EXPLANATORY STATEMENT
STATUTORY RULES 1986 No. 247
ISSUED BY THE AUTHORITY OF THE ATTORNEY-GENERAL
COMPANIES REGULATIONS (AMENDMENT)
Section 577 of the Companies Act 1981 (“the Act”) provides in sub-section (1) that the Governor-General may make regulations, not inconsistent with the Act, prescribing all matters that are necessary or convenient to be prescribed for carrying out or giving effect to the Act. Sub-section 577(2) of the Act provides that the power of the Governor-General to make regulations shall be exercised only in accordance with advice that is consistent with resolutions of the Ministerial Council for Companies and Securities (“the Council”).
2. The Council was established under an agreement between the Commonwealth and the States, executed on 22 December 1978 (“the Agreement”), that provides the framework for a co-operative Commonwealth-State scheme for a uniform system of law and administration in relation to company law and the regulation of the securities industry in the six States, the Australian Capital Territory and, since 1 July 1986, the Northern Territory.
3. Under sub-clause 45(1) of the Agreement, the Council may consider a proposal for the amendment of regulations made under the Commonwealth Acts enacted for the purpose of the co-operative companies and securities scheme. Should the Council approve any draft amending regulation which gives
effect to such a proposal, the Commonwealth is then required, under sub-clause 45(2) of the Agreement, to submit the draft regulations to the Federal Executive Council for making by the Governor-General.
4. The accompanying regulations are identical in form and substance to draft regulations approved by the Council.
5. The purpose of the accompanying regulations is to make amendments to the Companies Regulations (“the Regulations”) by substituting the new Schedule 7 for the previous Schedule 7.
6. Details of the accompanying regulations are set out as follows:
Regulation 1: Commencement
7. The amendments to the Regulations come into operation on 1 October 1986.
Regulation 2: Prescribed stock exchanges for the purposes of sub-clause 16(3) of Schedule 7
8. Schedule 7 provides that where a company has investments listed on an Australian or overseas stock exchange specified in Regulation 16, it must include in its accounts the market value of those investments calculated on the official quotation on the stock market of that exchange.
9. This regulation amends the cross-reference in Regulation 16 to the requirement to provide particulars of listed investments by omitting the reference to sub-clause 7(5) of the previous Schedule 7 and substituting a reference to sub-clause 16(3) of the new Schedule 7.
Regulation 3: Requirements relevant to accounts and group accounts
10. Regulation 57:
(a) provides that the prescribed requirements for the purposes of sub-section 269(8) of the Act are set out in Schedule 7; and
(b) sets out the transitional provision in respect of disclosure requirements that applied at the time the Act was introduced.
11. This regulation amends Regulation 57:
(a) by omitting the transition provision contained in sub-regulation 57 (2) because it no longer has any utility; and
(b) by inserting a new transitional provision which provides:
(i) that where a company’s financial year commences before 1 January 1986, the company shall prepare its accounts or group accounts in accordance with the existing Schedule 7;
(ii) that where a company’s financial year commences between 1 January 1986 and 30 September 1986 (inclusive), the company can prepare its accounts or group accounts in accordance with either the previous Schedule 7 or the new Schedule 7.
Regulation 4: Schedule 7
12. This regulation repealed the previous Schedule 7 and substituted the new Schedule 7.
13. The major features of the new Schedule 7 are as follows:
• The introduction of specific formats for the preparation of profit and loss accounts and balance sheets of all companies.
• A substantial reduction in the disclosure requirements for exempt proprietary companies, which represent over 90% of all Australian companies. Under the new Schedule, the accounts of such companies consist of a profit and loss account and a balance sheet prepared in accordance with the new formats and notes giving particulars of commitments for expenditure not shown in the balance sheet; contingent liabilities and remuneration of auditors (if any).
• Public and non-exempt proprietary companies have had some additions made to their previous levels of disclosure. The new Schedule requires these companies to provide information in respect of standby arrangements and unused credit facilities; valuations of assets supported by guarantees, warranties or indemnities; payments to persons or prescribed superannuation funds and additional particulars about remuneration of directors.
• Borrowing corporations, listed corporations and other large corporations, in addition to providing the extra information that has to be provided by public and non-exempt proprietary companies, also have to provide particulars of economic dependency; recent
valuations of interests in land and buildings; superannuation commitments; interests in business undertakings and interests in corporations not being subsidiaries.
• Listed corporations are also required to name their five most highly remunerated executives and give the aggregate amount of remuneration paid to those executives.
14. Brief particulars of each clause in the new Schedule are set out below. Except in the case of clauses 35-40, which deal with the preparation of group accounts, only particulars of the requirements for the accounts of a company are set out. However, unless otherwise stated, each clause also contains similar requirements in respect of the group accounts of a holding company.
