Certificates issued by a qualified accountant
Generally people buying securities and other financial products must, under the Corporations Act 2001(the Act), be given a regulated disclosure document such as a prospectus or product disclosure statement. However, the Act has some exemptions from these requirements.
One of those exemptions is the offering of financial products to a person (either a natural person or a legal person) who is the subject of a current certificate from a qualified accountant certifying they have a prescribed net asset or gross income level.
A person holding such a certificate is a:
- ‘sophisticated investor’ for the purposes of Chapter 6D (if they are offered debt or shares) or
- ‘wholesale client’ for the purposes of Chapter 7 (if they are offered a financial product, other than insurance, superannuation or a retirement savings account product or service) and the financial product is not used in connection with a business.
This article discusses some of the requirements of issuing these certificates, and is current as at March 2006.
Qualified accountant
A qualified accountant is defined in s88B of the Act as a person meeting the criteria in a class declaration made by ASIC. Under our class order [CO 01/1256] you are a qualified accountant if you:
- belong to one of the following professional bodies at the declared membership classification, and
- you comply with your body's continuing professional education requirements.
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Declared membership classifications
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| The Institute of Chartered Accountants in Australia | CA, ACA and FCA |
| CPA Australia | CPA and FCPA |
| National Institute of Accountants in Australia | PNA, FPNA, MINA and FINA |
Under our declaration you are also a qualified accountant if you are a member of one of the eligible foreign professional bodies listed in the following section and you:
- have at least three years' practical experience in accounting or auditing, and
- are only providing a certificate for the purposes of ss708(8)(c) and 761G(7)(c) to a person who is resident in the same country (other than Australia) as yourself.
Eligible foreign professional bodies
- The American Institute of Certified Public Accountants;
- Association of Certified Chartered Accountants (United Kingdom);
- Canadian Institute of Chartered Accountants;
- Institute of Chartered Accountants of New Zealand;
- The Institute of Chartered Accountants in England and Wales;
- The Institute of Chartered Accountants in Ireland; and
- The Institute of Chartered Accountants of Scotland.
In practical terms, this means that foreign investors and some Australians working overseas may be able to more readily access Australian financial products without triggering significant additional disclosure obligations on the issuer.
Decisions about how the gross income and net assets are measured for the purposes of the calculations under the certificate are matters the Act has left to your professional judgement as an accountant. This explains why we have only declared specified classes of accountants who are members of recognised professional accounting bodies. Our Regulatory Guide RG 154 Certificate by a qualified accountant, discusses our thinking on this subject.
Currency of certificates
Under Chapters 6D and 7 certificates are now valid for up to two years after they were issued.
Gross income or net asset level
The Corporations Regulations prescribe the asset and income criteria which must be met before you can issue a certificate. A person is only eligible to be the subject of a certificate if they have:
- a gross income of $250,000 or more per annum in each of the previous two years or
- net assets of at least $2.5 million (reg 6D.2.03 and reg 7.1.28).
The rationale is that people meeting one of these criteria are more likely to be able to evaluate offers of securities and some financial products (such as interests in managed investment schemes) without needing the protections of a regulated disclosure document.
Calculating income or assets
The terms ‘net asset’ and ‘gross income’ are not defined in the Act and will therefore have their ordinary or common meaning.
The gross income or net assets of the person to whom the certificate relates may be included in the calculation under the certificate. in addition:
- the net assets of a company or trust controlled by the person can be included in the net asset calculation, and
- the gross income of a company or trust controlled by the person can be included in the gross income calculation. (ss708(9B), 708(9C) and ss761G(7A) and (7B) as inserted into the Actby reg 7.6.02AC)
The term ‘control’ is defined in s50AA of the Act and generally follows the accounting definition of that term so that a person may control a company or unit trust yet hold less than 50% of the shares or units.
Q. Can I include their company's income or assets?
Yes.
You may include the net assets or gross income of a company they control.
Q. The person controls a company that is trustee of a trust. What can I include?
You cannot include their gross income or the assets of the trust.
This is because a trustee company having fiduciary duties cannot meet the control test and you cannot therefore include the income or assets of the trust. A trustee company does not own the assets of the trust and if the trust has borrowings its only asset will frequently be a right of indemnification from the trust assets equal to the liabilities it incurred on behalf of the trust. Therefore it will have no net assets unless it has assets in its own right. However, a beneficiary may control a trust for the purposes of including the trusts net assets or gross income.
Tips for issuers receiving an accountant's certificate
As an issuer, the relevant sections of the Act permit you to rely on the face of the certificate unless you have actual knowledge that the certificate is incorrect. There is no need for you to inquire behind the certificate if you are satisfied the certificate:
- is issued by a person who is a qualified accountant. This means they must hold a class of membership of one of the professional bodies in our class order (and repeated earlier in this article) and state they comply with that body's professional education requirements.
- is dated and it is less than 2 years since it was issued at the time you offer the person the securities or financial product;
- is clear about which Chapter or Chapters of the Act it is issued under;
- if used in relation to a Chapter 7 financial product or service the issuer must satisfy themselves additionally that the product or service is not used in connection with a business;
- says the person to whom the offer is made has a gross income of $250,000 or more in each of the preceding two years (before the certificate was issued) or net assets of at least $2.5million;
If the certificate is used with a Chapter 7 financial product or service you must also be satisfied that the product or service is not used in connection with a business.
Sample certificate for accountants and issuers
Accountants and issuers may find our sample certificate handy when writing or handling a certificate.
Download a copy of the sample certificate
ASIC Website: Printed 07/29/2010
