Minimum Financial Requirements - Effective 9 October 2015
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Minimum Financial Requirements
Minimum Financial
Requirements
Effective 9 October 2015
0|Page
MFRv2 09102015Minimum Financial Requirements
Contents
1. Financial Requirements............................................................................................................................ 4
1.1 Financial Requirements.................................................................................................................... 4
1.2 Objectives ........................................................................................................................................... 4
1.3 Application of this policy................................................................................................................ 4
1.4 Applicants and Licensees must comply with this policy ........................................................ 4
1.5 Information provided by an Applicant or Licensee ................................................................ 4
1.6 Parts 2 - 7 not applicable in certain circumstances ............................................................... 5
1.7 Forms .................................................................................................................................................. 6
2. Net Tangible Assets .................................................................................................................................. 7
2.1 Financial Requirement - Net Tangible Assets ........................................................................... 8
2.2 Demonstrating Sufficient Net Tangible Assets ......................................................................... 8
2.3 Decreases in Net Tangible Assets ............................................................................................. 8
2.4 Negative Net Tangible Assets...................................................................................................... 8
2.5 Asset Valuations ............................................................................................................................... 9
2.6 Related Entity Loans and Investments Assets ......................................................................... 9
2.7 Deed Of Covenant And Assurance ............................................................................................ 9
3. Maximum Revenue ................................................................................................................................. 10
3.1 Financial Requirement – Maximum Revenue........................................................................... 11
3.2 Calculating Maximum Revenue .................................................................................................. 11
3.3 Exceeding Maximum Revenue ................................................................................................... 11
4. Current Ratio ............................................................................................................................................ 12
4.1 Financial Requirement – Current Ratio ..................................................................................... 13
4.2 Calculating the Current Ratio ...................................................................................................... 13
4.3 Determining Current Assets and Current Liabilities based on Licensee Structure ............... 13
4.4 Current Ratio for declaration categories (SC1 & SC2) ........................................................ 14
5. Financial Monitoring ................................................................................................................................ 14
5.1 Financial Requirement – Financial Monitoring ......................................................................... 14
5.2 Provision of ASIC or ASX Reports to Commission ............................................................ 14
5.3 Provision of Internal Management Accounts to the Commission ............................................ 14
6. Accepted Independent Accountants................................................................................................... 145
6.1 Qualifications for Accepted Independent Accountants............................................................ 15
6.2 Another Responsible Person....................................................................................................... 16
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6.3 Notice to Accepted Independent Accountants for MFR Reports ............................................. 16
6.4 Warning to Accepted Independent Accountants ...................................................................... 16
6.5 Reporting Requirements for Accepted Independent Accountants ....................................... 17
6.6 Determining Collectability of Related Entity Loans or Investment Assets ...................... 17
6.7 Implied Warranty by Accepted Independent Accountant ....................................................... 17
7. Submission of Financial Information to the Commission .................................................................. 18
7.1 Applicants for a Licence .............................................................................................................. 18
7.2 Existing Licensees Applying for a New Licence .................................................................. 18
7.3 Self-Certification Categories (SC1 & SC2)................................................................................ 18
7.4 Financial information for Categories 1-7..................................................................................... 18
7.5 Applicants and Licensees subject to ASIC Audit Requirements ...................................... 19
7.6 Applicant and Licensees not previously audited who become subject to ASIC Audit
Requirements............................................................................................................................................... 19
7.7 Applicants and Licensees in Categories 3-7 Not Required by ASIC to be Audited .............. 20
7.8 Overseas Companies in Categories 3-7 ................................................................................. 20
7.9 Compliance Audit ........................................................................................................................... 20
7.10 Power to Require Production of Documents ......................................................................... 21
7.11 Licensee’s financial circumstances must at all times satisfy Minimum Financial
Requirements............................................................................................................................................... 21
7.12 Documents that may be provided to satisfy Commission ......................................................... 21
7.13 Restructure of Licensee ............................................................................................................... 21
8. Assessment of Financial Information by the Commission ................................................................ 22
8.1 Assessment of financial information ......................................................................................... 22
8.2 Failure to meet minimum financial requirements .................................................................. 22
9. Payment of Debts .................................................................................................................................... 23
9.1 Financial requirement – payment of debts ............................................................................... 23
9.2 Financial requirement does not apply in certain circumstances ...................................... 23
9.3 Documents and evidence to be provided to the Commission ......................................... 24
10. Professional Indemnity Insurance..................................................................................................... 24
10.1 Financial Requirement - Professional Indemnity Insurance .................................................. 24
10.2 Terms and Conditions of Insurance Policy ............................................................................ 25
10.3 Insurance requirements for Fire detection, alarm and warning systems – Certify licence .. 26
10.4 Evidence of Cover ......................................................................................................................... 26
10.5 Implied warranty by insurance companies and insurance brokers .................................. 26
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10.6 Circumstances when insurance is not required .................................................................... 26
10.7 Commission may impose licence conditions .......................................................................... 27
11. Incorrect Information ........................................................................................................................... 27
12. Confidentiality ...................................................................................................................................... 28
13. Transitional Provisions ....................................................................................................................... 28
13.1 Repeal of financial requirements policies existing prior to the Commencement Date ......... 28
13.2 Transitional provisions .................................................................................................................... 28
13.3 Continuing classes of fire protection licence ............................................................................... 29
14. Definitions ............................................................................................................................................. 29
Tables
Table 1 - Possible Assurers – Deeds of Covenant and Assurance 10
Table 2 - Ratio – Structure 13
Table 3 - Accepted Independent Accountant Categories 15
Table 4 - Licence Classes Requiring Professional Indemnity Insurance 24
Table A - Minimum Financial Requirements 56
Attachments
Attachment 1 - MFR Report 35
Attachment 2 - Declaration – Maximum Revenue up to $200,000 38
Attachment 3 - Declaration – Maximum Revenue up to $600,000 39
Attachment 4 - Declaration – Professional Indemnity Insurance 40
Attachment 5 - Statement of Financial Position – Covenantors 42
Attachment 6 - Review Control Sheet 43
Attachment 7 – Production of Documents – MFR Report – Non Reporting Entities up to and
including Licence Category 4 46
Attachment 8 – Production of Documents - MFR Report – Category 5 to 7 or Reporting Entities -
any Licence Category 51
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1. Financial Requirements
1.1 Financial Requirements
The Queensland Building and Construction Board Policy which constitutes the financial requirements
for the Queensland Building and Construction Commission Act 1991 (“Act”) consists of:
• Maximum Revenue;
• Net Tangible Assets;
• Current Ratio;
• Payment of Debts;
• Financial Monitoring; and
• Professional indemnity insurance.
