Minimum Financial Requirements. Minimum Financial Requirements. Effective 1 October 2014

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1 Minimum Financial Requirements Effective MFRv

2 Contents 1. Financial Requirements Financial Requirements Objectives Application of this policy Applicants and Licensees must comply with this policy Information provided by an Applicant or Licensee Parts 2-7 not applicable in certain circumstances Forms Net Tangible Assets Financial Requirement - Net Tangible Assets Demonstrating Sufficient Net Tangible Assets Decreases in Net Tangible Assets Negative Net Tangible Assets Asset Valuations Related Entity Loans and Investments Assets Deed Of Covenant And Assurance Maximum Revenue Financial Requirement Maximum Revenue Calculating Maximum Revenue Exceeding Maximum Revenue Current Ratio Financial Requirement Current Ratio Calculating the Current Ratio Determining Current Assets and Current Liabilities based on Licensee Structure Current Ratio for declaration categories (SC1 & SC2) Financial Monitoring Financial Requirement Financial Monitoring Provision of Internal Management Accounts to the Commission Accepted Independent Accountants Qualifications for Accepted Independent Accountants Another Responsible Person Notice to Accepted Independent Accountants for Minimum Financial Requirements Reports Page

3 6.4 Warning to Accepted Independent Accountants Reporting Requirements for Accepted Independent Accountants Determining Collectability of Related Entity Loans or Investment Assets Implied Warranty by Accepted Independent Accountant Submission of Financial Information to the Commission Applicants for a Licence Existing Licensees Applying for a New Licence Self-Certification Categories (SC1 & SC2) Financial information for Categories Applicants and Licensees subject to ASIC Audit Requirements Applicant and Licensees not previously audited who become subject to ASIC Audit Requirements Applicants and Licensees in Categories 3-7 Not Required by ASIC to be Audited Overseas Companies in Categories Compliance Audit Restructure of Licensee Assessment of Financial Information by the Commission Assessment of financial information Failure to meet minimum financial requirements Payment of Debts Financial requirement payment of debts Financial requirement does not apply in certain circumstances Documents and evidence to be provided to the Commission Professional Indemnity Insurance Financial Requirement - Professional Indemnity Insurance Sprinkler and suppression systems (reticulated water based) Certify Terms and Conditions of Insurance Policy Insurance requirements for Fire detection, alarm and warning systems Certify licence Evidence of Cover Implied warranty by insurance companies and insurance brokers Circumstances when insurance is not required Commission may impose licence conditions Incorrect Information Confidentiality Transitional Provisions Page

4 13.1 Repeal of financial requirements policies existing prior to Transitional provisions Continuing classes of fire protection licence Definitions 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 23 Table A - Minimum Financial Requirements 44 Attachments Attachment 1 - MFR Report 32 Attachment 2 - Declaration Maximum Revenue up to $200, Attachment 3 - Declaration Maximum Revenue up to $600, Attachment 4 - Declaration Professional Indemnity Insurance 37 Attachment 5 - Statement of Financial Position Covenantors 39 Attachment 6 - Review Control Sheet 40 3 P age

5 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 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 4 P age

6 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 request the 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 requested 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 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 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: 5 P age

7 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 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) (b) (c) (d) (e) (f) (g) Building design low rise; Building design medium rise; Building design - open; Hydraulic services design; Hydraulic services design excluding design of on-site domestic waste water management; Site classifier; 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 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. 6 P age

8 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. 7 P age

9 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 $ Demonstrating Sufficient Net Tangible Assets NTA may be evidenced, either through a Declaration completed by the Applicant or Licensee, or a Minimum Financial Requirements 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 estimated 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 financial year end position unless the Licensee provides a new Declaration or Report within 30 days of the decrease occurring. The Declaration or 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 financial year end 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. 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. 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. 8 P age

10 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 Appropriately Qualified Independent Person preparing the Minimum Financial Requirements 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 an eligible entity as stated in 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 Minimum Financial Requirements 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 Minimum Financial Requirements 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 Minimum Financial Requirements 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 Minimum Financial Requirements 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 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. 9 P age

