Understanding the audit requirements for private companies in Australia starts with one important distinction: Australian company law generally uses the term proprietary company for a privately owned company, usually identified by “Pty Ltd” in its name.
Not every proprietary company must have its financial report audited. The main question is whether the company is classified as large or small under the Corporations Act 2001. However, foreign control, crowd-sourced funding, a direction from ASIC or shareholders, and contractual or industry-specific obligations can change the answer.
This guide explains the main rules, the current thresholds, and the practical steps directors should take.
Do Private Companies in Australia Need to Be Audited?
No. Private companies in Australia do not automatically need to be audited.
A large proprietary company generally must prepare and lodge an annual financial report and a directors’ report, and have the financial report audited. A small proprietary company generally does not need a statutory financial report audit, unless a specific exception applies.
The first step is therefore to determine the company’s classification for the relevant financial year.
When Is a Proprietary Company Considered Large?
For financial years commencing on or after 1 July 2019, a proprietary company is large if it satisfies at least two of the following three tests:
| Test | Current Threshold |
| Consolidated revenue | $50 million or more for the financial year |
| Consolidated gross assets | $25 million or more at the end of the financial year |
| Employees | 100 or more at the end of the financial year |
These tests apply to the company and any entities it controls. Directors should not assess the company on a stand-alone basis where it controls other entities.
If the company meets at least two tests, it is a large proprietary company for that financial year. If it meets fewer than two, it is generally a small proprietary company. ASIC confirms the thresholds and classification rules in its guidance on large and small proprietary companies.
Example
A proprietary company has consolidated revenue of $58 million, consolidated gross assets of $18 million, and 72 employees at year-end. It meets only the revenue test, so it is not large under the three-part test.
By contrast, a company with consolidated revenue of $52 million and consolidated gross assets of $27 million is large, even if it has fewer than 100 employees, because it meets two tests.
What Must a Large Proprietary Company Do?
Unless valid relief applies, a large proprietary company that is not a disclosing entity must:
- Prepare an annual financial report in accordance with Chapter 2M of the Corporations Act 2001;
- Prepare a directors’ report;
- Have the financial report audited;
- Send the required reports to members within four months after the end of the financial year; and
- Lodge the required reports with ASIC within four months after the end of the financial year.
The audit must be conducted in accordance with Australian auditing standards by an appropriately registered and independent auditor. The auditor obtains reasonable assurance and reports an opinion on the financial report; an audit is not a guarantee that every error or instance of fraud will be detected.
When Does a Small Proprietary Company Need an Audit?
Most small proprietary companies are not required to prepare or lodge an annual financial report under Chapter 2M, and therefore do not require a statutory audit.
The main exceptions are below.
A Shareholder Direction Requires an Audit
Members who hold at least 5% of the votes in a small proprietary company may direct the company to prepare and circulate a financial report for a financial year. The direction may specify that the report must be audited.
The direction must meet the requirements in section 293 of the Corporations Act 2001, including being signed by the members giving it and being made no later than 12 months after the end of the relevant financial year.
ASIC Directs the Company to Obtain an Audit
ASIC may direct a small proprietary company to comply with specified financial reporting requirements for a financial year. The company must have the financial report audited if ASIC’s direction requires an audit.
The Company Is Foreign-Controlled
A small proprietary company controlled by a foreign company may have to prepare, audit, lodge, and send financial reports. The precise requirements depend on its circumstances.
Relief may be available in limited situations, including for certain foreign-controlled companies that are not part of a large group, provided the relevant conditions, directors’ resolution, ASIC form, and deadlines are satisfied. Some companies may also be exempt where an eligible parent lodges consolidated financial statements that cover the Australian company.
Because these concessions are conditional, foreign-controlled companies should confirm their position before the first applicable deadline.
The Company Has Crowd-Sourced Funding Shareholders
A small proprietary company that had one or more crowd-sourced funding shareholders during the financial year has additional reporting obligations. Its financial report must be audited once the total amount raised from all of its crowd-sourced funding offers reaches $3 million or more.
