ASIC Corporations (Audit Relief) Instrument 2016/784

The instrument is built around a small number of recurring structural concepts. Understanding these concepts is essential to applying the relief and assessing its legal and commercial consequences.

• Relief from audit obligations (s5). The central legal effect is exemption from the audit requirement in s301 and certain related auditor/reporting obligations in ss314 and 316 for the relevant financial year, as defined in s5 and s6.

• Eligible company types and exclusions (s6(a)-(c)). The instrument targets proprietary companies: large proprietary companies, or small proprietary companies falling within s292(2)(b). Certain company statuses disqualify eligibility at any time during the year: being a disclosing entity, being a borrower in relation to a debenture, being a guarantor of such a borrower, or being a financial services licensee (s6(c)).

• Unanimous resolutions by directors and members and ASIC lodgement (s6(e)). Both the board and all members (including non-voting shareholders) must pass unanimous resolutions that the financial report should not be audited within a specified timeframe (three months before the start of the financial year to four months after year‑end). Unless the company relied on the relief in the immediately preceding year, those resolutions must be notified to ASIC on ASIC Form 382 (s6(e)(iii)).

• Solvency and procedures to assess solvency (s6(h)-(j)). The instrument requires prior unqualified directors’ solvency declarations under subsections 295(4) and (5) for all years from 1 July 1998 to the relevant year (s6(h)) and former s301(5) statements for years from 18 November 1996 where applicable (s6(i)). Directors must have from the start of the relevant financial year procedures enabling all directors to assess solvency, adequate to the business’s circumstances (s6(j)).

• Ongoing quarterly monitoring and 70% leverage ceiling (s6(k)-(m), (o)). Directors must cause management accounts to be prepared each quarter (within one month after quarter‑end unless ASIC allows otherwise) and, within one month after quarter‑end, consider those accounts and resolve that total liabilities do not exceed 70% of total tangible assets and that the company is able to pay its debts when due (s6(k)-(l)). The 70% ceiling applies on a consolidated basis where applicable (s6(m), (n), (o)(iii)-(v)).

• Profit test (s6(p)). The company must have made a profit after related income tax expense on either the relevant financial year or the immediately preceding year on a single entity basis, and where relevant, on the closed/extended closed group consolidation bases specified (s6(p)).

• Treatment of subordinated debt and liabilities (s4, s6(q)). “Approved subordinated debt” is debt subordinated under an agreement executed and lodged with ASIC, and approved by ASIC or under the previous class order; such approved subordinated debt may be excluded from liabilities for the 70% test, while “unapproved subordinated debt” must be included (s4; s6(q)).

• Prescribed accountant and APES 315 compilation (s4; s6(r)-(s)). The financial report must be compiled by a “prescribed accountant” as defined in s4 and the directors must reasonably believe the compilation was done in accordance with APES 315. A compilation report prepared in accordance with APES 315 must be attached to the financial report and included with all copies distributed, lodged or provided (s6(r)-(s)).

• Notice and rights to require audit (s6(g)). The instrument preserves rights for certain parties to serve written notice requiring the relief not to apply: a director (up to when the directors’ statement is signed), members controlling 5% or more of votes (up to one month before year‑end or another time ASIC approves), persons owed approved subordinated debt (same timing), and ASIC itself (s6(g)).

• Documentation and disclosure obligations (s6(t)-(u); s7). The financial report and directors’ report must substantially comply with Chapter 2M and be lodged with ASIC; the directors’ report must state that the financial report has not been audited in reliance on this instrument and that the instrument’s requirements have been complied with (s6(t)-(u)). There are also documentary access rules: members or holders of approved subordinated debt may request copies of quarterly management accounts or the directors’ quarter‑end resolutions within seven years, which must be provided free (s7(3)).

These concepts form a bundled substitute for an audit: a layer of director resolutions, periodic internal accounting, compilation engagements performed to APES 315 by defined professionals, solvency monitoring, a quantitative leverage cap, profit tests, and documented member/creditor rights to request documentation and to require an audit. The instrument maps these mechanisms to specific Corporations Act obligations it displaces (s5-6).

The instrument targets a defined subset of proprietary companies and a narrow set of third‑party stakeholders with interests sufficient to negate the exemption.

Primary affected entities

• Eligible companies (potential beneficiaries): A company can rely on the relief in relation to a relevant financial year only if, as at four months after the end of that year, it was either (i) a large proprietary company for that year, or (ii) a small proprietary company to which paragraph 292(2)(b) of the Act applies (s6(a)). The instrument therefore affects proprietary companies rather than public or listed entities.

• Excluded companies: The exemption does not apply if the company was any time during the relevant financial year a disclosing entity, a borrower in relation to a debenture, a guarantor of such a borrower, or a financial services licensee (s6(c)). Those company statuses remove the instrument’s availability.

