When audits are required and when they're smart

Under section 292 of the Corporations Act 2001, proprietary companies classified as large are required to prepare and lodge audited financial statements with the Australian Securities and Investments Commission (ASIC). However, many organisations that aren’t legally required to complete an audit may choose to do so to meet stakeholder expectations.

What is a large proprietary company?

A proprietary company is considered large if it meets at least two of the following criteria:

• Consolidated revenue ≥ $50 million
• Consolidated gross assets ≥ $25 million
• ≥ 100 employees at the end of the financial year

Audit requirements for small proprietary companies:

Companies that do not meet the thresholds mentioned above are classified as small proprietary companies and are not required to prepare or lodge audited financial statements. However, there are key exceptions where audits are still mandatory. A small proprietary company may need to lodge audited financial reports if:

• Directed by ASIC under section 294 of the Corporations Act
• Requested by shareholders holding at least 5% of the voting shares, under section 293
• Foreign-controlled, unless the company has applied for and been granted relief under the ASIC Corporations (Foreign-Controlled Company Reports) Instrument 2017/204.

The strategic value of voluntary audits:

Where an audit is not legally required, many companies are choosing to undertake one voluntarily in response to increasing demands for financial transparency, particularly in tendering processes, government contracts, and private procurement.

An audit can provide several benefits, such as:

• Build trust with investors, lenders, and other stakeholders by demonstrating transparency and sound governance
• Enhance access to funding, making the business more attractive to investors and financial institutions
• Improve internal controls and risk management, offering insights into financial processes and areas for improvement
• Prepare the business for future growth, including expansion, mergers, regulatory changes, or IPO readiness

Voluntary audits help position a business for long-term success in a competitive, accountability-driven environment.

How can PKF help? 

PKF has extensive audit experience across a wide range of industries. Our understanding of various operating environments ensures a smooth and efficient audit process with minimal disruption. If you would like more information about your financial reporting obligations or voluntary reporting, get in touch with your local adviser.