Nature of a company. Types of companies

Transcription

1 Chapter 1 Nature and regulation of companies Prepared by Emma Holmes Nature of a company A company is a legal person Incorporated via registration by Australian Securities and Investments Commission (ASIC) Subject to requirements of Corporations Act 2001 A company: has limited liability (Note1) has rights, powers and responsibilities has its own separate legal existence need never die has financing advantages is subject to greater public scrutiny and regulation Types of companies Proprietary (Pty) companies Minimum of 1 member, maximum of 50 Minimum of 1 director Cannot raise funds from the public Classified as large or small Public companies (Note 1) Can invite public to subscribe for securities Can list on Australian Securities Exchange (ASX) Minimum 1 member, no maximum Minimum of 3 directors Must prepare published financial statements and be audited 1

2 Types of companies Large vs small proprietary companies Small proprietary companies must satisfy at least two of the following criteria: Annual gross operating revenue: < $10 million Gross assets: < $5 million Number of employees: < 50 Entities that do not satisfy the criteria for classification as a small proprietary company are classified as large (Note 1) Other types of companies Listed corporations Public companies listed on the ASX Disclosing entities An entity with enhanced disclosure (ED) securities (Note 1) Foreign companies Incorporated outside of Australia or in an external territory of Australia No-liability company Shareholders are not liable for debts of the company. Sole object of the company must be mining Forming a company To register a company, a person lodges the prescribed application form with ASIC On registration, the company legally comes into existence A certificate of registration and an Australian Company Number (ACN) are issued 2

3 Forming a company Management of the company is governed by replaceable rules or constitution Replaceable rules Deals with issues relating to directors and members, inspection of companies books and records, shares and share transfers Constitution Necessary if a company wants different rules Public company must lodge constitution with ASIC Constitution/replaceable rules represent a contract with shareholders Administration of a company Directors manage on behalf of the members Certain registers and records must be maintained Minute books records actions/decisions in meetings Financial records to enable statements to be audited Registers of members, debenture holders and charges Required to be kept at the company s registered office Funding a company A public company can raise funds by issuing securities: Shares (equity) Debentures (debt) Options (equity) Options (equity) Shares represent ownership and can be issued to the public or privately placed with new investors or current shareholders Debentures represent a claim on the assets of the company and may be secured by a fixed or floating charge of the company s assets. 3

4 Funding a company Public issues of both debt and equity require a disclosure document to be issued: Written notice inviting subscription Content regulated by Corporations Act Contains issue price, terms and conditions Copy of the disclosure document must be lodged with ASIC A prospectus is an example of a disclosure document Background to the Corporations Act The Corporations Act has arisen from significant amendments resulting from CLERP. CLERP = Corporate Law Economic Reform Program Federal Government program, commenced in 1997 and still running Wide ranging reforms. Major changes to date include: changes to the development and application of accounting standards in Australia. establishment of the FRC and FRP reformed auditing practices Need for accounting regulation Separation of ownership from control especially via the corporate structure. Different stakeholders have different interests. Need for reporting by agents to owners Need for protection of owners and creditors investments Increasing complexity of financial transactions and size of organisations Regulation achieved via legislation or professional pronouncements including: Corporations Act Accounting Standards 4

5 Setting AASB Standards Accounting regulation Financial Reporting Council (FRC) Oversees AASB Australian Accounting Standards Board (AASB) Responsible for: development of the conceptual framework formulating accounting standards in accordance with the Corporations Act formulating accounting standards for other purposes (eg public and not-for-profit sectors) Accounting regulation Key objectives of developing accounting standards include: 1. To facilitate the development of accounting standards that require the provision of financial information that is relevant, reliable, understandable d and facilitates t comparability 2. To facilitate the Australian economy by reducing the cost of capital, thus enabling Australian entities to compete effectively overseas 3. Maintaining investor confidence in the Australian economy and capital markets 5