11 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 Minimum Financial Requirements 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 Company Trading as a stand-alone Company Company Trading as part of a group of companies Individual or Company trading in a Partnership Directors of the Licensee company Associated company Directors of the Licensee company Associated company Other companies in the group Other partners within the 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 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: 10 P age

12 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 Minimum Financial Requirements 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. 4. Current Ratio Definitions for Section 4: In this section: 11 P age

13 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) the assets is 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. 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. 12 P age

14 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 may 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: Individual Sole Trader Company trading as stand-alone company Company - trading as part of a group of companies under ASIC Class Order 98/1418 or similar Individual or Company trading in partnership Individual or Company - acting as trustee Current Assets and Liabilities of: Individual Only Company Only Stand alone, closed group or consolidated group, as per reporting to the Commission Individual or Company in combination with partnership/s Individual or Company in combination with trust/s 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. 13 P age

15 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 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. 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 Minimum Financial Requirements 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 14 P age

16 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 Minimum Financial Requirements 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 least $250,000 Holder of a current public practising certificate from the Australian Society of Certified Practising Accountants (CPA) Holder of a current public practising certificate from the Institute of Chartered Accountants in Australia (ICAA) Holder of a current public practising certificate from the National Institute of Accountants (NIA) Holder of a current public practising certificate from the Association of Taxation and Management Accountants (ATMA) Holder of a current public practising certificate from the National Tax & Accountants Association (NTAA) Holder of at least Membership status of one of the above professional associations Registered Tax Agent Categories 1 to 7 Category 1 to 2* Category 1 to 2* Category 1 to 2* Category 1 to 2* Category 1 to 2* Category 1 Only 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. All work must be performed in accordance with all applicable Australian Accounting and Auditing Standards, and other mandatory reporting requirements. The Accepted Independent Accountant completing the Report may be required by the Commission to demonstrate suitable audit experience. 6.2 Another Responsible Person Where a Minimum Financial Requirements 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 Minimum Financial Requirements Reports The following Australian Accounting Standards are mandatory when submitting Minimum Financial Requirements Reports to the Commission: 15 P age

17 AASB Framework for the Preparation and Presentation of Financial Statements; 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 Events after the Balance Sheet Date; AASB 111 Construction Contracts; AASB 136 Impairment of Assets; AASB 137 Provisions, Contingent Liabilities and Contingent Assets; AASB 1048 Interpretation and Application of Standards; Plus any other standards relevant to the Licensee s business. All Minimum Financial Requirements Reports are to be prepared by an Accepted Independent Accountant based on financial information of the Applicant or Licensee. Minimum Financial Requirements 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 Minimum Financial Requirements 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. 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 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 Minimum Financial Requirements 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 Minimum Financial Requirements Report. The Accepted Independent Accountant providing the Minimum Financial Requirements Report must carry out the tests and checks referred to in the Review Control Sheet as a minimum requirement. Minimum Financial Requirements Reports will be deemed incomplete for assessment where they are qualified by disclaimer clauses by the Accepted Independent Accountant giving the report. 6.6 Determining Collectability of Related Entity Loans or Investment Assets 16 P age

18 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 Minimum Financial Requirements 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 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. 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. 17 P age

19 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 Minimum Financial Requirements 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 Minimum Financial Requirements 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. 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, are required to provide a Minimum Financial Requirements 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 Minimum Financial Requirements 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 Minimum Financial Requirements Report is to be based on either: a) the consolidated group of companies; 18 P age

20 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. 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 is required to provide a Minimum Financial Requirements Report completed by the Registered Company Auditor based on the first set of financial statements prepared which are audited. If the Applicant or Licensee is operating as a stand-alone company, the Minimum Financial Requirements 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 Minimum Financial Requirements 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. 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 Corporations Act 2001, are required to submit a Minimum Financial Requirements 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. 19 P age