Along with the ASX Guidelines for governance of listed entities, CLERP 9 ushers in a wave of new rules governing matters as diverse as auditor qualifications and independence, executive remuneration and disclosure. Much has been said and written regarding the purpose of the legislation and in particular the difficulty of legislating for integrity. That said, the law is with us now and looks likely to stay. The new rules arose from public outcries both here and in the US and UK after a number of high-profile corporate collapses.

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In September , we witnessed a doubled barrelled response from the Government in relation to a small number of high profile corporate collapses in Australia and overseas developments, particularly in the United States in the form of CLERP 9 and Report These foreshadow significant legislative and other changes for listed entities, new corporate governance rules, higher penalties for directors and officers, more power to ASIC and audit restrictions.

These two reports total over pages and contain over 50 recommendations for changes to corporate governance, financial reporting and auditing landscape. Those recommendations that involve legislative amendments have been foreshadowed for release in early with most changes expected to be operative for operative for 30 June The Corporate Impacts. Given that the Corporate Governance Council has only recently been established and its pivotal role under CLERP 9, it worth briefly recapping is role, work program and membership.

On 1 August , the Australian Stock Exchange Limited ASX announced the establishment of Corporate Governance Council to develop an agreed set of corporate governance standards of best practice for Australian listed companies. The ASX foreshadowed that it would enhance its current listing rules disclosure requirements to ensure that listed companies fully report to the market, and shareholders on their adherence to these standards.

The Council is to develop a set of consolidated and up-to-date corporate governance standards. These standards would be issued as co-branded statements by all parties involved in their development and, as such, would carry a strong endorsement of expected practice by companies.

It was envisaged that the conclusions of the Council would be made available for comment by the Corporate Governance Roundtable, the Financial Reporting Council, Commonwealth Treasury and other interested parties. The role of the Council is to lead the adoption by Australian listed companies of corporate governance practices that reflect international best practice.

The adoption of such practices is intended to enhance the reputation of Australian capital markets and Australian companies. The Council will issue statements of best practice corporate governance principles. It is envisaged that statements will be in place for the 30 June financial year. It is expected that the principles will carry a strong endorsement of expected practice in Australia.

The statements will be subject to review and update. The Council identified that good corporate governance must be designed to achieve the following outcomes:. Protect the rights of shareholders; Recognise the interests of the general public; Ensure timely and accurate disclosure of all material matters affecting the company; Provide a framework for the board and management to pursue objectives that are in the best interests of shareholders and the company; Encourage the productive and efficient use of corporate resources; and Provide transparency and accountability for the use of corporate resources.

An essential criterion to assess the validity of corporate governance reforms is whether they empower the shareholder, particularly through the provision of material information both within the company itself, and via the marketplace as a whole.

The Council identified the following activities for its work program:. Review and provide input, where necessary, into published guidance recommendation for corporate governance practice in Australia having regard to international practice.

Assist the ASX in building an understanding of best practice for listed companies, including providing suggestions for amendment to the its listing rules and guidance notes. Provide information related to corporate governance to investors and the wider community. Regularly review compliance with best practice. The Corporate Governance Council consists of 14 representatives of the following organisations:.

ASX proposed retaining its requirement that companies report on their main corporate governance practices in the Annual Report, and to do so by reference to the corporate governance principles set by the Council.

In addition, where companies do not follow the best practice recommendations of the Council, they must identify where they do not and explain why.

The Council established working groups to develop principles and forward them to the Council for endorsement and consolidation into best practice recommendations. Issues to be dealt with by the working groups include:. Corporate Governance Spotlight. The activities of the Corporate Governance Council will need to be closely monitored. Although the Corporate Governance Council may initially be seen as applying to listed companies, its best practice guidelines will influence corporate governance in the public and not-for-profit sectors and other entities.

ASIC will be given the power to impose financial penalties and issue infringement notices in relation to contraventions of the continuous disclosure regime CLERP 9 — Recommendation The ASIC will also monitor the adequacy of civil and criminal penalties and make such recommendations as are required to ensure consistency and adequacy of penalties under the law CLERP 9 — Recommendation In addition to its power to seek civil penalties in relation to contraventions of the continuous disclosure regime by disclosing entities, ASIC will be empowered to seek such a penalty against any other person involved in a contravention CLERP 9 — Recommendation Amendments are proposed to the civil recovery provisions relating to contraventions of the continuous disclosure provisions of the law to clarify that a person may seek compensation regardless of whether ASIC has sought a declaration of contravention.

All investors should have equal access to materially price sensitive information disclosed by listed entities CLERP 9 — Recommendation Market operators will be encouraged to ensure that they provide listed entities with education and guidance to promote compliance with the continuous disclosure provisions of their respective listing rules CLERP 9 — Recommendation Issuers of managed investment products that are continuously quoted securities will be permitted to issue transaction specific Product Disclosure Statements.

It is unclear as to whether this proposed requirement is intended to apply to all entities lodging financial reports with ASIC or only listed entities. It appears that it is the intention of the Joint Parliamentary Committee on Public Accounts and Audit that this applies to wider group. The Joint Parliamentary Committee on Public Accounts and Audit recommended that the Act be amended to require all publicly listed companies to have an independent audit committee and the Act prescribe the minimum requirements in regard to the role, responsibilities and composition of an audit committee Report — Recommendation 2.

Whereas, the Government proposed that mandatory audit committees for the top listed companies that is those that compose the All Ordinaries Index and noted that the ASX announced that it would amend its rules to achieve this. The Act will be amended to require a statement in the annual report as to whether the audit committee is satisfied the provision of non-audit services is compatible with auditor independence CLERP 9 — Recommendation 7.