Secondary affected actors and their rights

• Directors: Directors decide whether to rely on the relief by passing a unanimous board resolution and must adopt and maintain solvency assessment procedures, cause management accounts to be prepared quarterly, make explicit quarterly and annual resolutions as to solvency and the 70% leverage test, compile the financial report via a prescribed accountant, include the APES 315 compilation report, and sign the directors’ declaration under s295(4)-(5) (s6(e), (f), (h)-(l), (o), (r)-(u)). The instrument shifts significant monitoring and attestation responsibilities onto directors.

• Members (all shareholders): All of the members (irrespective of voting rights) must pass a unanimous resolution that the company’s financial report should not be audited if the company is to rely on the relief (s6(e)(ii)). Members controlling 5% or more of votes have concrete rights to prevent the grant of relief: they can give written notice requiring an audit within defined windows (s6(g)(ii)). Members also have ongoing access rights: a member may request quarterly management accounts or the relevant directors’ resolutions for up to seven years, with the company obliged to provide copies free (s7(3)).

• Holders of approved subordinated debt: Persons owed “approved subordinated debt” have the same notice window/right as 5% members to require an audit (s6(g)(iii)). The instrument defines “approved subordinated debt” strictly (s4): the subordination agreement must be executed and lodged with ASIC before the relevant year and be ASIC‑approved (or approved under CO 98/1417), and not provided by an entity controlled by the company nor funded directly or indirectly by the company or its controlled entities.

• Auditors and prescribed accountants: If the company relies on the relief, a registered company auditor is relieved from the obligation in subsection 314(3) in relation to the company’s financial report for that year (s5(2)). The financial report must instead be compiled by a “prescribed accountant” (s4; s6(r)-(s)) who is defined by membership of recognised accounting bodies and compliance with continuing education requirements, or another accountant approved by ASIC (s4). The compilation must be carried out in accordance with APES 315 and a compilation report attached (s6(r)-(s)).

• ASIC: ASIC retains gatekeeping and supervisory roles: it approves certain subordinated debt arrangements as “approved”, it may give written notice approving time extensions for quarterly accounts and for notice of requiring audit (s6(k)(ii); s6(g)(ii)(B)/(iii)(B)), it may give written notice disallowing the relief (s6(g)(iv)), and it continues to apply the previous class order in certain transitional situations (s9).

Consequentially, the instrument affects the balance of monitoring and reporting among directors, members, certain creditors, accountants and regulators. It concentrates procedural decision-making in the board (subject to unanimous member approval) and provides members and specified creditors with a narrow set of notice and document‑access rights to block or unwind relief (s6(e), (f), (g); s7(3)).

The instrument does not create standalone criminal offences but creates statutory conditions and documentary requirements that alter who must act, how they must document decisions, and who may insist on an audit. The following duties and entitlements are central.

Directors’ duties and procedural obligations

• Unanimous board resolution: All directors must pass a unanimous resolution that the company’s financial report for the relevant financial year should not be audited within the window beginning three months before the financial year and ending four months after its end (s6(e)(i)).

• Disclosure to members: Prior to the members’ unanimous resolution, directors must provide, in the notice of meeting or accompanying material, a statement stating whether, in their opinion, the cost of auditing outweighs the expected benefits and must set out the reasons for that opinion (s6(f)). This is a procedural disclosure duty tied to the members’ decision-making.

• Solvency declarations and procedures: Directors must have made unqualified solvency declarations under subsections 295(4) and (5) for each financial year from 1 July 1998 to the relevant year (s6(h)), and must have procedures from the start of the relevant year enabling all directors to assess solvency, adequate for the company’s business and financial circumstances (s6(j)).

• Quarterly monitoring and resolutions: Directors must cause management accounts to be prepared for each quarter within one month after quarter‑end (unless ASIC approves a later time), consider those accounts and other material information within one month after quarter‑end, and resolve that liabilities do not exceed 70% of total tangible assets and that the company is solvent at the quarter’s end and when the resolution is made (s6(k)-(l)).

• Annual assessment: When making the directors’ declaration for the relevant year under ss295(4)-(5), the directors must consider the financial report and all subsequent material information and resolve that liabilities do not exceed 70% of tangible assets and that consolidated liabilities satisfy the equivalent tests where applicable (s6(o)).

Compilation and disclosure duties

• Compilation by prescribed accountant: Directors must cause the financial report to be compiled by a “prescribed accountant” who they reasonably believe has undertaken the compilation in accordance with APES 315 (s6(r); s4).

• Compilation report attached: A compilation report prepared in accordance with APES 315 must be attached to the financial report and included with all copies distributed to members, lodged with ASIC or provided to any other person (s6(s)).

• Lodgement and statement in directors’ report: The financial report and directors’ report for the relevant year and for the immediately preceding year must substantially comply with Chapter 2M and be lodged with ASIC in accordance with ss319(1) and 319(3)(b), and the directors’ report must state that the financial report has not been audited in reliance on this instrument and that the instrument’s requirements have been complied with (s6(t)-(u)).

