Holders of QBCC contractor licenses must comply with the requirements of the Queensland Building and Construction Commission (Minimum Financial Requirements) Regulation 2018. These regulations are very prescriptive, and place a significant accounting and reporting burden on those licensees. The QBCC website also provides guidance on the application of those requirements.
If you need assistance complying with your QBCC financial reporting requirements, please contact our office.
Minimum financial requirements That licensees have to comply with
Under the MFR Regulations, a licensee must at all times comply with the following tests:
Actual revenue not exceed (and not be likely to exceed) the licensee’s maximum revenue by more than 10%
Net tangible assets:
Excluding any deed of covenant >$0
Including any deed of covenant more than minimum required for their approved maximum revenue
Not fall more than 30% (20% for Cat 4-7) below most recently accepted NTA figure
Current ratio of at least 1:1
Maintain professional indemnity insurance of at least the required level
Pay all debts on or before the due date
In most cases, failure to comply with any of these requirements will trigger preparation and lodgement of a MFR Report.
Financial reporting requirements
As part of an application for a license, annual reporting and ad-hoc (MFR Report) reporting, the QBCC will request financial information. There are three different levels of financial information that may be requested:
A declaration – normally for SC1 And SC2 licensees; a signed statement confirming total revenue and summary balance sheet figures.
Internal management accounts – normally for category 1-3; formal financial statements. Can be special purpose; that is not applying all of the accounting standards. Must be prepared quarterly by all licensees.
Signed financial statements – normally for category 4-7, also for any MFR Report; formal general purpose financial statements applying all the accounting standards. Often required for an interim period, i.e. a portion of a financial year.
For internal management accounts and signed financial statements, in addition to the requirements of the accounting standards, QBCC also requires that a detailed schedule of accounts payable and accounts receivable be included in the financial report.
MFR Report
If a MFR Report is required, it must be prepared and signed by a qualified accountant. The MFR Report must be signed within 4 months of the balance date, and submitted to QBCC within 30 days of the accountant signing.
A MFR Report is required in the following situations:
Application to increase maximum revenue
NTA decrease 30% (20% for cat 4-7) below NTA accepted by QBCC
No longer meeting current ratio of at least 1:1
Cease relying on a deed of covenant, revoke a deed of covenant or amend a deed of covenant
Applying for a new contractor-type license
Significant change to the business; i.e. change of ownership, change of director
On request by QBCC
The MFR Report must be prepared by an accountant who is independent of the licensee. i.e. is not an employee, shareholder, director of the licensee. The definition of independent accountant in section 50CA of the Queensland Building and Construction Commission Act 1991 is a different concept to auditor independence, and does not preclude the licensee’s external accountant from preparing the financial report and MFR Report.
There are two different types of MFR report:
Licence categories 1-3
Financial statements can be prepared by the external accountant with a compilation report attached. The MFR report can be signed by the licensee’s external accountant, and doesn’t require an independent assurance practitioner.
The external accountant signs to confirm:
The NTA, current ratio, and actual revenue are calculated according to the MFR Regulations
The financial statements have been prepared per the requirements of the MFR Regulations
Nothing has come to my attention that causes me to believe that this MFR Report is not prepared, in all material respects, in accordance with the MFR Regulations
I confirm that the financial information presented by the Licensee complies with the requirements of the MFR Regulation as at the period end date.
The declarations required by QBCC in the MFR report, while less than an audit or review, are still more onerous than a compilation engagement. They could best be characterised as a combination of a compilation engagement and an agreed upon procedures engagement.
Licence categories 4-7
Require an audit or review of the financial statements, and the MFR report to be signed by the external assurance practitioner
For a review the external assurance practitioner confirms:
Nothing has come to my attention that causes me to believe the financial information in the MFR Report is not prepared in accordance with the MFR Regulations and accounting standards
The NTA, current ratio, and actual revenue are calculated according to the MFR Regulations
For an audit the external auditor confirms:
The financial information in the MFR Report is prepared in accordance with the MFR Regulations and accounting standards
The NTA, current ratio, and actual revenue are calculated according to the MFR Regulations
For the external assurance practitioner to be able to sign the MFR Report, they will need to complete an assurance engagement on the financial statements, as well as complete additional assurance procedures to confirm the application of the MFR Regulations.
terminology and definitions
Deed of covenant and assurance
A deed of covenant and assurance is a way for a licensee to receive a guarantee from another entity to assist with meeting financial requirements. This is very similar to being a guarantor for a bank loan. There is a pro-forma deed provided by QBCC that must be signed by the guarantor after receiving advice from a lawyer. QBCC will keep the original signed copy of the deed.
The deed of covenant and assurance is for a specific dollar value, and that value can be included as an asset of the licensee for the purpose of calculating net tangible assets.