6 AASB Accounting Standards In line with these objectives, for financial reporting periods beginning on or after 1 January 2005, Australia adopted accounting standards and financial reporting standards issued by the International ti Accounting Standards Board (IASB) AASB Accounting Standards Australian accounting standards are identical to their international equivalents, with two exceptions: 1. Some AASBs require more detailed disclosures than their international equivalents 2. AASBs contain additional paragraphs relevant to not-for-profit entities Originally optional treatments were not allowed in AASB standards, but this limitation has now been removed. AASB Accounting Standards As a result of adopting international standards there are now three sources of AASB standards: AASB 1-99 AASB AASB

7 AASB Accounting Standards AASB 1-99 AASB equivalents to IFRS standards issued by the IASB (A-IFRS) Have same number as their equivalent IASB standards IFRS 2 > AASB 2 Share-Based Payment AASB Accounting Standards AASB AASB equivalents to IAS standards of the IASC before it was replaced by the IASB in 2001 Have the same number (+100) as the amended older IAS standards on which they are based IAS 16 > AASB 116 Property, Plant & Equipment AASB Accounting Standards AASB Australian standards with no international equivalents Have same number as in previous AASB standard AASB 1031 Materiality 7

8 Accounting Regulation International Accounting Standards Board (IASB) Independent, privately funded accounting standard setter Committed to the development of a single set of high quality, enforceable global accounting standards Why was it important for Australia to adopt IFRS? Ruth Picker Managing Partner Ernst & Young Melbourne Accounting Regulation Financial Accounting Standards Board (FASB) US Accounting Standards body Currently involved in a joint project with the IASB working towards converged US and international standards 8

9 Accounting Regulation International Financial Reporting Interpretations Committee (IFRIC) Sub-committee of the IASB Considers issues of widespread importance not covered in IFRS standards IFRIC interpretations are adapted by the AASB to suit the Australian environment Urgent Issues Group (UIG) Now disbanded Previously issued UIG consensus views still applicable AASB 1048 Interpretations and Applications of Standards requires adherence What is IFRIC? Ruth Picker Managing Partner Ernst & Young Melbourne Corporate regulators Australian Securities and Investments Commission (ASIC) Administers Corporations Act Monitors implementation of the Act and investigates and prosecutes for breaches of the Act Promotes confidence with the financial system Australian Securities Exchange (ASX) Administers Listing Rules Played a major role in influencing the move towards the AASBs adoption of IASB standards 9

10 Corporate regulators Financial Reporting Panel (FRP) Established in 2006 under CLERP9 Function is to resolve disputes between ASIC and companies concerning accounting treatments in financial reports General Purpose Financial Reports (GPFRs) A financial report intended to meet the information needs common to users who are unable to command the preparation of reports tailored so as to satisfy, specifically, all of their information needs i.e. dependent users GPFRs allow management and governing bodies to discharge their accountability All reporting entities must prepare GPFRs and must comply with all accounting standards Public companies and large proprietary companies are deemed to be reporting entities Reporting entity concept A reporting entity is an entity in respect of which it is reasonable to expect the existence of users dependent on general-purpose financial reports for information useful for making and evaluating decisions about the allocation of scarce resources Defined in SAC1 Definition of the Reporting Entity Classes of users are set out in The Framework (Note 1) 10

11 Reporting entity concept Non-reporting entities are not required to prepare GPFRs They may be required to prepare Special Purpose Financial Reports (SPFR) for specific users eg a shareholder or bank. Reduced disclosure regime (RDR) In 2010 AASB 1053 Application of Tiers of Australian Accounting Standards was issued. Introduces two tiers of reporting: Tier 1 publicly accountable entities; and Tier 2 all other preparers of GPFRs Introduces a reduce disclosure regime for Tier 2 entities. Tier 2 entities will be required to apply recognition, measurement and presentation requirements with substantially reduced disclosures. Reduced disclosure regime (RDR) Application date is for financial reporting periods commencing on or after 1 July 2013, although early adoption is permitted. Non reporting entities will continue to be excluded from the requirements to prepare a GPFR, but may still need to prepare a SPFR. 11

12 The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again. 12