Rights and notice powers of members and certain creditors

• Member and creditor notice rights to require an audit: Relief will not apply if, before the directors’ statement is signed, a director gives written notice that the relief should not apply, or if members controlling 5% or more of votes or a person owed approved subordinated debt give written notice within the specified windows (generally up to one month before year‑end, unless ASIC approves a later time) (s6(g)(i)-(iii)).

• ASIC’s power: ASIC may give written notice to the company that the relief is not to apply for the relevant year (s6(g)(iv)), or approve later times for notices and quarterly accounts (s6(g)(ii)(B), (iii)(B), (k)(ii)).

Access and record‑keeping duties

• Provision of management accounts and resolutions: On written request by a member or a person owed approved subordinated debt for a specified quarter, the company must make available free of charge, within 14 days after receipt or 14 days after the resolution is passed (whichever is later), copies of the quarterly management accounts or the directors’ resolution for that quarter; such requests may be made within seven years after the quarter end (s7(3)).

• Ceasing to rely notifications: If a company relies on the relief for one year and does not rely on it for the immediately following year, it must lodge with ASIC a notice signed by a director or company secretary using ASIC Form 396 within the specified window (three months before to four months after the commencement/end of that non‑reliance year) (s7(1)-(2)).

Other constraints and preconditions

• Profit requirement: The company must have made a profit after related income tax expense either in the relevant financial year or the preceding year on the single entity basis and, where relevant, on specified consolidated bases (s6(p)).

• No proposed modified auditor’s opinion: The company must ensure no registered company auditor has indicated that an audit might lead to a modified opinion under ASA 705, and there must be no material disagreements or unresolved issues between the company and any such auditor regarding accounting treatments or amounts that may appear in the financial report (s6(v)).

How rights/duties interact with the Corporations Act

• The instrument displaces certain statutory audit obligations only if the listed conditions and procedures are complied with; it does not change the underlying obligations in the Corporations Act for directors to ensure truthful financial reports and the effect of directors’ liability provisions and insolvency laws (the instrument references directors’ declarations under s295 and other Act provisions as part of the gateway conditions) (s6(h)-(i), (o)).

These are the legal duties, decision points and rights the instrument creates or conditions. Practitioners and compliance teams must translate each statutory precondition and documentary duty into internal governance steps, allocation of responsibilities and retention of evidence to demonstrate ongoing compliance across the relevant year.

The instrument is an exemption instrument made under subsection 341(1) of the Corporations Act 2001 (s3). It does not itself create express criminal penalties or civil fines within its text. Instead, it alters the statutory landscape by making certain audit obligations not applicable where the instrument’s conditions are satisfied. The enforcement and sanction dynamics arise from three interrelated mechanisms: (1) loss of the exemption if conditions are not met; (2) ASIC supervisory powers and notices; and (3) the residual effect of the Corporations Act and professional standards.

1. Loss of the exemption and practical consequences

• If a company claims the relief but fails to satisfy the conditions in s6, the legal exemption will not apply to the company for the relevant financial year (s5-6). That means the corresponding audit obligations in s301 and related provisions remain in force; the practical consequence is that the company cannot lawfully rely on the instrument and may face corrective action to remedy non‑compliance, such as being required to obtain an audit or lodge amended reports with ASIC. The instrument itself does not specify the remedial steps or penalties for incorrectly claiming the exemption; enforcement will operate against the background of the Corporations Act and ASIC’s powers.

2. ASIC powers and administrative enforcement

• ASIC retains active supervisory roles. Section 6(g)(iv) expressly preserves ASIC’s power to give written notice to the company that the relief is not to apply to the company for the relevant financial year. ASIC may also approve later times for notices and for the preparation of quarterly management accounts (s6(g)(ii)(B), (iii)(B), (k)(ii)). Those powers give ASIC administrative leverage: it can prevent or withdraw the exemption in specific cases, or impose timetable constraints. Additionally, the instrument requires certain documents to be lodged with ASIC (e.g. Form 382 in many cases, and the financial report and directors’ report under s319), enabling ASIC to monitor compliance via its lodgement regime (s6(e)(iii); s6(t)).

3. Professional and statutory duties that carry separate sanctions

• Directors’ statutory duties, insolvency laws and lodgement offences continue to apply. The instrument requires directors to make unqualified solvency declarations under ss295(4)-(5) and to ensure the financial report and directors’ report substantially comply with Chapter 2M and are lodged in accordance with ss319(1) and 319(3)(b) (s6(h), (t)). A failure to comply with directors’ duties, or lodging false or misleading documents, may expose directors to civil and criminal consequences under the Corporations Act (note: the instrument itself does not enumerate these sanctions; the Act contains them). The instrument’s requirement that the company attach an APES 315 compilation report does not create auditor assurance obligations but uses a professional standard as evidence of compilation practice; professional bodies may take disciplinary action if members fail to meet APES 315 obligations.