Maximum revenue & categories
Maximum revenue is calculated based on a formula from net tangible assets. If a licensee will exceed their maximum revenue by more than 10% in a financial year, they must submit a MFR Report to request an increase to their maximum revenue, which will in turn require the appropriate level of net tangible assets.
Actual revenue is calculated for a trustee including the revenue of the trust. For a partnership including all revenue of the partnership. For a group of companies including the whole group. Revenue does not include salary and wages (where the licensee is an individual) and doesn’t include GST received.
Net tangible assets
Net tangible assets are specifically defined within the MFR Regulations, and include some specific inclusions and exclusions.
NTA must be at least $0, excluding any deed of covenant.
Each category of license also has a minimum level of NTA that must be maintained at all times.
If a licensee’s NTA reduces below the NTA level reported to the QBCC by 30% (20% for cat 4-7) the licensee must lodge a MFR within 30 days of the date they become aware of the decrease (or ought reasonably to have become aware*).
*Since there is a requirement to prepare quarterly accounts, a licensee ought reasonably to become aware at the latest at the time of preparation of each quarter’s accounts.
Net tangible assets are calculated as all the assets of the entity, minus intangible assets, minus disallowed assets, minus all the liabilities of the entity. The MFR Regulations include a list of items that are counted as assets, disallowed assets, and liabilities.
Disallowed assets include (among other things):
Recreational vehicles
Collectors items
Personal use items
Unlisted investments
boats, ships, jet skis, planes, helicopters, race horses and racing cars
impaired debtors
For related entity loans to be included, the related entity at the same balance date must have net tangible assets of >$0 and current ratio at least 1:1. This is calculated on the same basis as the licensee; i.e. excluding intangibles, excluding disallowed assets.
Related entity liabilities cannot be excluded.
Deed of covenant is an asset for NTA purposes
For a licensee that is a trustee of a trust, the assets of the trust do not form part of the NTA, unless the trust has negative net assets, in which case the amount of the deficiency is a liability of the trustee.
Actual NTA will determine the actual approved maximum revenue figure.
Current Ratio
The minimum current ratio for a licensee is 1:1. You must have at least $1 in current assets for each $1 of current liabilities.
Current ratio = Current assets / Current liabilities
Current ratio cannot be rounded up. A deed of covenant is not included in current ratio calculations.
The current ratio of the trustee of a trust includes assets and liabilities of the trust and trustee together.
Goodwill, intangible assets, uncollectable receivables and other disallowed assets are not included in current ratio calculations.
Related entity loans excluded for the NTA calculation are also excluded for the current ratio calculation.
Annual reporting
Once per year submission to QBCC. Does not require any accounting standards to be applied, but is used to ensure that licensees are meeting their financial requirements.
Trust Structures
QBCC does not licence the trust, it is the trustee who holds the licence. NTA is calculated on the trustee only, which normally means that a deed of covenant and assurance will be required to meet NTA requirements. Negative net assets of the trust will flow as a liability to the trustee.
Current ratio is calculated on the combination of the trust and the trustee together.
Any unpaid present entitlements will normally be a current liability, unless there is a written contract in place that gives the trustee an unconditional right to defer settlement beyond 12 months.
When lodging financial information, financials need to be prepared for the trust and also for the trustee. In the case of a MFR Report, that means two separate general purpose financial statements need to be prepared.
General purpose financial statements
Preparing general purpose financial statements is quite different to tax basis special purpose financial statements. Firstly, the trial balance has to be prepared applying all of the Australian Accounting Standards in calculation of the numbers at the balance date. This includes, for example:
AASB 16 lease accounting
Recognising income per AASB 15
Taking up accrued expenses and prepayments
Deferred tax accounting
Using accounting depreciation rather than tax depreciation
Once the trial balance is correct, then the financial statements have to be prepared with all of the required disclosures. For example, including a cash flow statement, statement of changes in equity, detailed notes to the accounts with such information as a tax reconciliation, movements in PPE schedule, key management remuneration, related party transactions, etc.
Interim financial statements
A MFR Report will require general purpose financial statements, and often not be for a full financial year. In fact you can prepare a MFR report and the relevant financial statements to any date of your choosing, even if that is a date part way through a month. Unless you are preparing a MFR Report for a licensee’s financial year end, it will be an interim financial report.
However, for interim financial statements to be called general purpose financial statements, they must be prepared in accordance with AASB 134 Interim Financial Reporting. This requires that three different trial balances be prepared. As an example, assuming a 30 June financial year end, and MFR for 30/11/22, the P&L, cash flow and statement of changes in equity will all be for the period 1/7/22-30/11/22, with comparatives for 1/7/21-30/11/21. While the balance sheet will be as at 30/11/22, with comparatives at 30/6/22.