Bands’End Ltd has 6 shareholders, each of whom is a director involved in the day

Question

Bands’End Ltd has 6 shareholders, each of whom is a director involved in the day to day operations of the community. Landed Ltd has only 86 full-time employees each of whom has direct, personal contact with the directors.

The financial statements of Bands’ End Ltd for the year ended 30 June 2015 show:

Gross assets of $14,500,000 and

Gross revenue of $24,001,000.

Equity 5.5million

Explain, justifying your answer, if Bands’ End Ltd is required by the Corporations Act 2001 to produce an annual report according to AASB accounting standards for the year ending 30 June 2017?

Explanation / Answer

The applicable portion is chapter 2M

The company is covered by Corporations Act 2001 if it is registered in Australia. It is not explicitly mentioned that the company is backed by personal guarantee of the shareholders.

The ACT requires identification of entities which are required to prepare financial report.

Entities which are required to present financial reports are the entities where the ownership and management has a disconnected relationship and where the users having financial ownership and interest in the entity are dependent on the financial report for making and evaluating resource allocation decisions. This is not the case for Bands End where each shareholder is a director and is involved day to day operations of the company.

The company has to prepare the financial report if any one of the shareholders requests for it in writing since each shareholder holds more than 5% voting shares. However, whether the financial report has to comply with all the accounting standards or whether it has to be audited will depend on the purpose and nature of request.

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