4. Rights of members and certain creditors to force audit

• The instrument preserves private enforcement levers. Members controlling 5% or more of votes, persons owed approved subordinated debt, and directors can give written notice requiring that the relief not apply within the windows prescribed (s6(g)). These rights operate as private enforcement mechanisms allowing stakeholders to trigger application of the statutory audit regime.

5. Record access and documentary obligations

• The obligation to provide management accounts and directors’ quarter‑end resolutions to requesting members or approved subordinated debt holders within 14 days for a period of seven years (s7(3)) creates an ongoing documentary obligation. Failure to comply could lead to member remedies, ASIC attention, and potential claims for breach of directors’ duties if documents are withheld or misrepresented. While the instrument does not specify penalties for failing to comply with s7(3), the non‑compliance would be visible and actionable under the broader Act and potentially under professional or fiduciary duty regimes.

Practical enforcement risks and compliance consequences

• The principal enforcement risk flows from mis‑application of the exemption (claiming it without meeting the precise conditions), from inadequate record‑keeping and substantiation for the various quarterly and annual resolutions and compilations, and from disregarding members’ or creditors’ rights to prevent the relief. ASIC’s power to disallow the exemption in specific cases is an administrative backstop. Professional discipline for accountants and auditors remains a separate enforcement vector. Practitioners should view the instrument as an exemption that can be withdrawn or can fail to apply if its procedural and substantive preconditions are not demonstrably met; the consequences are the restoration of statutory audit obligations and the overlay of the Act’s existing enforcement tools.

This instrument is tightly connected to multiple provisions of the Corporations Act, existing ASIC instruments and professional standards. It leverages and affects existing statutory duties, disclosure regimes and accounting standards. The key points of legal interaction are the following.

1. Corporations Act provisions directly displaced or referenced

• Audit and reporting provisions displaced: The instrument disapplies subsection 301(1) (the audit requirement), certain parts of s314 and s316 relating to auditor statements in concise reports and provision of auditor’s reports to members, and relieves auditors in relation to s314(3) (s5(1)-(2)). The relief therefore operates as a carve‑out within the Act’s wider Chapter 2M reporting architecture.

• Directors’ declarations and solvency rules preserved: The instrument uses directors’ solvency declarations under ss295(4)-(5) as a gate condition (s6(h), (o)). Those directors’ declarations remain statutory under the Act and interlock with the instrument’s eligibility requirements.

• Lodgement and disclosure: The financial report and directors’ report must substantially comply with Chapter 2M and be lodged under ss319(1) and 319(3)(b) (s6(t)). The instrument therefore operates within the existing lodgement and public disclosure regime of the Act.

2. Interaction with ASIC’s previous class order (CO 98/1417) and ASIC Corporations (Wholly‑owned Companies) Instrument 2016/785

• Transitional continuity: ASIC Class Order [CO 98/1417] continues to apply (despite being repealed) for financial years ending before 1 January 2017, subject to a continuity condition (s9). The instrument also expressly references ASIC Corporations (Wholly‑owned Companies) Instrument 2016/785 in relation to treatment of consolidated groups and deeds of cross guarantee; several provisions (for instance s6(j), (n), (o)(v), (p)(ii)) refer to the closed group and extended closed group concepts and the relief available under Instrument 2016/785. Practitioners must therefore consider both instruments when relief is sought by entities within deed of cross guarantee structures.

3. Accounting standards and professional standards

• Accounting Standard AASB 10 and APES 315: The instrument imports definitions from AASB 10 for “control” and “group” and requires that assets, liabilities and profit be determined in accordance with accounting standards as if reporting entities (s4; s6(q)). The compilation engagement must comply with APES 315 Compilation of Financial Information, and the compilation report must be attached to the financial report (s6(r)-(s)). The instrument therefore requires adherence to Australian accounting and professional compilation standards as a substitute for audit assurance.

4. Interaction with subordinated debt arrangements

• Approved subordinated debt: The instrument defines “approved subordinated debt” and treats it differently for the leverage calculation (s4; s6(q)). Whether a subordinated debt instrument is “approved” depends on being executed and lodged with ASIC before the relevant financial year and being approved by ASIC for the instrument’s purposes or for CO 98/1417 (s4). The status of subordinated debt thus depends on an ASIC administrative approval process and may affect the 70% liabilities‑to‑tangible assets calculation (s6(q)).

5. Directors’ duties, insolvency law and civil liability regimes

• While the instrument permits audit relief, it does not displace the underlying obligations of directors under the Corporations Act, including duties to act with care and diligence, to act in good faith and for proper purposes, and potential civil or criminal consequences for insolvent trading or misleading statements. The instrument uses those statutory duties (for example, the s295 solvency declarations) as preconditions to relief, implicitly entwining relief eligibility with compliance with the Act’s fiduciary and insolvency frameworks.

6. Interaction with members’ statutory rights

• The instrument modifies the operation of members’ access to audit‑related information: it replaces the presumption of audited financial statements with a compilation model but preserves members’ power to require an audit if they meet the thresholds and timing requirements in s6(g). The instrument therefore reallocates information rights and enforcement levers without removing member protections entirely.