1.2 Objectives
This policy is made by the Queensland Building and Construction Board and states the Minimum
Financial Requirements for licensing under the Queensland Building and Construction Commission
Act 1991.
The objectives of the Minimum Financial Requirements in this policy are to promote financially viable
businesses and foster professional business practices in the Queensland building industry.
To achieve these objectives and minimise the incidence of financial failure in the building industry,
this policy requires all Applicants and Licensees to comply with the Minimum Financial Requirements.
1.3 Application of this policy
This policy applies to all applicants for, and holders of, a licence under the Queensland Building and
Construction Commission Act 1991 (the Act) except applicants for, or holders of, a nominee
supervisor’s licence, site supervisor’s licence or any occupational licence.
All relevant current Australian Accounting Standards must be applied to the financial information of
the Licensee. The Minimum Financial Requirements are additional requirements that are to be
applied after all relevant Australian Accounting Standards have been applied.
Where the policy mentions Australian Accounting Standards its meaning is to be taken as a reference
to the standard currently in force.
1.4 Applicants and Licensees must comply with this policy
Under the Act, the Commission cannot lawfully issue a licence to an Applicant unless it is satisfied
that the Applicant satisfies the Minimum Financial Requirements stated in this policy, as well as other
requirements stated in the Act.
It is also a statutory condition of holding a licence that the Licensee’s financial circumstances must at
all times continue to satisfy the relevant Minimum Financial Requirements stated in this policy. If a
Licensee breaches a condition on their licence, their licence may be suspended or cancelled under
section 48 of the Act.
1.5 Information provided by an Applicant or Licensee
To allow the Commission to make a determination as to the Applicant or Licensee’s compliance with
this policy, the Applicant or Licensee is required to provide the specified financial report and other
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relevant evidence to support their application for a licence, or for an increase in their Maximum
Revenue.
If the Commission has concerns about the adequacy or accuracy of the information provided, the
Commission may require further information. The Act allows the Commission to require further
information from the Applicant, Licensee or the Accepted Independent Accountant who provided
information on behalf of the Applicant or Licensee.
Under the Act, an Applicant or Licensee may also be required by the Commission to provide further
information or evidence that the Commission requires to determine whether the Applicant is, or the
Licensee continues to be, eligible to hold the licence. This may include information or evidence about
their continued compliance with the financial requirements in this policy. If an Applicant or a Licensee
fails to comply with a notice requesting this information, their licence may be refused, suspended or
cancelled.
A person who provides false or misleading documents or information to the Commission about an
Applicant or Licensee’s compliance with this policy may be liable for prosecution for an offence under
the Act.
1.6 Parts 2 - 7 not applicable in certain circumstances
All Parts in this policy apply to an Applicant or Licensee unless expressly excluded under this
section or another provision of this policy.
Applicants or Licensees who may rely on an exemption from Parts 2-7 of this policy will need to
provide the following information at the time of application and or any other time as required by the
Commission:
a) A certificate of currency for professional indemnity insurance which complies with this document,
for the class of licence; and
b) An Estimated Maximum Revenue Declaration based on the Applicant or Licensee’s Maximum
Revenue, as defined in this document, for the financial year.
1.6.1 Special Purpose Vehicles
Parts 2 - 8 of this policy do not apply to an Applicant or Licensee applying for, or holding, a licence if
the Applicant or Licensee is a special purpose vehicle. For the purposes of this policy a special
purpose vehicle is an entity established for the sole purpose of carrying out building work under a
public private partnership arrangement.
To remove doubt, the exemption in this section does not apply to an Applicant or Licensee who
intends to carry out, or carries out, both building work under a public private partnership
arrangement and other building work independent of the arrangement. In these circumstances, the
Applicant or Licensee must comply with all Parts of this policy, including Parts 2 - 8.
1.6.2 Builder – Project Management Services Licence
This section applies to an Applicant for, or a Licensee holding, a licence in the class of “Builder –
Project Management Services”.
An Applicant or Licensee to which this section applies is not required to comply with Parts 2 - 7 of
this policy if all of the following apply:
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a) the Applicant or Licensee holds professional indemnity insurance for the services specified in
the scope of work for the licence; and
b) the policy terms and conditions for the professional indemnity insurance referred to in paragraph
(i) provide for a minimum limit of indemnity for any one claim and the sum of all claims during
any one period of insurance of not less than $1,000,000; and
(ii) are otherwise equivalent to those stated in section 10.2(1) to (7) of this policy.
