the end of every financial year. This requirement can often be the most expensive regulatory burden placed on a business. Audit and accounting fees are inevitably put towards an audit that may add very little value, if any, to a business with relatively uncomplicated affairs.

This is why it is important that businesses and their advisers setting up an outpost in Australia understand the audit relief available to them. Class Order 98/98 gives ASIC the authority to waive the ordinary requirement for small companies who are also not part of a larger group.

Are your clients eligible for the relief?

There are effectively two basic requirements you must meet in order to be eligible to apply for audit relief. If you can answer yes to both of the below questions, you may be able to apply for relief under CO98/98:

Question 1: Are you a “small proprietary company?”

To be a small proprietary company, you must satisfy at least two of the following requirements:

1. Revenue for the financial year under $25 million
2. Gross assets less than $12.5 million at the end of the financial year
3. Employs fewer than 50 staff

Question 2: Are you also part of a group that is small?

The group that you are part of will be the total of all other companies that share a common ultimate parent entity to yours. In order to be considered small, the group must satisfy at least two of the following requirements:

1. Combined revenue for the financial year of less than $10 million
2. Combined gross assets of less than $5 million at the end of the financial year
3. Employs less than 50 staff in total

Don’t delay

It is important that you determine your eligibility to relief as soon as possible. The relief will not be available retrospectively if you don’t meet the application deadlines. You only have a window of three months after financial year end of the Company’s first year of incorporation.

This is an important discussion you should be having with your Australian adviser when setting up a company here. They need to more than merely mention the availability of the exemption, the set up documents should include a Form 384 and the relevant directors’ resolution for you to sign that will be lodged with ASIC.

For any further questions regarding Audit Exemption in Australia please contact Lead Client Partner, Kelly Morgan on kmorgan@azuregroup.com.au or +612 9238 1188.