In practice, these interactions require careful coordination across legal, accounting and corporate governance functions. To apply the instrument correctly a practitioner must reconcile the instrument’s documentary tests (quarterly accounts, APES 315 compilation reports, directors’ resolutions) with the lodgement and disclosure rules of Chapter 2M, the definition and treatment of consolidated groups under AASB 10, the professional obligations under APES 315 and the ASIC approval mechanism for subordinated debt. Failure to account for these cross‑instrument dependencies,especially the role of CO 98/1417 for pre‑2017 years and the ASIC approval steps for subordinated debt,could produce disputes about eligibility.

The compilation endnotes record the registration and amendment history included in the instrument as compiled to 29 October 2021. The relevant entries are:

• Original instrument: ASIC Corporations (Audit Relief) Instrument 2016/784, registered on 29 September 2016 and commencing on 29 September 2016 (Endnote 1).

• Amendment: Instrument 2021/868, registered 28 October 2021 and commencing 29 October 2021 (Endnote 1). Endnote 2 shows that Section 4 (Definitions) was amended by 2021/868 (Endnote 2 table: “Section 4 am. 2021/868”). The notes indicate “Section 2 rep. s48D LA” but Section 2 is not present in the current compilation.

What changed substantively

• The compilation shows only one identified substantive amendment during the period covered: an amendment to the definitions section (s4). The instrument uses its definitions extensively (for example “approved subordinated debt”, “prescribed accountant”, “group”, “quarter”, “relevant financial year”), and an amendment to s4 may therefore adjust eligibility gates or practical administration (for instance, changes to what constitutes a “prescribed accountant” or the treatment of subordinated debt). The compilation itself does not state the exact textual changes made by 2021/868; it only records that s4 was amended. To identify precise text changes a practitioner must compare the instrument text before and after 2021/868 in the Federal Register of Legislation or other official sources.

• Section 2 was repealed pursuant to Legislation Act 2003 machinery (Endnote 2: “Section 2 rep. s48D LA”). Section 2 in many instruments often contains formalities about the legislative instrument’s registration or interpretation; its repeal appears to be a housekeeping amendment under the Legislation Act 2003, not a policy change.

Transitional application notes

• The instrument commenced for financial years ending on or after 1 January 2017 (s8). The instrument explicitly preserves the application of CO 98/1417 for financial years ending before that date, with a continuity condition added by s9. This transitional approach enabled ASIC to migrate companies from the prior class order regime to the new instrument for years ending from 2017 onwards, while keeping the prior relief available retrospectively for earlier years where the prior class order’s conditions continued to apply.

How to approach the amendment history in practice

• If a client’s eligibility or compliance depends on precise meanings in the definitions (for example, the scope of “prescribed accountant” or the mechanics of “approved subordinated debt”), practitioners must retrieve the text of instrument 2021/868 to confirm how s4 was altered. The compilation endnotes flag that a definitions amendment occurred but do not provide the pre‑ and post‑amendment comparison.

• Where a company relied on the earlier ASIC Class Order CO 98/1417 for pre‑2017 financial years, practitioners must consider the continuing obligation under paragraph (fa) of that class order as kept in force by s9’s saving arrangement.

The endnotes therefore provide a minimal amendment trail: original instrument 2016/784 (2016 commencement), and an amendment to s4 enacted by 2021/868. For precise drafting differences, direct consultation of the amendment instrument and prior versions in the Federal Register of Legislation is necessary.

The instrument’s text and the endnotes do not record any litigation arising under ASIC Corporations (Audit Relief) Instrument 2016/784. The compilation contains no citations to court decisions, no summaries of judicial interpretation and no reported disputes. Therefore, from the instrument alone:

• There is no reported or recorded litigation history included in the instrument or compilation endnotes up to the compilation date (29 October 2021).

Practical implications of the absence of recorded litigation

• Interpretive uncertainty: The lack of reported litigation means there is limited (from the instrument itself) judicial interpretation on how courts or tribunals will construe key provisions,for instance, how strictly the 70% liabilities to tangible assets test will be applied, what constitutes adequate “procedures” for directors to assess solvency under s6(j), or how courts might treat disputes about whether a prescribed accountant properly complied with APES 315. Absent case law, practitioners must rely on the plain language of the instrument, ASIC guidance (if any exists outside this compilation) and professional judgement.

• Reliance on professional and regulatory guidance: In the absence of judicial decisions or appellate guidance, the practical body of interpretive guidance is likely to come from ASIC practice statements, regulatory correspondence, professional body guidance (e.g. APES 315 interpretations), and the drafting history of the instrument. The compilation does not include such materials; they must be sourced separately.

• Risk allocation in transactional contexts: For transactions or financing arrangements that rely on unaudited financial reports prepared under this instrument, counterparties and lenders will need to allocate legal and commercial risk (for example, by requiring confirmations, covenant adjustments, or rights to obtain audited accounts) because there is no doctrine developed in litigation to provide certainty about enforcement or equitable relief in border cases.

