Corporate Accounting Distinguish between the different types of incorporated structures and discuss the roles that various organisations play in the regulation of the company structures in Australia

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Synopsis
Proprietary and public companies are two major types of companies. Each has its own pros and cons.
The selection of company structure depends on the amount of capital, business nature, applicable
regulations, and industry practices. The various regulatory bodies of Australia – AASB, ASX, ASIC,
FRC and global bodies – IFRS Foundation, FASB are working for high-quality financial reporting
standards, harmony and convergence of their regulations and standards. Australian regulatory bodies
work in co-operation with each other and with global bodies to ensure fair practice across the globe
and comparability of financial statements with others financial statements.

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Table of Contents
Synopsis ...............................................................................................................................................1
Introduction..........................................................................................................................................3
Requirement 1: Different types of Companies ....................................................................................4
i. Proprietary Companies..............................................................................................................4
ii. Public Companies .....................................................................................................................5
Other types of Company Structures.................................................................................................5
Requirement 2: Differences between Large and Small Proprietary Companies .................................6
Criteria for Differentiation as Small Proprietary Company.............................................................6
Criteria for Differentiation as Large Proprietary Company.............................................................7
Differences between large and small proprietary company.............................................................7
Requirement 3: Roles of Different Regulators on Australian Companies...........................................8
Australian Securities and Investments Commission - ASIC ...........................................................8
Australian Securities Exchange - ASX ............................................................................................9
Financial Reporting Panel – FRP.....................................................................................................9
Financial Reporting Council – FRC.................................................................................................9
Australian Accounting Standards Board – AASB...........................................................................9
International Accounting Standards Board – IASB.......................................................................10
Financial Accounting Standards Board – FASB............................................................................10
International Financial Reporting Standards – IFRS.....................................................................10
Asian-Oceanian Standard-Setters Group – AOSSG......................................................................10
Conclusion .........................................................................................................................................11
Bibliography.......................................................................................................................................12

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Introduction
Company structure depends on the nature of business, capital requirements, and existing regulations
in the relevant industry. Deciding the best option from the alternatives considering trade-off of the
alternative options is a major challenge in business. Proprietary companies face less regulations than
public companies in Australia. The ASIC controls the companies with the help of other regulatory
bodies. The AASB, FRC, ASX, FRP are some bodies that regulate the different aspects of company
regulations. AASB works with other accounting standard setting bodies to ensure high-quality
accounting standards and maintain harmony among them. The Corporations Act 2001 authorises the
functionality of these regulatory bodies and some other specific acts regulate specific regulatory
bodies of Australia.

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Requirement 1: Different types of Companies
Company is an artificial entity recognised by the Corporations Act 2001 and it is incorporated,
regulated by the Act. Different types of companies are existing, but there are two major different
types companies in Australia (Adams, 2002, pp. 11-14):
i. Proprietary Companies
ii. Public Companies
i. Proprietary Companies
In this type of company more than two members and less than fifty (50) members are allowed. It is
the most popular type of company structure in Australia. It has less legal bindings than the public
companies and enjoys more freedom. This is also called private company and Pty is used at the end
of the company name to denote and distinguish this type of company. This form of company cannot
collect capital through shares as it is restricted only to the public companies. Proprietary companies
can be of many types – company limited by shares and limited by guarantee. The proprietary
limited by shares company shareholders have liability up to their amount of total share holdings and
limited by Guarantee Company shareholders guarantee up to a certain amount of guarantee to bear
liabilities along with the shareholding amount (Tomasic, Bottomley, & McQueen, 2002, pp. 169-
170). In the proprietary company, at least one shareholder and one director is required. Generally,
small and medium types of business prefer proprietary company structure. Section 45A has divided
this type of companies into two classes (CCH Editors, & CCH Australia Limited, 2009, p. 40):
a. Small Proprietary Company (Corporations Act 2001, sec. 45A(2))
b. Large Proprietary Company (Corporations Act 2001, sec. 45A(3))

