AASB S2 Threshold Change: Budget 2026-27 Explained
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Australia Budget 2026-27: What the AASB S2 Threshold Change Means for Large Proprietary Companies
On Budget night, 12 May 2026, the Australian Government proposed lifting the revenue threshold that classifies a company as a large proprietary company from A$50 million to A$100 million. Around 1,500 companies would fall out of direct scope for financial and sustainability reporting. If you are a CFO who has been budgeting for a first mandatory AASB S2 (Australian Sustainability Reporting Standard S2: Climate-related Disclosures) climate report, this looks like a reprieve.
It is not a reprieve yet, and for many companies it will not be one at all. Spectreco, an ESG technology and advisory firm working with financial services, real estate, and corporate clients across Australia and the GCC, reads this as a shift in where the reporting work sits, not a removal of it. The change is a proposal, announced in the Budget and dependent on consultation and legislation that has not been drafted.
Sources: AUASB, Sustainability Assurance (Budget 2026-27 fact sheet); Grant Thornton Australia, Federal Budget 2026-27.
What the 2026-27 Budget Actually Changed
The Budget included a package badged as the Whole-of-Government Regulatory Reform Agenda: 14 legislative reforms targeting A$780 million a year in reduced regulatory burden. One line in that package changes the size test for proprietary companies.
Under the Corporations Act 2001, a proprietary company is large if it meets at least two of three thresholds. The Budget proposes to lift two of them, and leave the employee count where it is.
A company that no longer meets two of the three tests is reclassified as small. A small proprietary company does not lodge an audited financial report, a directors' report, or a sustainability report with the Australian Securities and Investments Commission (ASIC).
Sources: Chartered Accountants ANZ, Federal Budget 26-27; William Buck, Federal Budget Analysis 2026.
The accounting profession welcomed it as deregulation. Grant Thornton and William Buck both framed the change as a reduction in lodgement obligations for companies below the new lines. ESG advisers were more cautious, and the reason sits in what did not change.
Sources: Grant Thornton Australia; BDO Australia, Budget proposes sustainability reporting threshold changes.
What Did Not Change
The AASB S2 phasing is untouched. The three reporting groups keep their existing start dates:
- Group 1 (largest entities) has been reporting for financial years starting on or after 1 January 2025
- Group 2 begins for financial years starting on or after 1 July 2026
- Group 3 begins for financial years starting on or after 1 July 2027
Group 1 reporting is already live. By 6 May 2026, 259 first sustainability reports for December 2025 year-ends had been lodged with ASIC. There is no delay to the timeline, no change to the group definitions by employee count, and no walking back of the standard.
Sources: Terrascope, Navigating Australia's Mandatory Climate Reporting (ASIC lodgement data); AASB S2 General FAQs.
Did the 2026 Budget Remove AASB S2 Reporting for Large Proprietary Companies?
No. The Budget proposed raising the size thresholds that define a large proprietary company. It did not remove AASB S2 or change the group phasing. The measure needs consultation and legislation before it takes effect. Companies still above the thresholds, and all listed entities, report as before.
The reporting trigger is a two-part test. An entity must prepare an annual financial report under Chapter 2M of the Corporations Act, and meet a sustainability reporting threshold under section 292A. If the higher thresholds push a private company below large, it stops preparing a Chapter 2M financial report, and the sustainability report obligation falls away with it. ASIC has confirmed that entities not required to prepare Chapter 2M financial reports do not prepare sustainability reports.
Sources: AASB S2 General FAQs (Chapter 2M and s292A trigger); Terrascope, Australia mandatory climate reporting.
The catch: the A$100 million threshold applies to the Corporations Act lodgement obligation, not directly to the AASB S2 climate trigger. They are two different tests that move together for private companies near the line. For the full breakdown of who AASB S2 catches and what it requires, see our guide to what AASB S2 means for your business before July 2026.
Who Falls Out of Scope, and Who Stays In
Out of Direct Scope
The companies affected sit in the band between the old and new thresholds. A worked example makes it concrete.
A manufacturer with A$80 million revenue, A$30 million in gross assets, and 90 employees currently meets two of three tests, revenue and assets, so it is large today. Under the proposed thresholds it meets none: revenue below A$100 million, assets below A$50 million, and headcount below 100. It becomes small, and its direct AASB S2 obligation disappears.
Still In Scope
The change does not touch several large groups:
- Listed and public companies, which report regardless of the proprietary company test
- Proprietary companies still above two of the three new thresholds
- National Greenhouse and Energy Reporting Act 2007 (NGER) reporters, captured regardless of size
- Asset owners with more than A$5 billion under management
- Subsidiaries whose listed or foreign parent carries a reporting obligation
Sources: Terrascope, Australia mandatory climate reporting; AASB S2 General FAQs.
The Supply Chain Reality: Out of Scope Is Not Off the Hook
Here is the mechanic the headlines missed. AASB S2 requires Group 1 and Group 2 reporters to disclose material Scope 3 emissions from their second reporting year. Scope 3 covers all other indirect emissions across the value chain, and its first category is purchased goods and services.
A construction firm with A$90 million in revenue may lose its direct reporting obligation. Its Group 1 and Group 2 customers do not lose theirs. To close their own Scope 3 numbers, those customers will ask suppliers for emissions data, whether or not the supplier reports to ASIC. Australian property companies already face this as a tenant-data problem, which we cover in AASB S2 for Australian real estate.
The Budget itself acknowledges the spillover. One of its three climate-specific consultation items is setting clearer boundaries on supplier information requests, with small businesses named directly. When the Government proposes to regulate how large reporters ask suppliers for data, it is confirming that the requests are coming.
Sources: NetNada, Budget 2026-27: What Changed for AASB S2 Climate Reporting; Terrascope, Australia mandatory climate reporting.
There is a second reason to keep the data flowing. Lenders and investors price climate risk. A company chasing green loans, sustainability-linked finance, or a lower cost of capital may need credible emissions data no matter what ASIC requires. Winding down a reporting function you have already built, only to rebuild it when a bank or a major customer asks, is a false saving.
What Large Proprietary Company CFOs Should Do Now
- Re-run your threshold test. Check your consolidated revenue, gross assets, and headcount against the proposed A$100 million, A$50 million, and 100-employee lines, and confirm whether you meet two of three.
- Map your customers. Identify any Group 1 or Group 2 customers who will need your Scope 3 data from their second reporting year. Their timeline, not yours, sets your real deadline.
- Model the decision, do not default to it. Compare the cost of maintaining disclosure against its value to lenders, investors, and customers before you wind anything down.
- Watch the consultation. The reforms are proposals. Track the legislation and the three climate consultation items: undue cost or effort, assurance recalibration, and supplier information requests.
Frequently Asked Questions (FAQs)
Test Your AASB S2 Scope Before You Change Your Plan
Not sure which side of the new thresholds you land on, or which customers will still need your data? Spectreco runs an AASB S2 scope assessment that tests your entity against both the current and proposed thresholds, maps your value-chain data exposure, and sets out a proportionate reporting plan. Our Compliance, Reporting and Disclosures advisory team pairs that assessment with the Spectreco ESG platform, or runs it as a managed service through our Virtual Sustainability Office, so your emissions data stays audit-ready whether you report to ASIC or to a customer.
Next step: Book an AASB S2 scope assessment with the Spectreco team.
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