Reporting thresholds for proprietary companies ‘arbitrary’

Treasury opened consultation on the government’s proposed reforms to raise reporting thresholds for proprietary companies required to make financial and directors’ reports.

In the 2026–27 federal budget, the government announced that it will double the revenue threshold to $100 million (from $50 million) and the asset threshold to $50 million (from $25 million), in what the government said is a package of reforms intended to simplify and target rules where they are needed.

Companies that fall below these new thresholds are no longer required to prepare and lodge annual audited financial reports, directors’ reports, or mandatory sustainability reports with ASIC. The changes would apply on or after 1 July 2027.

The number of full-time employees remains unchanged at 100 or more employees.

GAAP Consulting principal Colin Parker criticised the new thresholds for being “purely arbitrary” and argued that there is no concrete basis for selecting those thresholds.

“How do we know that these numbers capture the entities that the government wants to capture to provide these reports? We don’t. They’re just arbitrary,” he told Accounting Times.

Parker suggested that he would instead ask how many proprietary companies there are in total and stratify the database by size and economic significance.

“Some entities are far more important to us than others,” Parker said.

“We need to find out which of those entities that we’re not applying the criteria to are of public interest or are doing an essential service that needs broader accountability than just the shareholders.”

Parker also said that as an auditor, he is subject to conducting audits according to public interest entities (PIE). He said if he were setting the criteria, he would be applying the PIE definition to help the government determine which entity should be required to provide reports.

“I would have ASIC do a stratification of those entities. Then, I would look deeper into what those entities are doing, and apply the PIE test to see how important it is to the economy and the broader group of users. I would also come up with a meaningful size test.”

Parker also warned that there are risks for businesses classified as smaller proprietary companies under the revised criteria, as they would not be required to provide reports.

“They might now be blissfully unaware of emerging business risks that could bite them, like cybersecurity risks, fraud, and regulatory compliance,” Parker flagged.

“My conduit for understanding those risks is gone. Also, creditors could previously go to the ASIC website, pay the fee, and have a look at the financial reports to make their assessments. They would lose that ability under the new thresholds.”

Parker said this is an opportunity for business owners to determine the types of assurance services they require around their policies and procedures in relation to fraud, cybersecurity, and the use of AI, along with other business risks and internal controls.

“It could change how one views an audit,” he said.

“It may not be an audit of financial statements anymore but an audit of the business to provide assurance of how they’re addressing business risks. This could lead to a paradigm shift.”

However, Parker noted some advantages that could arise from the changes for companies that have in the past been concerned with privacy issues stemming from the need to provide financial reports, but raising the threshold could alleviate those concerns.

“Proprietary companies have always struggled with revealing their information to their competitors, but this wouldn’t be an issue for many companies if the thresholds are raised,” he said.

Parker also condemned the short consultation period of just two weeks and noted that auditors who were approaching the end of reporting season might pass on the opportunity to comment on the consultation.

“The government might not get the level of comments that would make the proposals more workable,” he said.

“But government consultation periods are very short as a general rule, so there’s nothing unusual about this period being short.”