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ii. Public Companies
The public companies are those who are not proprietary companies and they enjoy more regulations.
They can issue shares to the general public and raise capital. To denote public companies ‘Limited’
or ‘Ltd’ is used after the company name to distinguish. This type of company also can be only limited
by shares or limited by guarantee (Dagwell, Wines, & Lambert, 2007, p. 25). At least one member is
required and no limit is imposed in the Corporations Act 2001 regarding maximum limit of members
(ASIC, 2014). At least three (3) directors are needed to form this company of whom two must be
Australian resident. To sell the shares of the company, it has to be listed with the Australian Securities
Exchange (ASX). Among many regulations public companies have to publish annual reports and call
for annual general meetings. Government pays more attention to public companies as they are with
huge capital investments.
Other types of Company Structures
There are some other types of companies apart from the proprietary and public companies. These are:
Listed Corporation:
The companies that are listed with the Australian Securities Exchange are called listed companies.
They can collect capital by issuing shares to general public (Australia, & CCH Australia Limited.,
2011, p. 183).
No-liability Company:
This is a special type of company operating in the mining industry. The company cannot call for the
unpaid amount of share call. This facility has been allowed as the mining industry has high level of
risk and to attract the investors, this facility has been given. No Liability or NL is used to denote
these companies. As per the section 112 of the Corporations Act 2001, this type of company only can
operate in mining sector (Parker, 2013).

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Disclosing Entities:
The Corporations Act 2001, Section 111AC defines the disclosing entities or DEs as the corporations
that issue Enhanced Disclosure Securities or EDS.
Foreign Companies:
Companies that are incorporated out of Australia, have major controlling power from foreign
nationals, are called foreign companies. These companies enjoy many investment facilities by the
Australian government as to encourage foreign investments (Rath, 1983).
Requirement 2: Differences between Large and Small Proprietary
Companies
Proprietary companies have been classified of two types by the Corporations Act 2001. In
determining whether a proprietary company is small or large some basic criterion have been set out
by the Act. These are:
Criteria for Differentiation as Small Proprietary Company
Subsection 2 of section 45A of Corporations Act 2001, states that a company would be classified as
a small proprietary company in a financial year if it satisfies at least two of the following conditions
(Adams, 2002):
i. The company’s revenue or the consolidated revenue is less than $25 million.
ii. At balance sheet date, the consolidated gross asset is less than $12.5 million.
iii. End of the financial year, company has less than 50 employees.

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Criteria for Differentiation as Large Proprietary Company
Subsection 3 of section 45A of Corporations Act 2001, states that a company would be classified as
a large proprietary company in a financial year if it satisfies at least two of the following conditions
(Australia, & CCH Australia Limited., 2011):
i. The company’s revenue or the consolidated revenue is $25 million or more than that.
ii. At balance sheet date, the consolidated gross asset is $12.5 million or more than that.
iii. End of the financial year, company has 50 employees or more than that.
The volume of gross revenue, assets and employee numbers are the yardstick of measuring the
proprietary companies as small or large ones.
Differences between large and small proprietary company
The basic area of differences between the large and small proprietary companies is the financial
reporting and other regulatory requirements. Regulatory requirements for large proprietary
companies are higher than the small proprietary companies. According to AASB 1053 (2010) BC4,
large proprietary companies have to prepared and submit audited financial statements as per
complying with applicable financial reporting standards. On the contrary, the small proprietary
companies are relieved from such regulatory compliances. However, regulations of Section 292(2),
293, 294 of Corporations Act 2001, small companies are obliged to lodge financial statements when
they are controlled by foreign companies, or 5% of the shareholders vote for getting financial
statements, or the requirements by Australian Securities and Investments Commission (ASIC). Thus,
the small proprietary companies enjoy less regulations than the large ones. Business structure,
necessity, capital requirements – these are to be considered in deciding the type of proprietary
company structure (Australia, & CCH Australia Limited., 2011).

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Requirement 3: Roles of Different Regulators on Australian Companies
The aim of regulatory bodies is to ensure smooth operations and ensuring truth and fairness in the
financial reporting. The major organisations playing different roles in the regulation of Australian
companies are discussed and evaluated below:
Australian Securities and Investments Commission - ASIC
The Australian Securities and Investments Commission or the ASIC is the regulatory body that
regulates Australian corporates, markets and financial services in Australia (ASIC, 2014). ASIC is
the sole regulatory body in its field. Its role in regulating companies, professional bodies, financial
markets, investments, insurances is noteworthy. It helps ensuring flow of fair and easily accessible
information to the users of such information. The major roles of it is – registering the corporations in
Australia, granting credit and financial services licences, registering the auditors and liquidators,
maintenance of financial and non-financial information registers which can be accessed publicly,
integrating financial market and ensuring stability, prosecution and penalties for convicted parties
regarding fraud and irregularities (Plessis, Hargovan, & Bagaric, 2010, pp. 180-188).
It has separate division for hearing complaints and investigate those complains. When proper
evidences are found, ASIC ensured proper legal actions against the convicted parties. For example,
Shafron v Australian Securities and Investments Commission case shows initiatives of ASIC against
the irregularities of Shafron in breaching 180(1) of the Act.
The ASIC also promotes informed decision making practices by the investors, professionals as to
ensure reduced risk in the investment. Educating, role of gatekeeping, analysing consumer
behaviours, ensuring fairness in the financial market and making it efficient are its prime focus. It has
strategic role in all other regulatory bodies in their performances.

