Chapter 2M of the Corporations Act 2001 (Cth) contains the provisions relating to financial reporting for companies.

Part 2M.2 — Financial records

A company must retain financial records so that:

• its transactions and financial position can be correctly recorded and explained in financial reports; and

• true and fair financial statements can be prepared and audited (although auditing is not always required).

A company must keep its financial records for 7 years after the transactions covered by the records are completed.

There can be severe consequences for failing to keep financial records which enable those who deal with a company to understand its financial situation.

Directors have a statutory right under the Corporations Act 2001 (Cth) to access the financial records of a company at all reasonable times.

Part 2M.2 does not apply to a company registered as a charity with the Australian Charities and Not-for-profits Commission (ACNC). For those companies, financial reporting requirements are set out in the Australian Charities and Not-for-profits Commission Act 2012 (Cth).

See Part 2M.2: Financial Records.

Part 2M.3 — Financial reporting

While all companies must keep financial records (other than companies registered with the ACNC), not all companies are required to prepare annual financial reports and directors' reports. The Corporations Act 2001 (Cth) sets out the content requirements for the annual financial report and the directors' report.

Generally, a large proprietary company must prepare a financial report and a directors' report for each financial year.

A small proprietary company must prepare an annual financial report and directors' report in certain circumstances.

A small company limited by guarantee is not required to prepare annual financial reports and directors' reports unless directed to do so by either the members or ASIC. Other companies limited by guarantee must prepare an annual financial report and a directors' report.

Generally, a company registered as a charity with the ACNC must report to the ACNC (rather than ASIC).

A registered charity is required to submit annual financial reports to the ACNC (the requirements vary depending on whether it is a small, medium or large charity).

In general, a company, registered scheme or disclosing entity which is required to prepare financial statements is required to have those financial statements audited and obtain an auditor's report.

A company (other than a company limited by guarantee), registered scheme or disclosing entity is required to provide its members with a copy of the financial report, the directors' report and the auditor's report within a specified time frame depending on the type of entity.

With limited exceptions, a company, registered scheme or disclosing entity which is required to prepare a financial report must lodge it with ASIC within a specified period depending on the type of entity. Failure to do so is an offence.

See Part 2M.3: Financial reporting.

A listed company which is included in the S&P All Ordinaries Index (top 500) at the beginning of its financial year must have an audit committee during that year: ASX Listing Rule 12.7. The purpose of the audit committee is to verify and safeguard the integrity of the company's financial reporting.

For financial reporting requirements for foreign companies registered in Australia, please see Foreign Companies in Australia.

Part 2M. 4 — Appointment and removal of auditors

Every entity that is required to prepare a financial report must also appoint an auditor. The qualifications, appointment, removal and resignation of auditors are regulated with a view to securing the auditor's independence from directors and some measure of stability of tenure.

By accepting appointment the auditor agrees to audit and prepare a report on the company's financial affairs. The auditor's report must state whether the accounts of the company are drawn up in accordance with applicable accounting standards and give a true and fair view of the company's affairs.

Auditors are appointed primarily in the interests of the members. There are many rules which ensure the auditor's independence and regulate how an auditor is appointed and their responsibilities as an auditor.

See Part 2M.4: Appointment and removal of auditors.

Part 2M.5 — Accounting and auditing standards

Financial reports must comply with accounting standards which are made by the Australian Accounting Standards Board.

See Part 2M.5: Accounting and auditing standards.

Part 2M.6 — Exemptions and modifications

ASIC may make an order relieving the directors, a company, a scheme, a disclosing entity or the auditor from any or all of the requirements relating to financial records, financial reporting and auditor appointment and removal (other than Pt 2M.4, Div 4).

A number of recently repealed Class Orders have been replaced by ASIC Instruments. The relief offered under the redrafted instruments is substantially the same as under the former Class Orders.

See Part 2M.6: Exemptions and modifications.

Part 2M.7 — Sanctions for contravention of chapter

A director contravenes the law if they fail to take all reasonable steps to comply with Pts 2M.2–2M.3 and certain provisions of Pt 2M.4 .

See Part 2M.7: Sanctions for contravention of chapter.