As a holder of an AFSL, there are certain financial reporting requirements you must meet, including solvency, net tangible asset, and cash needs requirements, as outlined in the RG166. In this article, we look at these requirements and how to lodge your general purpose financial statement (GPFS), FS70, and FS71, in order to ensure AFSL compliance.
QC Accountants is based on Australia’s sunny Gold Coast in southeast Queensland. The company was founded in 2013 with a desire to help businesses transform into the thriving companies they have always dreamed of becoming. We can:
- Prepare general purpose financial reports for other licensees;
- Liaise with your auditors;
- Assist with preparing cashflow forecast reports;
- Report to your Board of Directors to ensure you continue to meet your RG166 (regulatory capital requirements).
Contact us and let’s start growing your business today.
AFSL net tangible assets requirements
According to ASIC and as outlined in the RG166, the solvency and positive net assets requirement is outlined as follows:
RG 166.32 The Corporations Act requires directors of a company to prevent insolvent trading by the company: see Div 3 of Pt 5.7B. It is not appropriate for any AFS licensee, including a natural person, to carry on a financial services business while insolvent.
RG 166.33 It is also not appropriate that you carry on a financial services business with liabilities exceeding your assets. AFS licensees that trade when insolvent or while having negative net assets are unlikely to have the resources to carry on the financial services business in compliance with the licensee obligations under Ch 7 of the Corporations Act.
RG 166.34 You should continuously monitor your solvency, but we do not require you to continuously monitor your net assets position. However, you must review it if you have some reason to doubt you have adequate net assets.
Essentially this means that in order to continue trading, you have the responsibility of being solvent as well as having positive net tangible assets. You must regularly ensure that you are solvent, and you must perform a review of your net assets if you have any suspicion that they aren’t where they need to be.
AFSL cash needs requirement
The cash needs requirement as outlined in the RG166 states:
RG 166.35 As a condition of your AFS licence, you must have sufficient resources to meet your anticipated cash flow expenses (cash needs requirement).
Essentially this means that you need to have sufficient outgoings to cover operation of your business for a certain period of time, in order to manage any contingencies. There are 5 total cash needs options outlined in the RG166, with each having different requirements. The options are outlined as follows:
See RG 166.40–RG 166.44
|Option 1 is designed for licensees that maintain a certain level of cash or other liquid financial resources at all times (e.g. by way of commitments by a parent company). We expect this option will be relevant for some small business licensees.|
See RG 166.45–RG 166.47
|Option 2 is suitable for all kinds of licensees, including small business licensees that do not always maintain cash or commitments of support from others. We expect this option will be most relevant for small business licensees.|
See RG 166.50
|Option 3 is relevant to licensees that can draw on financial backing from an Australian ADI or a relevantly recognised foreign regulated deposit-taking institution. We expect this option will not be relevant for small business licensees: see Table 6 and Information release (IR 03-26) Alternative means to satisfy cash needs requirement under PS 166.|
See RG 166.51
|Option 4 is relevant to subsidiaries of certain prudentially regulated bodies. We expect this option will not be relevant for small business licensees: see Table 6 and IR 03-26.|
See RG 166.52
|Option 5 is relevant to licensees in corporate groups that plan cash flows on a group basis. We expect this option will not be relevant for small business licensees: see Table 6 and Information release (IR 03-44) ASIC provides further options to meet cash needs requirements. There are alternatives under Option 5: Option 5A (suitable for a licensee with a commitment from a parent) and Option 5B (suitable for a licensee without a commitment from a related body corporate).|
At QC Accountants, we can report directly to your board of directors in order to verify that you meet the net tangible asset requirement and the cash needs requirement for your business, as well as work with your auditor after the fact. Contact us today and we will take care of it for you, no matter which option you are subject to.
Submitting general purpose financial settlements (GPFS)
On Friday, June 3 2022 an ASIC media release outlined financial reporting changes for AFS licensees.
These changes state that any for-profit company, registered scheme or disclosing entity that submits financial reports under Chapter 2M of the Corporations Act 2001 that are not themselves reporting entities can no longer prepare special purpose financial reports (SPFRs). They must now submit general purpose financial statements (GPFS).
This allows entities that do not have public accountability to use a simplified disclosure regime (Tier 2 simplified disclosures). Entities that do have public accountability however must comply with the disclosure requirements of the full standard (Tier 1 general purpose financial statements). An entity with public accountability is defined as:
- An entity whose debt or equity instruments are traded in a public market, or it is in the process of issuing such instruments for trading in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets); or
- An entity that holds assets in a fiduciary capacity for a broad group of outsiders as one of its primary businesses (this would include AFS licensees that hold client monies).
The GPFS must be lodged online as a PDF with the ATO on or before the day that you lodge your income tax return. On top of a GPFS, you must also lodge an FS70.
Lodging an FS70 / FS71 / FS76
The form FS70 is the Australian financial services licensee profit and loss statement and balance sheet and must be lodged every year. When lodging the form FS70 you must also attach a copy of your complete financial statements, including a profit and loss statement, balance sheet, non disclosures, and an audit report. On top of this, you must also lodge a form FS71, also known as an Auditor’s report. The FS71 is essentially a review of your FS70 performed by an auditor. This form is completed by an independent auditor but must be lodged by you, the AFS licensee.
If you are a limited AFS licensee and do not deal with client money, you must lodge a Form FS70 and a Form FS76 Annual compliance certificate but not a form FS71 unless you were not a limited licensee for part of the year, in which case you must submit all three.
We can help you lodge your form FS70 and/or FS76 as well as work with your auditor in order to lodge the form FS71 on time and according to regulation, just contact us to discuss your situation. You can also find out more information on forms FS70, FS76, and FS71 on ASIC’s website.
QC Accountants can help you with AFSL compliance
AFSL compliance requirements change frequently. ASIC’s financial requirements are tightening every year and it can be difficult to ensure compliance on an ongoing basis. We can assist organisations that hold AFSLs to meet compliance requirements, including all of those detailed in this article.
If you or your business want further advice and help in regards to any AFSL compliance issues, contact us today.