Changes to Disclosure in Annual Reports: New Australian Requirements to Report on Subsidiaries

Background 

Several jurisdictions have introduced or are in the process of introducing legislation aimed at increasing corporate transparency. For example, in the United States, new corporate reporting obligations were introduced from 1 January 2024 (covered in our White Paper, "Preparing for Major Changes in FinCEN Beneficial Ownership Reporting") requiring domestic and foreign companies to report information about their beneficial owners to the U.S. Treasury.  

In Australia, these corporate law reforms form part of the government's Multinational Tax Integrity Package, which is primarily focused on changes to the tax system. The connection to tax reforms is reflected in the Explanatory Memorandum, which states: "This amendment is part of the Government's broader regulatory mix to improve corporate disclosures. Ensuring this information is in the public domain will facilitate an informed discussion on tax compliance, helping to build trust in the integrity of the tax system". 

Treasury noted that "the exposure draft received minimal stakeholder feedback, focusing only on minor technical drafting suggestions, such as clarifying wording, and aligning definitions/concepts contained in the Corporations Act". Although the amendments have received little attention, affected public companies should be aware of the changes given that they apply to financial reports for a financial year commencing on or after 1 July 2023. 

The Act entered into force on 8 April 2024. 

The New Reporting Requirements 

In short, section 295 of the Corporations Act has been amended to require all public companies, both listed and unlisted, to include a "Consolidated Entity Disclosure Statement" in their annual report.  

The Consolidated Entity Disclosure Statement must set out the following information for each entity that was a part of the consolidated entity at the end of the financial year: 

• The entity's name (if any);
• Whether the entity was a body corporate, partnership or trust;
• Whether the entity was a trustee of a trust, a partner in a partnership or a participant in a joint venture;
• If the entity is a body corporate, the place at which it was incorporated or formed;
• If the entity is a body corporate with share capital, the percentage of the entity's issued share capital (excluding any part that carries no right to participate beyond a specified amount in a distribution of either profits or capital) that was held, directly or indirectly, by the public company at that time; 
• Whether, at that time, the entity was an Australian resident or a foreign resident for tax purposes; and
• If the entity was a foreign resident, each foreign jurisdiction in which the entity was a tax resident under local law.

For companies that are not required under accounting standards to prepare consolidated financial statements (such as public companies with no subsidiaries), the company needs only to disclose a statement to that effect. 

Company directors, CEOs and CFOs must also declare that the Consolidated Entity Disclosure Statement is, in their opinion, "true and correct" at the end of the relevant financial year. 

Practical Steps to Prepare 

Affected companies can begin preparing for the new requirements by taking the following practical steps: 

• Determining which new disclosures the company will need to make in its annual report and when those disclosures will need to be made;
• Collating the information that will need to be disclosed;
• Where the company does not have the required information, making the necessary enquiries to obtain that information; and
• Considering where and how the company will present the information in its annual report (for example, in a table format).