What a practitioner should do to fill the gap

• Search external sources: To determine whether any litigation or administrative rulings have since addressed disputes under this instrument, practitioners should search federal court databases, ASIC enforcement records, tribunal decisions, and professional body disciplinary records post‑compilation.

• Document compliance: Given the absence of appellate clarification, the safest practical approach is to maintain robust contemporaneous evidence of compliance with each condition in s6 (resolutions, management accounts, APES 315 compilation report, directors’ statements explaining cost/benefit to members, ASIC lodgements), which will be decisive if any dispute arises about whether the exemption lawfully applied for the relevant year.

In sum, the instrument itself contains no litigation history in the compilation. That absence increases the premium on carefully documented compliance and on obtaining external legal and accounting assurances where necessary.

This instrument contains several specific traps for the unwary. Below are concrete items to flag when advising clients, each grounded in the instrument’s text.

Unanimous member resolution includes non‑voting members (s6(e)(ii))

• The members’ resolution required by s6(e)(ii) must be unanimous and must be passed by all members “irrespective of whether they hold voting or non‑voting shares.” Failure to obtain unanimity from non‑voting shareholders invalidates reliance. For entities with minority non‑voting shareholders, this may be operationally difficult.

Timing windows for resolutions, notices and quarterly reports (s6(e), (g), (k))

• The instrument prescribes tight windows: unanimous resolutions must occur within the period commencing three months before the start of the relevant financial year and ending four months after its end (s6(e)). Notices by members controlling 5% and holders of approved subordinated debt to require audit are limited to up to one month before year‑end (unless ASIC approves a later time) (s6(g)(ii)(A)/(iii)(A)). Quarterly management accounts must be prepared within one month after quarter‑end (s6(k)(i)). Mis‑timed resolutions or tardy quarterly accounts can defeat the relief.

Form 382 lodgement may be required unless prior reliance (s6(e)(iii))

• Unless the company relied on the relief in the immediately preceding financial year, a notice of the resolutions signed by a director or company secretary must be lodged with ASIC using ASIC Form 382 within the s6(e) window. Companies that rely in consecutive years may avoid repeating Form 382 lodgement, but practitioners must confirm last year's reliance status to avoid a technical default.

Members or creditors can veto relief (s6(g)(ii)-(iii))

• Members controlling 5% of votes or persons owed approved subordinated debt can give written notice requiring that the relief not apply. For companies with dispersed shareholdings or with significant subordinated creditors, the practical ability to secure unanimity and to guard against such notices can be constrained.

Approved subordinated debt requires ASIC approval and pre‑lodgement (s4)

• The definition of approved subordinated debt is strict: the subordination agreement must be executed and lodged with ASIC before the commencement of the relevant financial year and be approved by ASIC (s4). If a lender is owed subordinated debt but the agreement is not ASIC‑approved or was not lodged before the relevant year, the debt will count as “unapproved subordinated debt” and must be included in liabilities for the 70% test (s6(q)). Companies should not assume subordinated debt will be treated favourably without prior ASIC approval.

70% liabilities to tangible assets test; inclusion/exclusion of liabilities (s6(l), (m), (o), (q))

• The 70% threshold applies at quarterly checkpoints and at the time directors make the annual declaration; liabilities must include unapproved subordinated debt and may exclude approved subordinated debt (s6(q)). Practitioners must ensure that the company’s calculation methodology follows accounting standards and that the classification of tangible assets and liabilities is clearly documented (s6(q)). Differences in accounting treatment can materially affect eligibility.

Profit test can be satisfied by either the relevant year or the preceding year (s6(p))

• The profit‑after‑tax requirement may be met by profits in either the relevant financial year or the immediately preceding year (s6(p)). However, for entities in cross‑guarantee structures the test applies separately on the closed group and extended closed group consolidated bases as required. Practitioners must map profit calculations across multiple consolidation bases carefully.

No auditor’s indication of likely modified opinion (s6(v))

• The instrument requires that “no registered company auditor has indicated to the company … that the auditor’s report may contain a modified opinion” (s6(v)). This means management must engage (or at least consult) auditors before relying on the exemption to confirm there are no pending auditor concerns. A company cannot simply ignore prior audit conversations or unresolved accounting disagreements.

APES 315 compilation standard required and a “prescribed accountant” must be used (s4; s6(r)-(s))

• The financial report must be compiled by a prescribed accountant and the directors must reasonably believe that the compilation was done in accordance with APES 315 (s6(r)). The prescribed accountant is defined by membership of specific bodies and confirmation of continuing professional education compliance or by ASIC approval (s4). A compilation engagement is not an assurance engagement; it provides no audit opinion. The instrument nonetheless requires the compilation report be attached and included with all distributed copies, which clients may overlook when replacing an audit with a compilation.

