Information for Accountants
Frequently asked Questions
The topics included are a selection of frequently asked questions designed to provide you with answers to common questions and oversights.
Who is an Accepted Independent Accountant to complete MFR Reports?
Part 6 of the Minimum Financial Requirements details the persons qualified to complete the MFR report on behalf of an applicant or licensee. Essentially, the Accepted Independent Accountant must be independent of the applicant or licensee (ie not a spouse, investor, shareholder etc).
Can the Accepted Independent Accountant re-type or alter the wording in the MFR Report?
The MFR Report may be re-typed onto the letterhead of the as long as the wording in the body of the document is not altered.
Does the Accepted Independent Accountant have to assess the licensee against all Australian Accounting Standards?
The accountant must use Australian Accounting Standards set out at section 6.3 of the MFR policy (as a minimum) in the preparation of the financial statements that will form the basis of the MFR Report.
By completing and certifying the MFR Report, an Accepted Independent Accountant is warranting that all relevant Australian Accounting Standards for that licensee have been complied with when compiling the report.
When the requirements state the accounts are to be no older than 4 months in age – does this mean the report is to be dated no more than 4 months old or the end of the actual reporting period is to be no more than 4 months ago?
The reference to 4 months age of accounts means no more than that length of time has lapsed between the year end date stated on the report, and the date the report is signed by the accountant and licensee.
What is a current ratio?
A current ratio is an accounting ratio calculated to assist in determining the financial viability of a business. The minimum current ratio for a licensee is 1:1. This means the licensee must have at least $1 in current assets for each $1 of current liabilities.
A more detailed description is contained in the Minimum Financial Requirements.
How will the ratio be expressed if I have no liabilities?
The ratio must still be provided even if there are no current liabilities. It must be expressed as a numerical ratio e.g. 1.73:1 OR 1.73:0.
Applicant or licensees must meet the minimum requirement of 1:1 at the time of application, and at all times whilst the licence is held.
There may be instances where assets are removed from the calculation of the current ratio due to those assets being intangible or disallowed assets under the Minimum Financial Requirements. However, all current liabilities must be considered when calculating the current ratio.
Related Entity Loans or Investment Assets which have been excluded in determining the Net Tangible Asset calculation must also be excluded from the Current Ratio calculation, where they are recorded as a current asset.
If the licensee is a trustee of a trust, are the trust amounts included in the current ratio calculations?
Yes, the current assets and current liabilities of the trust are included in the calculation to determine the current ratio. Any intangible, uncollectible or disallowed current assets in the Trust need to be removed in calculating the Current Ratio.
Example: The licensee has $2 current assets and no current liabilities. The trust has $100 current assets and $80 current liabilities. The calculation is determined by the total of all current assets, divided by the total of current liabilities. $102.00 / $80.00 = 1.27:1
If the licensee is a trustee of a trust, how is the ratio for the trust calculated? Do amounts owing by the trust to beneficiaries have to be included as current liabilities?
The amounts owing by the trust to beneficiaries are certainly liabilities of the trust. Whether those liabilities are current liabilities or non-current liabilities should be determined by an accountant. In making this determination the accountant must abide by the provisions in the Trust Deed, and also apply applicable accounting principles, practices and policies.
If the liabilities are properly classified as current rather than non-current liabilities then those liabilities would be taken into account in calculating the licensee’s current ratio.
What is a Deed of Covenant and Assurance?
The Deed of Covenant and Assurance (the Deed) is a gazetted document which forms part of the Minimum Financial Requirements, and must be read in conjunction with that document. It allows licensees who do not have sufficient Net Tangible Assets in their own right to rely on assets of certain related parties to meet NTA requirements.
How does the Deed of Covenant and Assurance work?
The Deed of Covenant and Assurance creates a legal obligation on both parties, hence the requirement for the licensee and the assurer to receive legal advice (highly recommended for licensee, compulsory for the assurer/covenantor). . The Deed may become enforceable upon an insolvency event of the licensee.
The trustee in bankruptcy or liquidator may make a demand on the assurer to pay the amount stated in the last MFR Report. The Deed contains a charging clause that assurers should have explained to them prior to the execution of the Deed.
Who can provide a Deed?
Table 1 - Possible Assurers of the Minimum Financial Requirements provides information about who can provide a Deed based on structure.
It is the responsibility of the accountant completing the MFR Report to determine that the Covenantor is a related party as stated in the table.
Is there a standard Deed of Covenant and Assurance document?
Yes, the Deed of Covenant and Assurance can be downloaded from the QBCC website. This document can not be altered in any way from the prescribed format.
Why is there no amount stated in the Deed of Covenant and Assurance?
The amount being assured is stated in the MFR Report or Audit Report - not the Deed. This allows QBCC to accept a Deed once only, and be able to continue to rely upon it until it is no longer needed by the licensee. This eliminates the need to update the Deed when a new MFR Report is provided.
Can a Deed of Assurance be provided by the beneficiaries of a trustee company that is trading in partnership with the licensee?
No, the beneficiaries of the trustee company are outside the stated relationships in Table 1 of the Minimum Financial Requirements.
Can the solicitor alter the Deed of Covenant and Assurance?
No, QBCC will not accept the Deed where alterations have been made. Only the blank spaces may be completed and the document must be signed by both the licensee and the assurer.
Where there is not enough signing spaces for the licensee and all assurers to sign the Deed, then an extra signing clause can be added.
Can the amount assured under the Deed of Covenant and Assurance be used in the calculation of the licensee’s current ratio?
No, the Deed of Covenant and Assurance can only be used to support the Net Tangible Asset requirements of the licensee. However, the licensee NTA must be at least $0 before the assured amount is included.
Where there is a company licensee and the director is also licensed, can the assets used for the director’s licence be assured to the company?
No, the assets may only be counted once, not twice or more. If they are being used to support the director’s personal licence, they must be deducted before determining if the amount available can be assured to the licensee.
A beneficiary of a trust is going to provide a Deed of Covenant and Assurance in favour of the trustee. The beneficiary’s only asset is its interest in the trust. Is this acceptable?
The beneficiary will only be entitled to provide a deed of covenant to the extent that the beneficiary has a presently existing entitlement to a distribution from the trust (i.e. the beneficiary has a vested interest). The accountant will also need to determine that the distribution entitlement is able to be recovered or is collectable to be able to rely upon it.
What does the term associated company mean where that term is used in relation to the giving of a Deed of Covenant?
An associated company of the licensee is a company that:
- Is related to the licensee within the meaning of section 50 of the Corporations Act 2001; or
- has the same shareholders and directors as the licensee.
If more than one person is giving a Deed of Covenant and Assurance in support of a licensee, are separate deeds required or can they all sign the one Deed of Covenant?
QBCC will accept both alternatives. All of the Covenantors can sign a single Deed, or they can each sign separate Deeds.