Reporting Update 24RU-06
The Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Act 2024 (Amendments) passed both houses of parliament on 27 March 2024 and received Royal Assent on 8 April 2024. The Amendments change the Corporations Act 2001 and introduce new mandatory disclosures for inclusion in annual financial reports.
Key highlights
The new requirements apply to financial reports prepared by Australian public companies (listed and unlisted) for each financial year commencing on or after 1 July 2023, i.e. the annual financial reports for 30 June 2024.
Public companies are required to include a "consolidated entity disclosure statement" in their annual financial reports, disclosing detailed information about entities within the consolidated entity, including:
- names
- legal structures
- locations of incorporation or formation
- tax residency status.
The existing declaration of the directors under the Corporations Act 2001 will be expanded to include a declaration that the disclosures are in their opinion ‘true and correct’ at the end of the financial year. A ’true and correct’ declaration is a more onerous requirement than the requirement that financial statements give a ‘true and fair’ view which would otherwise apply.
Many of the disclosures required for the consolidated entity disclosure statement overlap with those required to be included in the notes to the financial statements under AASB 12 Disclosure of Interests in Other Entities. As the consolidated entity disclosure statement must be presented as a separate statement and cannot be incorporated into the existing notes to the financial statements, this information will have to be repeated to meet the requirements of the Corporations Act Amendments.
There are however additional disclosures required to be included in the consolidated entity disclosure statement which include the type of subsidiary, where it was incorporated/formed and the tax residence of each subsidiary. Determination of a subsidiary’s tax residence will require judgement.
In many cases, it will be necessary to obtain Australian and/or foreign tax advice to confirm the tax residency of a subsidiary, which should form part of the public company’s governance processes.
Since these rules apply to financial years commencing on or after 1 July 2023, there is an immediate impact for many Australian public companies.
It's essential to consider the implications of these new requirements to your organisation without delay, as they may have a significant impact on the governance approach in ensuring the additional information disclosed in the financial reports are complete and accurate.
Act now – new information, data and processes needed
Financial statement preparers will need to put appropriate governance procedures in place to ensure that the information is ‘true and correct’.
Questions to consider when adapting your governance processes could include:
- How will you identify all the subsidiaries in your group?
- How will you identify the legal form of each subsidiary and where it was incorporated or formed?
- How will you identify the ownership structure of each subsidiary?
- How will you identify the tax residency of each subsidiary – including where appropriate, obtaining (internal/external) advice/opinion or ATO / foreign tax revenue authority ruling confirming the tax residency?
- How will you identify and assess whether your subsidiary is acting as trustee of a trust or holds assets for its own benefit?
- When and how will you discuss with the directors the requirement for the directors’ declaration to include the ‘true and correct’ statement?
- When and how will you discuss the impact on the audit report?
Download Reporting Update
We unpack the Amendments further in our Reporting Update, including providing example illustrative disclosures.