(iii) The Applicant or Licensee is not applying for, and does not hold, a licence in another class
which requires the Applicant or Licensee to comply with Parts 2 - 7 of this policy.
1.6.3 Part 10 Licences
This section applies to an Applicant for, or a Licensee holding, a licence in one or more of the
following licence classes:
(a) Building design – low rise;
(b) Building design – medium rise;
(c) Building design - open;
(d) Hydraulic services design;
(e) Hydraulic services design excluding design of on-site domestic waste water management;
(f) Site classifier;
(g) Site classifier excluding on-site domestic waste management.
An Applicant or Licensee is not required to comply with Parts 2 - 7 of this policy if all of the following
apply:
a) The Applicant or Licensee has complied with the requirements specified in Section 10 of this
policy without relying upon section 10.6 to satisfy the insurance requirements in that Part; and
b) The Applicant or Licensee is not applying for, and does not hold a licence in another class which
requires the Applicant to comply with Parts 2 - 7 of this policy.
1.7 Forms
The forms required to be submitted to the Commission in order to demonstrate an Applicant or
Licensee’s compliance with this policy are attached to this document and may be reissued by the
Commission from time to time. These forms can be downloaded for appropriate use from the
Commission’s website at www.qbcc.qld.gov.au.
Forms submitted with alterations, other than the completion of the spaces provided, may be refused
by the Commission.
If the requirements of this policy are not applied as prescribed the information submitted in the forms
will not be accepted by the Commission. In the case of an Applicant for a licence, the application will
be deferred until such time as the correct information is provided or the application is rejected. In the
case of a Licensee, the licence may be suspended or cancelled if the requirements are not met.
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2. Net Tangible Assets
Definitions for Section 2:
In this section:
Assets –
means assets owned both legally and beneficially by the entity (that is, it does not include assets
which are held on trust for another person or corporation) and includes but is not limited to the
following:
(a) Cash;
(b) Construction Contract Work in Progress;
(c) Debtors (if collectible);
(d) Inventory;
(e) Investments (if collectible);
(f) Investments valued using equity accounting methodology only where included in general
purpose financial statements;
(g) Motor vehicles;
(h) Plant and equipment at written down value;
(i) Real estate;
(j) Related Entity loans and investments (only if assessed as collectible);
(k) Shares in publicly listed companies;
(l) Tools of trade.
Assets do not include the following:
(a) Intangible assets;
(b) Assets not assessed as collectible;
(c) Boats, ships, jet skis, planes, helicopters, race horses and racing cars;
(d) Collectors’ items (e.g. paintings, stamps, coins);
(e) Contingent assets;
(f) Furniture (personal);
(g) Investments or shares in companies that are not publicly listed companies;
(h) Investments valued using equity accounting methodology where included in special
purpose financial statements;
(i) Trade or barter dollars and any equivalent scheme;
(j) Trust assets; and
(k) Units in trusts that are not publicly listed;
(l) Unvested superannuation benefits;
(m) Life or income protection insurance policy benefits.
For clarity and calculation purposes, excluded assets at (b) to (m) above are Disallowed Assets.
Liabilities –
means all debts or obligations which are owed by an Applicant, or Licensee, which are payable on
demand, legally enforceable or a statutory requirement.
Liabilities include all amounts owed by the Licensee to any Related Entities, and any deficiency in
trusts for which the Licensee is Trustee.
Where a Licensee has received notification of a breach of banking or loan covenants the full amount
of the loan or finance facility is classified as a current liability until such time as the lender has waived
their rights in relation to the breach.
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Net Tangible Assets –
is calculated using the following formula:
NTA = Assets - Liabilities - Intangible Assets – Disallowed Assets
2.1 Financial Requirement - Net Tangible Assets
It is a financial requirement that Applicants and Licensees must have sufficient Net Tangible Assets
(NTA) in their own right sufficient for the higher of the level of Maximum Revenue or the actual
Revenue being generated as stated in Table A. The Net Tangible Assets of an Applicant or Licensee
must be at least $0.
Applicants and Licensees may rely upon a Deed of Covenant and Assurance in order to meet this
financial requirement (refer section 2.7)
2.2 Demonstrating Sufficient Net Tangible Assets
NTA may be evidenced, either through a Declaration completed by the Applicant or Licensee, or a
MFR Report or other report completed by the Accepted Independent Accountant depending on the
entity’s level of Revenue.
In determining the entity’s NTA position, the person completing the Declaration or Report must
consider the entity’s entire financial position, including Related Entities and those entities providing
Deeds of Covenant and Assurance in order for the entity to meet the Minimum Financial
Requirements.
Only the net realisable amount of the entity’s assets should be brought to account. All liabilities,
intangible assets and disallowed assets of the entity must be deducted in calculating NTA in
accordance with this policy.
2.3 Decreases in Net Tangible Assets
All licences are subject to a condition that the Licensee’s NTA position is not to decrease by more
than 30% from its last advised and Commission accepted NTA position unless the Licensee provides
a new Declaration or MFR Report within 30 days of the decrease occurring. The Declaration or MFR
Report must substantiate the Licensee’s adjusted NTA position. This includes a decrease in the Net
Real Unencumbered Assets which have been assured to the Licensee by Deed of Covenant and
Assurance.
