Prepare for new disclosures in financial reports of listed and unlisted public companies likely to be finalised in the coming weeks and applying for June 2024 financial reports

Background

During the week commencing 5 February 2024, the Parliament was scheduled to debate and finalise Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023.  Following on from our discussion of the original proposal in our April 2023 newsletter, the bill includes amendments to the Corporations Act 2001 to require public companies (listed and unlisted) to include a “consolidated entity disclosure statement” as part of their financial reports.

Parliament did not finalise the bill in early February, but we expect the bill may be considered and finalised by the Senate when it next sits in the week beginning 26 February 2024, or if not, the March sittings.

The new requirements would apply to financial years commencing 1 July 2023 and so will first apply in financial reports for years ending 30 June 2024.

Given this is an important change to financial statements for June 2024, we want to remind you of the requirements so that preparations for compliance can begin.

What are the new requirements?

The amendments would require public companies that are required to prepare consolidated financial statements to include the following information in their consolidated entity disclosure statement about each entity that is part of the consolidated entity at the end of the financial year:

• The entity’s name
• Whether the entity is a body corporate, partnership or trust
• Whether the entity was a trustee of a trust within the consolidated entity, a partner in a partnership within the consolidated entity, or a participant in a joint venture within the consolidated entity
• Where the entity was incorporated or formed (if the entity is a body corporate)
• Where the entity is a body corporate with share capital, the percentage of the entity’s issued share capital held directly or indirectly, by the public company
• Whether the entity was an Australian resident or a foreign resident within the meaning of the Income Tax Assessment Act 1997
• If the entity is a foreign resident, a list of each foreign jurisdiction in which the entity was a resident for the purposes of the law of the foreign jurisdiction.

Where a public company is not required to prepare consolidated financial statements, a consolidated entity disclosure statement would be required, but it would only make a statement that the entity is not required to prepare consolidated financial statements, rather than including information about each subsidiary.

The directors’ declaration would be required to include a statement about whether, in the directors’ opinion, the consolidated entity disclosure statement is true and correct.  In addition, for listed public companies, the chief executive officer and chief financial officer would include a statement in their declaration to the directors that the consolidated entity disclosure statement is true and correct.

Preparing for compliance

Public companies should begin planning to meet the new requirements by:

• Establishing governance over the process
• Establishing systems and controls to collate information about the group’s subsidiaries
• Implementing a project team to collate the information, which may involve both financial reporting and tax personnel
• Reviewing group structures and identifying entities which can be liquidated, deregistered or otherwise disposed
• Determining and responding to areas of judgement (e.g. tax residency status) which may require the engagement of experts
• Preparing for the information to be audited (and possibly subject to regulatory scrutiny) with appropriate position papers and documentation.

Read our Clarity publication to understand and respond to the imminent introduction of mandatory sustainability reports, to be phased in from financial years beginning on or after 1 July 2024

As noted in our January 2024 newsletter, Treasury has released its third and final consultation on mandatory climate reporting, including an exposure draft of legislation to be tabled to Parliament.

The proposals are largely consistent with previous consultations, impacting listed and unlisted companies, financial institutions, registrable superannuation entities and registered investment schemes, with reporting requirements introduced on a phased basis according to size criteria.

To assist entities to understand the proposals, we have published Clarity publication Release of Treasury’s final consultation on climate-related financial disclosure, discussing:

• Background
• Who will be required to report, and when?
• Assurance requirements of climate disclosures
• Where and when climate information should be provided
• A “modified liability” framework
• Next steps.

Download the publication to learn more.

Read our Clarity publication to respond to ASIC’s new approach to financial reporting surveillance

ASIC released its inaugural annual financial reporting and audit findings surveillance report for the year 2022-23 (Report 774) after previously communicating that its financial surveillance program would receive a shake-up.

The reinvigorated program leverages a risk-based and data informed method of selection of entities for review. Key findings revolve around familiar themes including:

• Operating and financial review
• Impairment and asset values
• Revenue
• Provisions.

As noted in our January 2024 newsletter, ASIC subsequently issued a media release which announced its focus areas for 31 December 2023 financial reports. Areas of focus are, as expected, consistent with the findings noted in the surveillance report.

To assist entities to understand the proposals, we have published Clarity publication ASIC releases results of first integrated surveillance program and December 2023 focus areas.

Download the publication to learn more.

New resources to assist with sustainability reporting

The following global resources have recently been made available:

• Roadmap publication Greenhouse Gas Protocol Reporting Considerations. This publication consolidates and simplifies the concepts in the Greenhouse Gas (GHG) Protocol.  The Roadmap discusses topics such as determining the reporting company’s organisational boundary under various approaches, calculating greenhouse gas emissions and distinguishing between the 15 categories of Scope 3 emissions
• Recent changes to Deloitte Guidance on sustainability reporting. In late January 2024 we added a further 17 Q&As to Volume E of our Deloitte Accounting Research Tool (DART).  The new Q&As provide guidance and insights on topics such as identifying an entity’s value change, skills and competencies required to respond to sustainability-related and climate-related risks and opportunities, and assessing exposure to climate-related risks.  Details of all recently added Q&As can be found on DART (Deloitte credentials or DART subscription required).

Update on biodiversity reporting

As the move toward broader standardised reporting of biodiversity impacts by entities continues, we note the following recent developments:

In late January 2024, GRI announced the publication of GRI 101 Biodiversity 2024, providing an update to its standards on comprehensive disclosure of significant impacts by entities on biodiversity throughout their operations and value chain

At the January 2024 Davos meeting, the Taskforce on Nature-related Financial Disclosures (TNFD) announced that 320 organisations (including 12 from Australia) have committed to start making nature-related disclosures based on the TNFD Recommendations published in September last year.