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Australian Securities Exchange - ASX
The Australian Securities Exchange is known as ASX. It is the financial exchange market in Australia
and also one of the top 10 securities exchanges (ASX Limited, 2014). It plays roles in listing of public
companies and regulating the trading of shares, stocks, bonds, derivatives and other financial
instruments. Adoption of IFRSs by the AASB requires playing of guiding and regulatory roles in the
financial reporting by the companies listed.
Financial Reporting Panel – FRP
The Financial Reporting Panel or the FRP acts as a supportive independent body to the ASIC that
helps to resolve the disputed issues of accounting treatment by the companies in their financial
statements with ASIC. FRP consists of experts from relevant fields and its role in resolving disputes
helps to take decisions by both the ASIC and court (David, 2014).
Financial Reporting Council – FRC
The Financial Reporting Council or FRC is the statutory body that works in setting accounting and
auditing standards in Australia and provides necessary advice to the Minister (FRC, 2014). It plays
key roles in ensuring quality accounting and auditing standards setting and helps the ASIC, ICAA in
the adoption process of relevant international standards along with maintaining unified harmony
among these standards and practices in Australia and globally.
Australian Accounting Standards Board – AASB
The AASB’s major role is to develop high-quality accounting standards (sec. 334; the Act) and
produce fair financial statements using those standards as to help taking informed decisions by the
stakeholders (The AASB, 2014). AASB works with major accounting standard setters like IASB,
FASB to ensure the harmony of standards. It basically adopts the IFRSs and in the context of Australia
it issues standards in its name. It also works with the ASIC to maintain compliances and harmony in
financial practices and reflect the requirements of such other bodies in Australia.

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International Accounting Standards Board – IASB
The IASB is the UK based independent accounting standard setting body under the IFRS Foundation.
It develops accounting standards that best reflects the financial conditions of an entity (Sale, Salter,
& Sharp, 2007). It has a rigorous process of setting global standards transparently and works with
other major regulatory bodies like FASB, ICAA, ASIC, FRC, AASB.
Financial Accounting Standards Board – FASB
The FASB is the USA based accounting standard setting body that works in improving the Generally
Accepted Accounting Principles (GAAP). It works under Securities and Exchange Committee and
works with other major accounting bodies keeping harmony in financial reporting (Everingham,
Kleynhans, & Posthumus, 2007).
International Financial Reporting Standards – IFRS
The IFRSs are the financial reporting standards issued by the IFRS Foundation. Formerly it was
named as International Accounting Standards (IAS). The role of IFRSs is to promote fair financial
reporting, issuance of new accounting standards, revision and obsolescence of old standards, work
with other regulatory bodies to keep harmonised accounting practices worldwide. AASB adopts
IFRSs to maintain global financial reporting harmony as to ensure quality reporting and comparability
of financial statements.
Asian-Oceanian Standard-Setters Group – AOSSG
The AOSSG is the group or collective body of accounting standard setters in the Asian-Oceanian
region as to promote adoption of IFRS and help maintaining high-quality accounting standards in the
member countries. Its role in cooperation with governments, standards setters, practitioners helps
improving the financial reporting quality in this region (The AOSSG, 2014).

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Conclusion
Companies are generally classified as proprietary company (Pty) or public company. Under the
circumstances of necessity and applicable conditions, required capital, companies are formed under
the Act. The regulatory bodies have existence to keep the practices of financial reporting in line with
global practice, fair flow of information, mitigation of disputes. The AASB, ASX, FRC, AOSSG are
some regulatory bodies playing roles in ensuring that objective. These regulatory bodies play their
roles in co-operation with each other as to ensure best practices, maintaining harmony and fair
financial reporting as to ensure comparability with other reporting entities. Companies should comply
with applicable rules and regulations to ensure fair practices and avoid possible litigation for non-
compliances.

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