The Association has already identified a number of areas where the regulatory burden could be lifted from ICSEs and aims to meet with the Minister (and officials) to discuss these. Meanwhile, the Companies Office has asked the Association for feedback on on-line materials which it is preparing to assist ICSEs meet the new financial reporting requirements of the Act.
In its response, the Association suggested that most volunteers who undertake basic treasury/accounting functions for ICSEs are not qualified accountants, nor are they necessarily familiar with accounting or technical financial concepts. We’ve recommended that a glossary of terms relating to the new financial reporting requirements be prepared, together with references to other relevant on-line accounting resources.
We’ve also made the following observations for the consideration of Ministry officials.
Subpart 3 Regulations: s 254
With reference to s 254 (1) (l), audit fees will be a material cost to an ICSE, (if required). We estimate that the costs of an annual audit today range between $2,000 and $2,500 and that an unintended consequence of the Act will see a spike in audit fees, as a simple function of supply and demand, (i.e., substantially more entities requiring an audit under the 2022 Act, with no increase in the resource available to undertake this function).
Under s 254 (3) (b), the Minister has the sole-power to determine when an audit will not avoid “unnecessary administrative burdens, and unnecessary compliance costs”. As a practical issue, we believe that the requirement for an audit (or not) is likely to be a material factor as to whether or not an ICSE chooses to re-register under the 2022 Act.
We’ve suggested that guidance is also required in respect of s 254 (1) (j), (“total current assets” definition) and s 254 (1) (k), (“minimum requirements”). In respect of the latter, (i.e. s 254 (1) (k)), many ICSEs find it difficult to meet the basic requirements of the now repealed 1908 Act on an ongoing basis (as evidenced by the high level of involuntary ICSE dissolutions) and efforts must be made to simplify the “minimum requirements” by regulation.
Subpart 6 Offences: s 154
Under s 154 (3), a person who votes to adopt a financial statement not knowing that it was false or misleading (for example at an AGM or SGM, or a properly constituted committee meeting), will be deemed to have committed an offence under s 154 (1) and will therefore be potentially liable (under s 154 (4)) to severe penalties.
Companies Office guidance is needed on measures to mitigate this risk irrespective of whether or not the entity is subject to audit under s 254 (1) (l). For example, “best practice” might be to require a financial statement to be reviewed by a qualified person before it is put forward for formal adoption by an entity’s membership. Moreover, irrespective of intent) if a false or misleading statement is subsequently identified in a financial report, (for example on review by the Registrar, or as a result of a complaint to the Registrar by another person), the person who prepared the financial statement will be subject to investigation as to whether or not they are liable under s 154 (1). This is likely to be a deterring factor for volunteers wishing to step forward to undertake the voluntary role of treasurer for an ICSE.
Subpart 7 Accounting Records, Financial Reporting, Annual Returns: s 101 (4); s 102 (3)
Section 101 (4) requires accounting records for an ICSE to be kept for the current period and the last seven completed accounting periods. Companies Office guidance will be required as to whether or not this stipulation only applies from the date of re-registration under the 2022 Act, or if this requirement traverses both the 1908 and 2022 Acts.
We suspect that for many ICSEs, following filing of financial statements, it will not be common practice for accounting records to be retained for the required period. Therefore guidance is also required as to the minimum requirements for the retention of accounting records to meet this clause. In addition to the guidance provided in relation to the preparation of financial statements, guidance is also needed on when they need to filed with the Registrar and how this can be undertaken. For example, while s 102 (3) specifies that financial statements must be filed within 6 months after the balance date, no guidance is provided as to how this may occur, or that a failure to do so is an infringement offence under s 160 (2) (g) of the 2022 Act.
There are a number of other areas for which additional Companies Office guidance can be provided in relation to the “new financial reporting requirements”, however these four points are representative of many general issues the Association believes affect ICSEs.