In the event a Licensee has a decrease in NTA by more than 30% from its last advised and
Commission accepted NTA position, and does not provide the relevant financial information within 30
days of the decrease occurring, the Licensee will have breached a condition of licence. This may
result in the suspension or cancellation of the licence. Licensees may also be subject to disciplinary
proceedings pursuant to the Act.
For clarification, the 30 days to notify the Commission commences when the Licensee realises or
ought reasonably have realised that they have breached the 30% reduction in NTA. Refer section 5
which provides that internal management accounts be prepared at least quarterly.
2.4 Negative Net Tangible Assets
Licensees and Applicants must have an NTA position in their own right of not less than $0. Entities
which have a negative (deficit) NTA position do not meet the Minimum Financial Requirements and
are not permitted to rely upon a Deed of Covenant and Assurance to cover the deficiency.
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2.5 Asset Valuations
Licensees and Applicants are permitted to value assets that are to be relied upon in support of Net
Tangible Assets, provided those values can be substantiated and the revalued assets are non-current
assets. Any assets valued at sale price may not be included as current assets.
Where required by the Commission, such valuations are to be substantiated by way of a valuation by
an accredited, registered or recognised valuer.
2.6 Related Entity Loans and Investments Assets
Related Entity Loans and Investments recorded as an asset in the entity’s accounts must not be
included or relied upon in determining the entity’s NTA, unless the Accepted Independent
Accountant preparing the MFR Report or other report has independently verified that the related
entity loan or investment asset is collectible. It is not sufficient for the Accepted Independent
Accountant to accept the Directors advice without performing reasonable checks or tests.
The Accepted Independent Accountant preparing the Report is required to specify in the Report that
they have independently verified the collectability of the Related Entity Loan or Investment asset.
When required by the Commission, the Accepted Independent Accountant must provide evidence of
the verification of collectability of the Related Entity Loan or Investment asset.
2.7 Deed Of Covenant And Assurance
Where an eligible Licensee or Applicant does not have sufficient NTA in its own right for the level of
Maximum Revenue required or the actual Revenue being generated it may, dependent on the entity’s
structure, rely upon a Deed of Covenant and Assurance based on the Net Real Unencumbered
Assets from a Covenantor as permitted under this policy, in order to meet the NTA requirement.
The Covenantor must have and continuously maintain sufficient Net Real Unencumbered Assets in
their own right to meet the value of the Defined Amount stated in the MFR Report.
The Net Real Unencumbered Assets of the Covenantor may not include any Related Entity Loans or
Investments owed to the Covenantor by the Licensee. All liability amounts owing by the Covenantor
to the Applicant or Licensee must be brought to account. Assets held in trust (by any entity) cannot be
assured to the Applicant or Licensee by way of Deed of Covenant and Assurance.
Licensees and Applicants providing a Declaration must have sufficient assets in their own right, and
cannot rely on a Deed of Covenant and Assurance in order to meet the NTA requirements for SC1 or
SC2.
Entities relying upon a Deed of Covenant and Assurance must provide a MFR Report, and must meet
Category 1 requirements in accordance with Table A, at a minimum.
The original Deed of Covenant and Assurance is required to be submitted to the Commission
together with the MFR Report and is retained by the Commission unless a Liquidator or Trustee in
bankruptcy is appointed to the Licensee, in which case the original will be provided to the Liquidator
or Trustee in bankruptcy.
The Accepted Independent Accountant completing a MFR Report or other report which relies on a
Deed of Covenant and Assurance will be required to:
a) state in the Report the full name and the relationship of each Covenantor to the Applicant or
Licensee,
b) state within the Report the defined amount that is secured by the Deed, or if more than one -
each Deed; and
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c) provide a Statement of Financial Position (Attachment 5) and any other appropriate
documentation detailing each Covenantor’s financial position at the time the Report was
signed, and be based on accounts no earlier than the year end date on which the Report has
been based.
The Covenantor’s Statement of Financial Position is required to be completed by the same Accepted
Independent Accountant completing the Report signifying all reasonable checks have been made
with regard to each Covenantor’s entire financial position, to ensure the existence, collectability and
unencumbered value of assets being assured to the entity.
A Licensee who no longer wishes to rely on amounts assured by way of a Deed of Covenant and
Assurance is required to provide an updated MFR Report demonstrating sufficient Net Tangible
Assets held in their own right.
Covenantors who have assured assets by way of a Deed of Covenant and Assurance to a Licensee
who become insolvent may be called upon by a Liquidator or Trustee in bankruptcy to pay the defined
amount relied upon by the Licensee at the time any outstanding debts were incurred by the Licensee,
regardless of whether the Licensee relied on a Deed of Covenant and Assurance to meet the
requirements of this policy at the time of appointment of the Liquidator or Trustee in bankruptcy.
Table 1 – Possible Assurers
Applicant or Licensee Structure Possible Assurers
Individual – Sole Trader • None available
• Directors of the Licensee company
Company – Trading as a stand-alone Company
• Associated company
• Directors of the Licensee company
Company – Trading as part of a group of companies • Associated company
• Other companies in the group
• Other partners within the Partnership
Individual or Company – trading in a Partnership • Directors of the Company (for Company licensees)
• Associated Company (for Company licensees)
• Beneficiaries of the trust administered by the Licensee as
Trustee*
Individual or Company – acting as Trustee
• Directors of the Company (for Company licensees)
• Associated Company (for Company licensees)
* limited to only those direct Beneficiaries which are not subject to or under a legal disability, and have sufficient assets in
their own right to assure to the Applicant or Licensee.