Document retention and access for seven years (s7(3))

• Members and holders of approved subordinated debt may request the quarterly management accounts or directors’ resolutions for up to seven years. Companies must provide these free of charge within 14 days of the request (s7(3)). Firms must therefore retain and index quarterly management accounts and resolutions for at least seven years.

Interaction with deeds of cross guarantee and consolidated reporting (s6(n), (o), (p))

• If the company is party to deeds of cross guarantee under ASIC Corporations (Wholly‑owned Companies) Instrument 2016/785, the instrument requires separate consolidated assessments for closed and extended closed groups for the 70% tests and profit tests as applicable (s6(n), (o)(v), (p)(ii)). Misapplication of the consolidation scope will jeopardise eligibility.

Ceasing to rely requires Form 396 within a window (s7(1)-(2))

• If a company relied on the instrument in one year but does not in the following year, it must lodge ASIC Form 396 during the period commencing three months before the commencement of the non‑reliance year and ending four months after the end of that year (s7(1)-(2)). Missing the filing window may create uncertainty as to whether stakeholders were properly informed.

Lack of direct statutory penalties in the instrument does not eliminate risk

• Although the instrument does not itself set penalties, failing to meet these procedural and substantive requirements can have real consequences: the exemption will not apply, ASIC may intervene, and directors may face liability under the Corporations Act for defective reports, insolvency misstatements or breaches of duty. The instrument therefore transfers practical compliance risk rather than extinguishing it.

These specific technical requirements are the most common practical pitfalls that will determine whether a company can lawfully rely on the audit relief. Advisers must map ownership structures, creditor arrangements, prior audit history and contemporaneous accounting practices against the instrument’s precise drafting to avoid inadvertent exclusion.

Below is a practical compliance checklist and recommended procedures, structured to map directly to the instrument’s conditions in Part 2 and the obligations in Part 3. Each step cites the relevant provision(s). This checklist is a starting point for robust documentation and internal controls.

1. Confirm company eligibility (s6(a)-(c), (d))

   • Determine whether the company was a large proprietary company for the relevant financial year or a small proprietary company to which paragraph 292(2)(b) applies (s6(a)).
   • Confirm the company was not at any time during the relevant financial year: a disclosing entity, borrower in relation to a debenture, guarantor of such a borrower, or a financial services licensee (s6(c)).
   • Confirm the company’s audit history per s6(d) (i.e. no audits for years ending 1993 or later, with specific exception for small proprietary companies within certain historical windows). Retain evidence of historical audit status.

2. Board process and directors’ resolution (s6(e)(i); s6(f))

   • Schedule and convene a directors’ meeting in the prescribed window (three months before year start to four months after year end) and pass a unanimous board resolution that the financial report for the relevant year should not be audited (s6(e)(i)).
   • Prepare and include in the members’ meeting materials a directors’ statement setting out whether the directors think the audit cost outweighs expected benefits and the reasons for that opinion (s6(f)). Keep a copy of the notice and accompanying material filed with the minutes.

3. Members’ unanimous resolution and ASIC lodgement (s6(e)(ii)-(iii))

   • Obtain a unanimous members’ resolution (including non‑voting members) within the same window (s6(e)(ii)).
   • If the company did not rely on the instrument or CO 98/1417 in the immediately preceding financial year, lodge the notice of the resolutions signed by a director or company secretary with ASIC using ASIC Form 382 (s6(e)(iii)). Keep the lodgement receipt and evidence of capacity to secure unanimity.

4. Confirm no notice to require audit has been given (s6(g))

   • Check for any written notice from a director, members controlling 5% or more of votes, persons owed approved subordinated debt, or ASIC that the relief not apply (s6(g)(i)-(iv)). Ensure such notices were not given in the respective windows (for members and creditors, generally up to one month before year‑end unless ASIC approved a later time) and maintain documentary evidence of that check and any ASIC approvals.

5. Solvency declarations and procedures (s6(h)-(j))

   • Ensure past directors’ declarations under ss295(4)-(5) for each year from 1 July 1998 to the relevant year are unqualified; retain copies (s6(h)).
   • Confirm that any former s301(5) statements required for older years were unqualified where applicable (s6(i)).
   • Implement and document procedures from the start of the relevant financial year enabling all directors to assess the company’s ability to pay its debts when due; document the nature, frequency and adequacy of those procedures relative to the company’s business and financial circumstances (s6(j)).

6. Quarterly management accounts and directors’ quarterly resolutions (s6(k)-(l))

   • Cause management accounts (income statement, statement of changes in equity, balance sheet, cash flow statement) covering the company (or consolidated group where appropriate) to be prepared for each quarter within one month after quarter‑end, or obtain ASIC written approval for a later time (s6(k)(i)-(ii)).
   • Within one month after quarter‑end, directors must consider the management accounts and any new material information and resolve that (A) total liabilities do not exceed 70% of total tangible assets, and (B) the company is able to pay its debts as and when due, both at quarter‑end and at the time the resolution is made (s6(l)(i)-(ii)). Record the resolutions and attach the management accounts to the board minutes.
   • If management accounts are prepared on a consolidated basis, ensure the 70% test is applied on a consolidated basis as required (s6(m)-(n)).