Another Law, Licence, Agreement, or Governing Document Requires It
A company may need an audit even when the general proprietary-company thresholds do not require one. The obligation may arise from:
- a regulatory licence or industry-specific law;
- a company constitution or shareholders’ agreement;
- a finance or loan agreement;
- an investor’s requirements;
- a grant or funding agreement; or
- a sale, acquisition, or group reporting requirement.
These are separate from the general statutory test. Directors should check the company’s legal, regulatory, and contractual obligations before concluding that no audit is needed.
Can a Company Obtain Audit Relief?
In limited circumstances, a proprietary company may qualify for audit or financial reporting relief. For example, ASIC’s audit relief instrument applies to certain proprietary companies that meet strict conditions, and separate relief can apply to eligible wholly owned entities within a closed group covered by a deed of cross guarantee.
Relief is not automatic, and eligibility can depend on the company’s history, directors’ and shareholders’ resolutions, solvency, record keeping, notices, and deadlines. A company should not decide to skip an audit until its eligibility has been properly confirmed and all required steps have been completed.
What Does a Statutory Financial Report Audit Cover?
An external audit is an independent examination of the company’s financial report. The auditor assesses whether the report is prepared in accordance with the applicable financial reporting framework and whether it gives a true and fair view of the company’s financial position and performance.
The work commonly includes:
- Understanding the company and its internal controls;
- Assessing risks of material misstatement due to error or fraud;
- Testing selected transactions, balances, estimates, and disclosures;
- Obtaining audit evidence from company records and, where appropriate, external parties;
- Considering the company’s ability to continue as a going concern; and
- Reporting an independent audit opinion.
An audit provides reasonable assurance, which is a high level of assurance, but not absolute assurance. It is also different from an internal audit, a review engagement, an ATO review, and ordinary accounting or tax-return preparation.
How Should a Private Company Prepare for an Audit?
Early preparation can reduce disruption, avoid repeated information requests, and help the audit stay on schedule. Before fieldwork begins, the company should generally have the following ready:
- A final trial balance, general ledger, and draft financial statements;
- Bank statements and completed bank reconciliations;
- Receivables, payables, inventory, and fixed-asset records;
- Payroll, superannuation, and employee entitlement reconciliations;
- Loan, lease, and financing documents;
- Tax, GST, and other statutory reconciliations;
- Board and shareholder minutes;
- Related-party transaction details;
- Material contracts, legal claims, guarantees, and commitments; and
- Supporting documents for significant or unusual transactions.
Management remains responsible for the financial report, the underlying records, and the company’s internal controls. The auditor’s role is to provide an independent opinion.
Why Choose a Voluntary Audit?
A proprietary company may choose an audit even when the law does not require one. A voluntary audit can be useful when a business is:
- Seeking finance or new investment;
- Preparing for a sale, merger, or succession;
- Expanding into a corporate group;
- Responding to concerns about controls or financial reporting;
- Strengthening governance and accountability; or
- Giving shareholders greater confidence in reported results.
The appropriate assurance service depends on who will use the report and what they need. In some circumstances, a review or an agreed-upon procedures engagement may be more proportionate than a full audit.
What About Sustainability Reporting?
Mandatory sustainability reporting is being phased in separately from 1 January 2025. ASIC states that the regime will apply to most large proprietary companies by 1 July 2027, with sustainability reports required to be audited, lodged with ASIC, and sent to members.
The commencement date and obligations depend on separate eligibility thresholds and the company’s financial year. Companies approaching the relevant thresholds should assess these requirements independently of their annual financial report audit.
Confirm Your Company’s Audit Obligations
The audit requirements for private companies in Australia depend on more than annual revenue. Group structure, asset values, employee numbers, foreign control, fundraising history, shareholder requests, regulatory obligations, and available relief all need to be considered.
Mizael Partners provides independent external audit and assurance services to businesses across Australia. Our audit team can help you assess the applicable requirements, plan for reporting deadlines, and complete an efficient, high-quality audit where one is required or commercially valuable.
Book a free 30-minute consultation or call 1300 444 004 to discuss your company’s position.