Part I: Preliminary
Clause 1: Interpretation
15. This clause contains the definitions of words and expressions used in the Schedule.
Clause 2: Adaptation of format
16. This clause provides that the accounts of a company may depart from the requirements of the Schedule to the extent necessary to give a true and fair view of the profit or loss or state of affairs of the company.
Clause 3: General requirements for information specified in accounts or group accounts
17. The requirements concerning the provision of information in respect of the previous financial year and the presentation
of notes to the profit and loss account and balance sheet are contained in this clause.
Clause 4: Language and monetary values
18. This clause requires accounts to be expressed in the English language and amounts in those accounts to be expressed in Australian currency.
Part II: Format of profit and loss account and balance sheet
Clause 5: Profit and loss account - basic format
19. This clause sets out the format to be used for the preparation of a profit and loss account.
Clause 6: Balance Sheet - basic format
20. This clause sets out the format to be used for the preparation of a balance sheet.
Part III: Notes to the accounts or group accounts
Division 1: Preliminary
Clause 7: Application of Part
21. This clause provides that exempt proprietary companies only have to comply with clauses 19, 21, 22 and 26 in Part III. Other companies have to comply with all clauses in this Part.
Division 2: Notes relating to the profit and loss account
Clause 8: Profit and Loss account - basic notes
22. This clause lists various items of revenue and expense which have to be disclosed in the notes.
Clause 9: Income tax attributable to accounting profit and to other years
23. Details of income tax attributable to the financial period for which the accounts are being prepared and to other financial periods are required pursuant to this clause.
Clause 10: Interest or dividends to or from related and other corporations
24. This clause requires the disclosure of interest or dividends paid to or received from related and other corporations, with the portion in respect of each type of corporation being shown separately.
Division 3: Notes relating to the balance sheet Subdivision A: Classes of assets, etc
Clause 11: Classes of assets, liabilities, etc
25. This clause requires the inclusion of a note in the accounts giving details of each of the classes (of assets, liabilities, etc) included in determining the aggregate amount specified in each balance sheet sub-heading.
Clause 12: Specified classes of assets, liabilities, etc
26. This clause lists specific classes of assets, liabilities, share capital and reserves for which particulars have to be provided.
Clause 13: Provisions in relation to assets
27. This clause sets out the manner in which provisions against assets are to be treated in the accounts.
Subdivision B - Special requirements in relation to certain classes of items
Clause 14: Particulars of each class of share capital
28. Particulars of each class of share capital have to be disclosed pursuant to this clause.
Clause 15: Transfers to or from each class of reserves
29. This clause requires the disclosure of material transfers to or from any class of reserves.
Clause 16: Subdivision of certain classes of assets and liabilities
30. This clause sets out the circumstances under which certain classes of assets and liabilities have to be further divided into sub-classes.
Clause 17: Debts, charges or options
31. This clause requires particulars to be provided in respect of the extent to which shares in corporations or options in respect of shares in corporations, shown in a note to the balance sheet, are held in related corporations or other corporations. Similar information is required in respect of debts other than trade debts.
32. In addition, particulars have to be provided where there is in existence a loan made, guaranteed or secured by the
company to a director of the company or his family, a director of a related corporation or his family or a trust or company in which such a person has a beneficial interest.
Clause 18: Land held for sale or resale
33 This clause provides that where a company holds land for sale or resale, the amount of any development or holding costs in respect of that land that have been capitalised must be shown in the accounts.
Clause 19: Unearned revenue
34. This clause requires any unearned revenue that is included in the gross amount of a class of receivables to be shown as a deduction from those receivables.
Clause 20: Valuation supported by guarantees, warranties or indemnities
35. This clause provides that where an asset is included in a class specified in a balance sheet at a valuation supported by a guarantee, warranty or indemnity, details of that guarantee warranty or indemnity have to be given if there is a material difference between the estimated realisable value and the valuation at which it is shown in the books.
Subdivision C - Commitments, etc, not otherwise included
Clause 21: Commitments for expenditure
36. This clause requires a company to disclose in a note any material commitments for expenditure that are not shown in its balance sheet.
Clause 22: Contingent liabilities
37. This clause requires a company to provide particulars of its contingent liabilities.
Clause 23: Standby arrangements, unused credit facilities, etc
38. This clause requires a company to provide particulars of financing arrangements such as credit standby arrangements and loan rollover facilities.
Division 4 - Other notes to be included in the accounts or group accounts
Clause 24: Remuneration of directors
39. This clause requires the name of each director and particulars of the remuneration received by that director to be disclosed.
Clause 25: Payments to persons or prescribed superannuation funds
40. This clause requires particulars to be given where there is a payment of a prescribed benefit to a person, or to a prescribed superannuation fund, in connection with the retirement of a person from a prescribed office.