3. Maximum Revenue
Definitions for Section 3:
In this section:
Maximum Revenue –
means the maximum Revenue from all sources a licensed entity may earn in each financial year. The
Maximum Revenue issued to a Licensee applies to the licensed entity in combination with all trusts or
partnerships through which it is trading. In the case of a company trading as part of a group of
companies under ASIC class order 98/1418, the Maximum Revenue applies to the entity as it has
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reported to the Commission under this policy: either the consolidated group; closed group or the
company on a stand-alone basis.
Revenue –
means the total income received by the Applicant or Licensee, derived from all sources. Further:
• For Applicants or Licensees engaged directly in project or construction management (where
project costs are paid directly by the Principal to parties lower in the contractual chain), or who
have a building design licence, the revenue in respect of those activities is calculated on the
total amount received by the Licensee rather than the value of projects. Alternatively, the
component of the work processed via the Applicant or Licensee is deemed Revenue.
• In the case of a partnership, the Revenue is to be the revenue of the Applicant or Licensee
and the partnership/s in combination.
• In the case of a trustee, the Revenue is to be the revenue of the Applicant or Licensee and the
trust/s in combination.
• Includes the reference to turnover in section 35 of the Act.
Revenue excludes:
a) Salary and/or wages received as an employee; and
b) GST collected as an agent, from which the Applicant or Licensee obtains no benefit.
3.1 Financial Requirement – Maximum Revenue
It is a financial requirement that a Licensee must not exceed their Maximum Revenue by more than
10% in each financial year.
3.2 Calculating Maximum Revenue
A Licensee’s Maximum Revenue is calculated based on the Net Tangible Asset (NTA) position of the
Applicant or Licensee as stated in the Declaration or MFR Report by applying the formula stated in
Table A.
Amounts being assured by way of one or more Deeds of Covenant and Assurance may be added to
the NTA of the Licensee when calculating Maximum Revenue.
The Commission will advise an Applicant or Licensee of the Maximum Revenue it may generate per
Financial Year upon granting the licence and upon acceptance of updated Declarations or Reports.
The Maximum Revenue applies for all financial years until such time as it is updated by the provision
of a new Declaration or Report and the Commission has notified the Licensee of the new Maximum
Revenue.
3.3 Exceeding Maximum Revenue
Pursuant to section 35 of the Act, it is a condition that Licensees must not exceed their Maximum
Revenue by more than 10% in a financial year without first providing a new Declaration or Report to
the Commission substantiating sufficient NTA to support a higher level of Maximum Revenue.
Licensees who exceed their Maximum Revenue by more than 10% and do not report to the
Commission as required do not meet the Minimum Financial Requirements and may be subject to
licence suspension or cancellation or disciplinary action and a penalty.
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4. Current Ratio
Definitions for Section 4:
In this section:
Current Assets –
means assets:
a) which are realised, sold or consumed in the normal operating cycle of the business;
b) which are realised within twelve months after the reporting period;
c) which are held primarily for the purpose of trading (refer AASB 139);
d) which are cash or a cash equivalent (as defined in AASB 107) unless the asset is restricted
from being exchanged or used to settle a liability.
Related Entity loans and/or investments included as current assets must be collectible and
convertible into cash as at balance date.
Real property listed as a current asset is to be shown at the lower of cost or net realisable value.
Trade debtors that are a current asset and not contingent are only included to the extent they are
collectible and as a minimum requirement overdue debtors must be written off as follows:
a) Trade debtors at or over 180 days old from invoice date, to be 50% written off; and
b) Trade debtors at or over 365 days old from invoice date, to be 100% written off.
Current Assets do not include:
a) Any Related Entity loans or investments assets which are not collectible;
b) Contingent assets
c) Intangible assets;
d) Real property not currently listed on the market for sale;
e) Disallowed assets.
Current Liabilities –
means liabilities:
a) which are expected to settle in the normal operating cycle of the business;
b) which are due to be settled within twelve months after the reporting period;
c) which are held primarily for the purpose of trading;
d) the entity does not have an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period.
Current liabilities include:
a) the amount of any non-current liabilities which must be paid by the Applicant or Licensee in
the 12 months following the reporting period; and
b) all Related Entity loans payable by the Applicant or Licensee in the 12 months following the
end of the reporting period.
c) The full amount of all bank loans or finance facilities where the lender or syndicate of lenders
has notified the Applicant or Licensee of a breach of bank or lending covenants.
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Current Ratio –
means the ratio calculated by using the following formula:
Current Assets
Current Liabilities
To meet the requirements an Applicant or Licensee’s current ratio must be at least 1:1.
4.1 Financial Requirement – Current Ratio
It is a financial requirement that Applicants and Licensees must meet the Current Ratio requirement
at time of Application, and at all times whilst the licence is held.
4.2 Calculating the Current Ratio
The Current Ratio is calculated in accordance with the defined formula.
Current assets included in the calculation of the Current Ratio must be in accordance with the
definition of current assets in this policy.
The Commission may require the Applicant, Licensee or Accepted Independent Accountant to
provide evidence of the classification of an asset as a current asset. Where such evidence is not
provided the Commission may automatically reclassify such assets as non-current assets without
further notice to the Applicant or Licensee.
All current liabilities of an Applicant or Licensee must be included in the calculation of the Current
Ratio, including any loans to Related Entities payable by the Applicant or Licensee in the 12 months
following the end of the reporting period.
Amounts assured by way of a Deed of Covenant and Assurance must not be included in calculating
the Current Ratio.
The Current Ratio is required to be expressed as a ratio and must not be rounded up.
