EXPLANATORY STATEMENT for
ASIC Corporations (Directors’ Report Relief) Instrument 2016/ 188
Prepared by the Australian Securities and Investments Commission
Corporations Act 2001
The Australian Securities and Investments Commission (ASIC) makes ASIC Corporations (Directors’ Report Relief) Instrument 2016/188 under subsection 341(1) of the Corporations Act 2001 (the Corporations Act).
Subsection 341(1) provides that ASIC may make an order in writing in respect of a specified class of companies, registered schemes or disclosing entities, relieving any of the directors, the companies, registered schemes or disclosing entities themselves, or the auditors of the companies, registered schemes or disclosing entities from all or specified requirements of Parts 2M.2, 2M.3 and 2M.4 (other than Division 4) of the Corporations Act.
- Background
Part 2M.3 of the Corporations Act requires certain entities to prepare an annual financial report and a directors’ report (the reports). Generally, the reports must be lodged with ASIC and sent to members. Disclosing entities are also required to prepare a financial report and directors’ report for a half year.
The Corporations Act specifies the information to be included in a directors’ report. This information varies depending on the type of entity (e.g. disclosing entity, public company or proprietary company, or registered scheme).
There may be instances where some of the information required to be included in the directors’ report is more useful to users if it is included in the financial report or in a document separate to the reports (separate document). More flexibility may allow related information to be located in the same place and presented more effectively.
2. Purpose of the instrument
ASIC Corporations (Directors’ Report Relief) Instrument 2016/188 allows certain information to be transferred from the directors’ report to the financial report or a separate document, provided that the reports are not distributed or made available without any separate document accompanying them.
Class Order [CO 98/2395] is repealed by Schedule 2 to the ASIC Corporations (Amendment and Repeal) Instrument 2016/247.
3. Operation of the instrument
The instrument allows some information to be transferred from the directors’ report to the financial report or to a separate document which accompanies the directors’ report and financial report.
The directors’ report must incorporate by reference the information that has been transferred and include a prominent cross reference to the page or pages of the financial report or separate document where the information has been set out.
The entity cannot, and must also take reasonable steps to ensure another person does not, distribute or make available the directors’ report and financial report without any separate document.
The separate document must be lodged with ASIC as if it was part of the report to be lodged under sections 319 or 320 of the Corporations Act. The transferred information must also be included in or accompany a concise report.
4. Consultation
ASIC has consulted with stakeholders through Consultation Paper 240 which was issued on 1 October 2015 and was open for comment to 30 October 2015.
The Office of Best Practice Regulation has assessed that a Regulatory Impact Statement is not necessary for this instrument.
Overview
The ASIC Corporations (Directors’ Report Relief) Instrument 2016/188 was enacted to address the need for greater flexibility in the presentation of certain information within annual and half-yearly financial reports and directors’ reports as required by the Corporations Act 2001. This instrument, made by the Australian Securities and Investments Commission (ASIC) under the authority granted by subsection 341(1) of the Corporations Act, aims to alleviate the rigidity associated with the statutory requirements for the directors' reports by allowing specified information to be transferred to the financial report or to a separate document that accompanies the reports, provided that the reports are not distributed without this additional document. This flexibility is intended to enhance the effectiveness of information presentation and its usefulness to stakeholders. The policy objective behind this instrument is to streamline the reporting process while ensuring that essential information remains accessible and transparent, thereby maintaining the integrity of financial disclosures.
The instrument facilitates the transfer of certain information from the directors' report to either the financial report or a separate document, with the stipulation that the directors' report must still incorporate by reference this transferred information and include a clear cross-reference to where the information can be found in the financial report or separate document. It also mandates that the directors' report and financial report are not distributed or made available without the separate document, which must be lodged with ASIC as part of the report under sections 319 or 320 of the Corporations Act. The instrument thus aims to balance the need for regulatory compliance with the practicalities of financial reporting.
Scope and Application
The ASIC Corporations (Directors’ Report Relief) Instrument 2016/188 applies to specified classes of companies, registered schemes, and disclosing entities as defined under the Corporations Act 2001. This instrument allows certain entities to transfer specified information from their directors’ reports to their financial reports or to a separate document that accompanies the reports, provided that these documents are not distributed without the separate document. The instrument is designed to provide flexibility in how entities present certain information, which may enhance clarity and user understanding. It is applicable across Australia, governed by the Commonwealth under the Corporations Act 2001. The instrument does not specify particular exclusions but is contingent on the condition that the reports are not distributed or made available without the separate document. The instrument’s scope and application may be extended or restricted through subordinate instruments, allowing ASIC to adjust its provisions based on evolving regulatory needs and stakeholder feedback.
Key Provisions
The main operative sections of the ASIC Corporations (Directors' Report Relief) Instrument 2016/188 (paragraphs 3 and 4) allow for certain information to be moved from the directors' report to the financial report or a separate document, provided that the reports are not distributed or made available without the separate document accompanying them. Specifically, section 3 allows for the transfer of information and mandates that the directors' report must incorporate by reference the transferred information and include a prominent cross-reference to where the information is set out in the financial report or separate document. Section 4 further stipulates that the directors' report and financial report cannot be distributed without the separate document, and this document must be lodged with ASIC as if it were part of the report under sections 319 or 320 of the Corporations Act. Additionally, the transferred information must also be included in or accompany a concise report.
The Act imposes several obligations on the parties it governs. Firstly, entities must ensure that the directors' report incorporates by reference the information that has been transferred and includes a prominent cross-reference to the page or pages of the financial report or separate document where the information has been set out. Secondly, entities must take reasonable steps to ensure that the directors' report and financial report are not distributed or made available without the separate document accompanying them. Lastly, the separate document must be lodged with ASIC as if it were part of the report under sections 319 or 320 of the Corporations Act, and the transferred information must be included in or accompany a concise report.
Failure to comply with the provisions of the Act may result in civil or criminal consequences. The exact penalties for breaches are not specified in the explanatory statement, but breaches of the Corporations Act can generally lead to civil penalties, including fines, and criminal penalties, including imprisonment, depending on the severity and intent of the breach. The maximum penalties can vary widely based on the specific breach and the jurisdiction in which the offence is prosecuted. It is important for entities to ensure compliance to avoid any potential legal ramifications.