7. Annual considerations and profit tests (s6(o)-(p))

   • When making the directors’ declarations under ss295(4)-(5) for the relevant financial year, ensure the directors consider the financial report and any material subsequent information and resolve that liabilities conform to the 70% test at year‑end (s6(o)(i)-(iii)). Record the deliberations and resolutions.
   • Verify the profit requirement: the company must have reported profit after related income tax expense in either the relevant year or the preceding year on a single entity basis, and where applicable on closed and extended closed group consolidated bases or the company and its controlled entities (s6(p)(i)-(iii)). Keep consolidated profit calculations per accounting standards.

8. Subordinated debt classification and ASIC approvals (s4; s6(q))

   • Review any subordinated debt arrangements and determine whether they qualify as “approved subordinated debt” per s4. If not lodgement with ASIC before the relevant year and ASIC approval are immediately required if the company wishes the debt to be excluded from the 70% liabilities calculation (s4; s6(q)). Document the lodgement and ASIC approval or absence thereof.

9. Compilation engagement and prescribed accountant (s4; s6(r)-(s))

   • Engage a “prescribed accountant” as defined in s4 (member of CPAA, CA ANZ or IPA meeting the continuing professional development requirements and having confirmed compliance, or another accountant approved by ASIC).
   • Ensure the prescribed accountant conducts a compilation engagement in accordance with APES 315 and prepares a compilation report. The directors must reasonably believe the compilation complied with APES 315 (s6(r)). Retain the compilation engagement file and the compilation report.
   • Attach the compilation report to the financial report and include it with all copies distributed, lodged or provided (s6(s)). Ensure distribution mechanisms include the compilation report.

10. Lodgement and directors’ report content (s6(t)-(u))

• Lodge the financial report and directors’ report for the relevant year and the immediately preceding year, ensuring they “substantially comply” with Chapter 2M and meet the filing timings under ss319(1) and 319(3)(b) (s6(t)).
• Include in the directors’ report a clear statement that the financial report has not been audited in reliance on this instrument and that the requirements of the instrument have been complied with (s6(u)). Keep evidence of authorisation of the directors’ report.

11. Ensure absence of auditor modifications and unresolved issues (s6(v))

• Prior to relying on the relief, obtain confirmation from any registered company auditor who has been engaged in prior years that they have not indicated the current year’s audit would likely include a modified opinion under ASA 705. Resolve or document any material disagreements between the company and any such auditor concerning accounting treatments or amounts that may appear in the financial report (s6(v)).

12. Provide access on request and retain records for seven years (s7(3))

• Implement processes for receiving and responding to member or approved subordinated debt holder written requests for quarterly management accounts or directors’ resolutions for a specified quarter. Provide the requested documents free of charge at the registered office or by pre‑paid ordinary post within 14 days of receipt or 14 days after the resolution is passed, whichever is later (s7(3)). Retain copies for at least seven years.

13. Ceasing to rely notification (s7(1)-(2))

• If the company relied on the instrument for a financial year but will not rely on it for the immediately following year, lodge ASIC Form 396 signed by a director or company secretary within the period commencing three months before the commencement of the first non‑reliance year and ending four months after the end of that year (s7(1)-(2)). File evidence of the lodgement.

14. Monitor ASIC communications and approvals (s6(g), (k))

• Track any ASIC approvals or directions relevant to later notice times, quarterly reporting times or subordinated debt approvals. Maintain a regulatory register documenting any ASIC correspondence that affects relief timings or entitlement (s6(g)(ii)(B)/(iii)(B); s6(k)(ii)).

15. Internal control, documentation and assurance

• Prepare and retain an internal compliance file demonstrating how each condition in s6 was satisfied across the year: board and members’ minutes (including the cost/benefit statement to members), quarterly management accounts, directors’ quarterly and annual resolutions, APES 315 compilation report and the prescribed accountant’s engagement file, copies of ASIC lodgements (Form 382; Form 396 if applicable), subordinated debt lodgement and approvals, and written confirmations from auditors that no modified opinion is expected (s6(e), (f), (k), (l), (o), (r)-(s), (v), (7)). This file should be sufficiently detailed to evidence compliance if ASIC or stakeholders query reliance on the instrument.

16. Consider contractual protections for third parties

• For lending or contracting counterparties that may rely on audited financial statements, include contract clauses addressing reliance on compilation accounts, rights to require audited accounts, and representations/warranties about solvency, liabilities classification and maintenance of the 70% threshold.

Following this checklist maps statutory conditions into a set of governance actions. The practical compliance burden is concentrated on the directors’ ongoing monitoring work, timely preparation of quarterly management accounts, the compilation engagement under APES 315, and procedural steps for member resolutions and ASIC lodgements. Documented contemporaneous evidence is the primary means to demonstrate that the instrument’s conditions were satisfied for the relevant financial year.