4.3 Determining Current Assets and Current Liabilities based on Licensee
Structure
Depending on the structure of the Applicant or Licensee, the Current Ratio may only be met from
current assets and current liabilities, as follows:
Table 2 – Ratio Structure
Structure of Applicant or Licensee: Current Assets and Liabilities of:
Individual – Sole Trader Individual Only
Company – trading as stand-alone company Company Only
Company - trading as part of a group of companies Stand alone, closed group or consolidated
under ASIC Class Order 98/1418 or similar group, as per reporting to the Commission
Individual or Company in combination with
Individual or Company – trading in partnership
partnership/s
Individual or Company in combination with
Individual or Company - acting as trustee
trust/s
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4.4 Current Ratio for declaration categories (SC1 & SC2)
Licensees and Applicants in categories SC1 and SC2 are not required to state their Current Ratio on
their Declaration. The Commission may at any time require an Applicant or Licensee in categories
SC1 and SC2 to provide a MFR Report demonstrating compliance with the minimum Current Ratio
requirement.
5. Financial Monitoring
Definitions for Section 5:
In this section:
Internal Management Accounts –
means reports prepared by the Licensee showing the financial position and performance of the
Licensee’s business. Internal Management Accounts include at a minimum:
a) Statement of Financial Performance (also known as a Trading and Profit and Loss
Statement);
b) Statement of Financial Position (also known as a Balance Sheet);
c) Aged listings of trade debtors and creditors; and
d) Statement of Cash Flows.
5.1 Financial Requirement – Financial Monitoring
It is a financial requirement that a Licensee must prepare and maintain internal management
accounts at quarterly intervals in each financial year at a minimum.
5.2 Provision of ASIC or ASX Reports to Commission
If a Licensee or any company within its group of companies is required to provide an auditor’s report
or review report to the ASIC or ASX, then within 30 days of the report being signed and/or submission
to the ASIC or ASX a copy of the report must be submitted to the Commission.
All Licensees or companies who were required to provide an auditor’s report or review report to ASIC
or ASX for the 2014-15 financial year must submit a copy of the report to the Commission within 30
days of this policy commencing.
Failure to provide the required information may result in the Commission determining the Licensee
fails to meet the Minimum Financial Requirements.
5.3 Provision of Internal Management Accounts to the Commission
Licensees are required to submit their internal management accounts if required by the Commission.
The Commission may notify any Licensee of the requirement to provide their internal management
accounts after the end of a quarter. The Commission will notify the Licensee of the timeframe to
provide the information. Failure to provide the required information may result in the Commission
determining the Licensee fails to meet the Minimum Financial Requirements.
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6. Accepted Independent Accountants
Definitions for Section 6:
In this section:
Accepted Independent Accountant –
means a person with the qualifications specified in this policy who is permitted to complete MFR
Reports regarding the financial position of an Applicant or Licensee.
An Accepted Independent Accountant must be independent of the Applicant or Licensee and must
not be:
a) A director, secretary or employee of the Applicant or Licensee or their Related Entities; or
b) A spouse of the Applicant or Licensee; or
c) A business partner of the Applicant or Licensee or their Related Entities; or
d) An investor or shareholder of the Applicant or Licensee or their Related Entities.
An Accepted Independent Accountant does not include a person who:
a) Has been convicted of, or plead guilty to, providing false or misleading information to the
Commission about an Applicant or Licensees satisfaction of the financial requirements
pursuant to s53B of the Act; or
b) Has been notified in writing the Commission considers they have provided incorrect
information about an Applicant or Licensees satisfaction of the financial requirements; or
c) Has been notified in writing the Commission considers they have failed to appropriately
apply the requirements of this policy.
6.1 Qualifications for Accepted Independent Accountants
The qualifications required of Accepted Independent Accountants for completion of MFR Reports or
other reports are set out in Table 3.
Table 3 – Accepted Independent Accountant Categories
Qualification May Complete MFR Report for
Registered company auditor holding professional indemnity insurance of at
Categories 1 to 7
least $250,000
Holder of a current public practising certificate from the Australian Society of
Category 1 to 2*
Certified Practising Accountants (CPA)
Holder of a current public practising certificate from the Institute of Chartered
Category 1 to 2*
Accountants in Australia (ICAA)
Holder of a current public practising certificate from the National Institute of
Category 1 to 2*
Accountants (NIA)
Holder of a current public practising certificate from the Association of
Category 1 to 2*
Taxation and Management Accountants (ATMA)
Holder of a current public practising certificate from the National Tax &
Category 1 to 2*
Accountants Association (NTAA)
Holder of at least Membership status of one of the above professional
Category 1 Only
associations
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Registered Tax Agent – Category 1 Only
At the discretion of and only with the
Another Responsible Person – in extraordinary circumstances
prior approval of the Commission
*May also complete MFR Reports for Categories 3-7 only where the Applicant or Licensee is not subject to ASIC audit
requirements.
6.2 Another Responsible Person
Where a MFR Report or other report is provided by ‘another responsible person’, details of the
extraordinary circumstances and the reporter’s professional qualifications, audit experience (if any),
business relationship and length of time of association with the Applicant or Licensee must be
provided. Approval as ‘another responsible person’ will only be given on a case by case basis and is
entirely at the discretion of the Commission.