Clause 26: Remuneration of Auditors
41. This clause requires disclosure of the amount received, directly or indirectly, by the auditor in connection with auditing the accounts and other services of a material nature.
Part IV: Special accounting requirements in relation to certain corporations
Division 1: Borrowing and guarantor corporations
Clause 27: Schedule of debts receivable and debts payable
42. Under this clause borrowing and guarantor corporations are required to provide a schedule setting out when debts receivable and debts payable shown in the balance sheet will be receivable or payable.
Division 2: Listed Corporations
Clause 28: Remuneration of executives
43. This clause requires the names of the 5 most highly remunerated executive officers and the total remuneration paid to those officers to be disclosed.
Division 3: Certain companies including listed corporations and borrowing corporations
Clause 29: Application of Division
44. This clause provides that where a company is
• a listed corporation at the end of a financial period;
• a borrowing corporation at the end of a financial period; or
• a company (other than a listed corporation, a borrowing corporation or an exempt proprietory company) whose gross assets exceeded $10,000,000 at
the end of a financial period or whose gross revenue exceeded $20,000,000 during a financial period;
the requirements of Division 3 will apply in respect of the two following financial periods.
45. However, where such a company is a wholly-owned subsidiary of another corporation incorporated in a participating State or participating Territory, this clause provides that it does not hae to comply with Division 3.
46. The requirements of Division 3 will apply in respect of a group of companies where
• the holding company is a listed corporation or borrowing corporation at the end of a financial period; or
• the holding company is a company other than a listed corporation, a borrowing corporation or an exempt proprietary company and the gross assets of the group exceeded $10,000,000 at the end of a financial period or the gross revenue of the group exceeded $20,000,000 during a financial period.
Clause 30: Economic dependency
47. This clause provides that where during a financial period the normal trading activities of a company depend upon a significant volume of business with another party, the accounts shall include a note disclosing and explaining the nature of that dependency.
Clause 31: Recent valuations of interests in land and buildings
48. This clause requires the accounts to contain a note
specifying the current values of interests in land and buildings. The clause also provides that -
• a “current valuation” is a valuation made not more than 3 years before the date to which the accounts are made up; and
• the clause does not apply to accounts before the commencement of the third financial year commencing on or after this clause comes into operation.
Clause 32: Superannuation commitments
49. This clause provides that where a company has established or sponsors a superannuation or retirement benefit plan, particulars of that plan have to be shown in a note to the accounts.
Clause 33: Business undertakings
50. This clause provides that where a company has a right or interest in a business undertaking that is material to the company, particulars of that right or interest shall be included in a note to the accounts. The information to be provided includes the name of the business, its principal activities, the amount and percentage of the right or interest and the contribution of the business undertaking to the profit or loss of the company.
Clause 34; Interests in corporations not being subsidiaries
51. This clause provides that where a company has an interest in a corporation, not being a subsidiary of the company, that is material to the company, particulars of that interest shall be included in a note to the accounts. The information to be provided in respect of that corporation includes its name,
principal activities, percentage of each class of shares held by the company and the contribution to the profit or loss of the company.
Part V: Additional requirements in relation to group accounts
Clause 35: Group accounts not consolidated or whose grouping differs from previous accounts
52. This clause provides that where the group accounts are not prepared as one set of consolidated accounts, reasons should be given why it is impractical to prepare them as one set of consolidated accounts or why the chosen format is preferable to one set of consolidated accounts.
53. The clause also provides that where the group accounts are prepared in a different grouping to the previous financial period, the directors are to provide a statement giving reasons for the different grouping (except where the group accounts have been prepared as one set of consolidated accounts).
Clause 36: Subsidiaries acquired or disposed of
54. This clause provides that the group accounts shall contain a note giving details (including the name) of any subsidiary companies acquired or disposed of.
Clause 37: Particulars in relation to subsidiaries
55. This clause provides that the group accounts shall include a note giving particulars of subsidiary companies. The information to be provided includes the name of each subsidiary, its place of incorporation and its contribution to the profit or loss of the group of companies.
Clause 38: Elimination of transactions and balances
56. This clause requires any transactions or balances between corporations covered by the group accounts to be eliminated in the preparation of consolidated accounts.
Clause 39: Form of accounts of holding company and subsidiaries
57. This clause provides that where the group accounts include separate accounts for a subsidiary company, the accounts of the subsidiary shall be in the same form as the accounts of the holding company.
58. However, an exemption is made where the subsidiary company is not incorporated in the same place as the holding company. In such a case, the accounts of the subsidiary company need only comply with the law of the place in which it is formed or incorporated.
Clause 40: Divergent accounting periods
59. This clause provides that where subsidiary companies have financial periods that do not end on the same date as the financial period of the holding company, a reference to the financial period in relation to group accounts means the financial period of the holding company and the separate financial periods of the subsidiaries.