Minimum Financial Requirements (MFR) Compliance: An Essential Guide For Accountants

Since its inception on 1 January 2019, the Minimum Financial Requirements (MFR) Regulation has been a crucial aspect of the construction industry in Queensland, Australia. This regulation, administered by the Queensland Building and Construction Commission (QBCC) aims to fortify businesses and mitigate risks of financial failure, liquidations, and bankruptcies.

But what exactly does MFR entail and why must every accountant understand its nuances?

Understanding the MFR

The MFR Regulation mandates that every building contractor in Queensland maintains a financially sustainable business with adequate working capital. Key components of the MFR include assessing the contractor’s working capital through submitting a financial statement, known as an MFR Report. This report is crucial for demonstrating compliance with the net tangible assets position and minimum current ratio prescribed by the QBCC.

The MFR report: A vital component

Submission of an MFR Report is a prerequisite for maintaining a contractor’s licence and continuing operations within the industry. While annual submission is mandatory, certain circumstances demand the immediate submission of these reports, such as:

1. Applying for a new contractor-type licence.
2. Increasing maximum revenue beyond prescribed limits.
3. Reporting significant changes in net tangible assets (NTA).
4. Other scenarios include changes in business structure or upon request by the QBCC.

Who prepares MFR reports?

MFR Reports must be prepared and signed by qualified accountants meeting specific criteria. These professionals must:

1. Meet the requirements outlined in the ASIC Corporations (Qualified Accountant) Instrument 2016/786, or
2. Be a Registered Company Auditor, or
3. Hold a current public practising certificate from recognised professional associations.

While QBCC does not require an accountant’s approval to prepare the MFR, it’s important to note that they should maintain complete independence from the contractor. This independence is crucial for ensuring unbiased and accurate financial reporting.

A look at the latest amendments

In a significant update for Queensland’s construction sector, the Queensland Government has addressed concerns regarding escalating costs for contractor licencees by reinstating the use of Special Purpose Financial Statements (SPFS). This change, effective 16 February 2024, replaces the previously mandated General Purpose Financial Statements, which had led to increased costs in report preparation for categories SC1, SC2, 1, 2, and 3 (contractors with maximum revenue of up to $30 million).

Additionally, contractors seeking to adjust their maximum revenue to fit the affected financial categories may apply the new provisions. The change applies to financial information in MFR Reports for the quarter ending 31 December 2023 onwards.

It’s important to note that there are no alterations to the existing requirements for contractor licencees falling within financial categories 4 to 7, those with a maximum revenue of more than $30 million. These contractor licencees are still required to provide General Purpose Financial Statements for MFR Reports and annual reporting purposes.

The amendment offers much-needed relief to affected contractors, simplifying requirements and significantly reducing the financial burden of preparing MFR Reports. Looking ahead, contractors can anticipate convenient reporting procedures and cost savings, allowing them to navigate regulatory compliance more efficiently while focusing on their business objectives.

Consequences of non-compliance

Failure to meet the minimum financial requirements outlined by MFR can result in severe consequences such as suspension, cancellation of a contractor’s licence or imposition of conditions to rectify financial shortfalls. Compliance with MFR is essential for regulatory adherence and sustaining a stable and viable business in the long term.