6.3 Notice to Accepted Independent Accountants for MFR Reports
The following Australian Accounting Standards are mandatory when submitting MFR Reports or other
reports to the Commission:
• AASB 101 Presentation of Financial Statements;
• AASB 102 Inventories;
• AASB 107 Cash Flow Statements;
• AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors;
• AASB 110 Balance Sheet becomes Reporting Period;
• AASB 111 Construction Contracts;
• AASB 136 Impairment of Assets;
• AASB 137 Provisions, Contingent Liabilities and Contingent Assets;
• AASB 139 Financial Instruments: Recognition and Measurement;
• AASB 1048 Interpretation of Standards;
• Plus any other standards relevant to the Licensee’s business.
All MFR Reports are to be prepared by an Accepted Independent Accountant based on financial
information of the Applicant or Licensee.
MFR Reports are required to be completed by the Accepted Independent Accountant at the time of
an initial licence application and from time to time as the need arises, in accordance with this policy. A
review of the Applicant or Licensee’s financial position is required to be conducted by the Accepted
Independent Accountant in order to provide the MFR Report.
The processes and utilisation of the Review Control Sheet (Attachment 6) is a minimum requirement
only. Applicants and Licensees may opt to have their financial situation reviewed on a more rigorous
basis.
Any replacement or modified Standards of the Australian Accounting Standards Board are adopted
by the Commission and should be applied by Accepted Independent Accountants when submitting
any information to the Commission.
6.4 Warning to Accepted Independent Accountants
Accepted Independent Accountants have obligations under the Act not to provide false or misleading
information.
It is an offence for a person to provide the Commission with any information that is false or misleading
in circumstances where the person has either knowingly provided the information, or has not taken
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appropriate steps to ensure the information is not false or misleading. The maximum penalty for
providing false or misleading information to the Commission is 2 years imprisonment.
The Commission may require an Accepted Independent Accountant to provide evidence of the tests
and checks performed in completing a MFR Report or other report at any time.
6.5 Reporting Requirements for Accepted Independent Accountants
The Accepted Independent Accountant providing Reports must make appropriate enquiries of the
Applicant or Licensee, and seek independent evidence that is appropriate in the circumstances, in
their professional opinion, to justify the information stated in the MFR Report.
The Accepted Independent Accountant providing the MFR Report must carry out the tests and
checks referred to in the Review Control Sheet as a minimum requirement.
MFR Reports or any other reports to the Commission will be deemed incomplete for assessment
where they are qualified by disclaimer clauses or emphasis of matter clauses by the Accepted
Independent Accountant giving the report.
6.6 Determining Collectability of Related Entity Loans or Investment
Assets
The Accepted Independent Accountant must determine collectability of any Related Entity loan or
investment assets based on the financial position of the Related Entity as at the same balance date
as the MFR Report or other report.
As a minimum the Accepted Independent Accountant is required to view the balance sheet of the
Related Entity, for the relevant balance date and ensure the Related Entity loan or investment is
shown as a liability for the same amount, and classification, as stated by the Applicant or Licensee.
The Related Entity must then have a positive net asset position in its own right as at the relevant
balance date.
Where the Related Entity in question is owed loans by other Related Entities, the Accepted
Independent Accountant must also determine those loans are collectible or deduct those amounts
from the Related Entities net assets.
Where a Related Entity has a deficiency of assets, any loans owed to the Applicant or Licensee by
that Related Entity must be deducted from the Net Tangible Assets and Current Ratio of the Applicant
or Licensee. Evidence of collectability is required to be provided to the Commission upon request.
6.7 Implied Warranty by Accepted Independent Accountant
Where an Applicant or Licensee is relying upon one or more Deeds of Covenant and Assurance to
meet the Minimum Financial Requirements, the Accepted Independent Accountant signing the Report
is warranting to the Commission they have conducted all reasonable checks, pursuant to Australian
Auditing and Accounting Standards into each Covenantor’s entire financial position to ensure they
have Net Real Unencumbered Assets to cover the amount secured by the Deed.
Where amounts are considered not collectable, have not been sufficiently evidenced with regard to
their value or ownership, are intangible, or are disallowed assets the Accepted Independent
Accountant signing the Report must reduce the Covenantor’s total Net Real Unencumbered Asset
position by that disallowed amount.
The Accepted Independent Accountant accepts that the Commission relies upon this warranty in
order to grant or maintain the entity’s licence.
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7. Submission of Financial Information to the
Commission
7.1 Applicants for a Licence
Applicants for a licence must satisfy the relevant financial requirements stated in this policy.
Applicants are required to advise the Commission on application the financial year applicable to the
entity applying for a licence. For Australian residents and most companies incorporated in Australia
the financial year applicable will be 1 July to 30 June. However, for overseas companies or for
Australian companies where ASIC has approved a different financial year, the applicant is to notify
the Commission of the applicable financial year. If no notification is given the Applicant or Licensees
financial year will be 1 July to 30 June.
Applicants must demonstrate at the time of application satisfaction of the relevant financial
requirements for the level of Maximum Revenue being sought per financial year by providing
information in the form set out in Table A.
7.2 Existing Licensees Applying for a New Licence
Where an Applicant holds a current licence and the Applicant is not seeking to increase its Maximum
Revenue it is not required to submit new financial information.
Existing Licensees applying for a Builder class of licence for the first time will need to provide a
Declaration or Report where it is reasonable to expect they will exceed their Maximum Revenue for
the financial year, or do not meet minimum requirements for a Builder class of licence.
7.3 Self-Certification Categories (SC1 & SC2)
Self-Certification Category 1 (SC1) is available to all Applicants and Licensees not seeking or holding
a Builder class of licence, provided their revenue remains within the limit. Applicants for and holders
of Builder classes of licence are not eligible to hold a licence in SC1.
Self-Certification Category 2 (SC2) is available to all Applicants and Licensees irrespective of the
classes of licence sought or held, provided their revenue remains within the limit, and is the minimum
financial category available to Builder classes of licence.
If notified by the Commission, Applicants and Licensees in a self-certification category will be required
to submit a MFR Report demonstrating compliance with the requirements of this policy.
7.4 Financial information for Categories 1-7
The Applicant or Licensees financial information in the MFR Report or other report can be no more
than 4 months in age, from the end of the financial reporting period being relied upon, at the time the
Accepted independent Accounts signs the Report, unless otherwise stated in this policy, or as
approved by the Commission.
To comply with this requirement, the financial information may be based on the Applicant or
Licensee’s most recent financial information, being either:
a) last financial year end accounts; or
b) the current financial year to date accounts.
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The Report must not be signed more than 30 days prior to the date the Report is provided to the
Commission.
A copy of the Signed Financial Statements being relied upon must accompany the Report.
7.5 Applicants and Licensees subject to ASIC Audit Requirements
Applicants or Licensees subject to ASIC audit requirements, shall, if required by the Commission
provide a MFR Report based on the most recently audited financial statements. These accounts may
be more than 4 months in age. A copy of the signed audited financial statements on which the
Report is based must accompany the Audit Report.
If the Applicant or Licensee is operating as a stand-alone company, the MFR Report is to be based
on the company in its own right.
If the Applicant or Licensee is a company operating within a group of companies, and is party to a
Deed of Cross Guarantee (ASIC Class Order 98/1418) the MFR Report is to be based on either:
a) the consolidated group of companies;
b) the “closed group” of companies, being only those companies subject to the Deed of Cross
Guarantee; or
c) the Applicant or Licensee in its own right as a stand-alone company.
The Applicant or Licensee will be required to provide evidence the Class Order was in place for the
period of review on which the Report is based.
In the event the Accepted Independent Accountant is providing an MFR Report or other Report to the
Commission based on qualified audited financial statements or emphasis of matter, that qualification
or emphasis of matter must be notified to the Commission in writing attached to the MFR Report.
7.6 Applicant and Licensees not previously audited who become subject to
ASIC Audit Requirements
An Applicant or Licensee who has not been audited previously and becomes subject to ASIC audit
requirements shall, if required by the Commission provide a MFR Report completed by the
Registered Company Auditor based on the first set of financial statements prepared which have been
audited.
If the Applicant or Licensee is operating as a stand-alone company, the MFR Report is to be based
on the company in its own right.
If the Applicant or Licensee is a company operating within a group of companies, and is party to a
Deed of Cross Guarantee (ASIC Class Order 98/1418) the MFR Report is to be based on either:
a) the consolidated group of companies;
b) the “closed group” of companies, being only those companies subject to the Deed of Cross
Guarantee; or
c) the Licensee in its own right as a stand-alone company.
The Applicant or Licensee will be required to provide evidence the Class Order was in place for the
period of review on which the Report is based.
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7.7 Applicants and Licensees in Categories 3-7 Not Required by ASIC to be
Audited
An Applicant or Licensee in Categories 3-7 who is not currently subject to ASIC audit requirements
and expect to continue to be relieved from such requirements under the Corporations Act 2001, shall
if required by the Commission, submit a MFR Report and a copy of the signed financial statements on
which the Report is based. The Applicant or Licensee that is a company may be required to provide
information evidencing the exemption to ASIC audit requirements.
The Commission reserves the right to require a company to be audited for the purposes of
demonstrating compliance with the Minimum Financial Requirements. Where the Commission
exercises this right, written notice of the audit requirement will be issued to the Licensee or Applicant.
In considering whether an applicant or Licensee should be audited, the Commission will consider
whether the Applicant or Licensee is currently, or will be, subject to audit requirements pursuant to
Section 45A(3) of the Corporations Act 2001, and one of the following:
• Individuals
• Small proprietary companies
• Large Proprietary companies with Class Order 98/1417 or similar
• Overseas companies
Where an Applicant or Licensee has obtained relief from ASIC audit requirements under Class Order
98/1417 or similar, evidence the Class Order was in place for the period of the financial statements is
required to be provided with the Report.
7.8 Overseas Companies in Categories 3-7
If an Applicant or Licensee is based overseas and does not have its financial accounts audited by an
Australian Registered Company Auditor, the Applicant or Licensee shall, if required by Commission
rely upon an MFR Report with any appropriate qualifications as agreed to by the Commission,
signed by an Australian Registered Company Auditor.
The Financial Information stated in the Report is required to be stated in Australian Dollar (AUD)
equivalents.
If the company is audited overseas, it may rely on its last audited accounts, which may be more than
4 months in age.
If the company is not audited overseas, it shall, if required by the Commission provide a Report based
on accounts no older than 4 months in age.
A copy of the signed financial statements for the respective period in review must be provided with
the Report, and are required to be translated into English.
7.9 Compliance Audit
Pursuant to section 50C of the Act, the Commission may give written notice to a Licensee requiring
delivery of, or access to, specified financial records in circumstances where the Licensee is selected
to be audited under an approved compliance audit program or where the Commission is satisfied,
because of information received, that there are reasonable grounds for concern that the Licensee
does not satisfy the Minimum Financial Requirements stated in this policy.
If Licensees do not comply with the Commission’s written notice within 21 days, the Licensee may be
subject to disciplinary proceedings. Licensees will also be taken to have contravened a condition
imposed on the licence and the Commission may suspend or cancel the licence.
9 October 2015
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