This disclosure would include an explanation as to why the following non-audit services referred to in Professional Statement F1, if contracted, do not compromise auditor independence:.

A framework for protected or whistleblower disclosure should be established in the Act that includes clear accountability mechanisms over the administration and management of disclosures Report — Recommendation The Government proposes to amend the Act to provide qualified privilege and protection against retaliation in employment for any company employee reporting to ASIC, in good faith on reasonable grounds, a suspected breach of the Act CLERP 9 — Recommendation Shareholders and Investors Advisory Council Established.

A Shareholders and Investors Advisory Council is to be established, chaired by the Parliamentary Secretary to the Treasurer, that will consult on all disclosure-related reforms to ensure they meet the needs of retail investors CLERP 9 — Recommendation There is a general duty on financial services licensees to ensure that financial services are provided 'efficiently, honestly and fairly'.

Licensees should disclose any financial interest that they or a related party have in the subject of their advice or recommendation CLERP 9 — Recommendation ASIC will provide guidance by policy statement on the level and manner of disclosure required under this general duty, following consultations with relevant stakeholders CLERP 9 — Recommendation The proposed best practice guidelines on notices of meetings will include a section dealing with the explanatory material for 'bundled resolutions'.

The guidelines will include material on best practice for:. Improved shareholder participation will be facilitated by electronic means including electronic proxy voting, internet broadcasting and related technologies by removing unnecessary legislative hurdles to the use of the technologies. The Act will be amended to permit members to elect to receive annual reports and notices electronically. Share and Debenture Disclosure Requirements. There will be a closer alignment of the exemptions from the disclosure regimes that apply to sophisticated investors and wholesale clients CLERP 9 — Recommendation It is proposed that the disclosure requirements for secondary sales reflect the principle that where a person already holds pertinent information, or has access to comparable information to what they would have otherwise received in a reasonable, timely and cost-effective manner, no further disclosure obligations should apply CLERP 9 — Recommendation In the process of adopting the international accounting standards by January 1 , the AASB should ensure that those contentious issues and deficiencies identified by the Joint Standing Committee are resolved as a matter of priority Report — Recommendation 5.

The issues identified by the Committee were:. Australia will adopt accounting standards issued by the International Accounting Standards Board IASB for reporting entities under the law for accounting periods beginning on or after 1 January , in line with the European timetable.

There are many unresolved issues as a result of the adoption directive and such consultation could address such issues as:. The Act Section be amended by adding that, in undertaking the assessment of a true and fair view, directors must consider the objectives contained in the ASIC Act section a and must include a statement in the financial report that they have done so Report — Recommendation 6.

These objectives include: allowing users to make evaluate decisions about allocating scarce resources; assisting the directors in the discharge of their financial reporting obligations; providing relevant information to users to assess performance, financial position, financing and investing; providing relevant reliable information; facilitating comparability; and readily understandable financial information.

Include the following In the case of conflict between sections compliance with accounting standards and true and fair view , the notes to the financial statements must indicate why, in the opinion of the directors, compliance with the accounting standards would not give a true and fair view of the financial performance and position of the company.

The Act Sections and be amended to require the auditor to form an opinion and report on any additional disclosure made pursuant to Section Report — Recommendation 7.

If any deficiencies in accounting standards have a general, unintended result that compliance with the standard would not result in a true and fair view, the appropriate response would be reform of the standard. Extended Reporting and Audit Mandate. The Act should be amended to require that auditors form an opinion on and report whether the company has complied with corporate governance standards Section and Section , and require the audit report to include comment on significant matters arising during the audit Report — Recommendation Disclosure of Non-audit Services.

Fees paid for the categories of non-audit services provided disclosure in the annual report will be mandated CLERP 9 — Recommendation 7. A footnote is to be inserted to indicate that this statement may be interpreted by reference to the Code of Professional Conduct of the Professional Accounting Bodies.

Report — Recommendation 9. Non-audit services. Statement F1 is based on the independence standard adopted by the International Federation of Accountants and requires auditors to identify and evaluate threats to independence and apply safeguards to reduce any threats to an acceptable level.

Where the provision of non-audit services to an audit client poses a threat that cannot be reduced to an acceptable level, statement F1 prohibits the provision of that service. Audit partner rotation will be compulsory after five years that will apply to the lead engagement partner and the review partner noting that to maintain continuity of knowledge, the appointment of these partners could be staggered CLERP 9 — Recommendation 1.

ASIC publish benchmark criteria used for determining the adequacy of the internal systems and processes of large audit firms. The Act Section be amended to require audit firms undertaking assurance audits of publicly listed companies to submit a report to ASIC on an annual basis detailing how audit firms have managed independence issues in the preceding period and any future independence management issues that are deemed pertinent.

ASIC be provided with authority to investigate and address independence issues arising from these reports or from other sources Report — Recommendation 4. The Act be amend to require an auditor to attend the AGM of a listed company at which the audit report is tabled and to answer reasonable questions about the audit CLERP 9 — Recommendation Shareholders will be able to submit questions by e-mail to the listed company and that the questions posted on the company web site.

CLERP 9 proposes that accountants seeking registration as company auditors will be required to meet the agreed competency standards, to undertake to abide by an accepted code of professional ethics, and to complete a specialist auditing course prior to registration CLERP 9 — Recommendation Expanded Financial Reporting Council.

These were responsibilities will include:. Oversee auditing standard setting arrangements. Advise the accounting professional bodies on issues of auditor independence. Monitor and report on the nature and adequacy of the systems and processes used by audit firms to deal with issues of auditor independence.

Monitor and report on the response of companies in complying with audit-related disclosure requirements. Advise on continuing steps to enhance auditor independence. Promote and advise on the adequacy of the teaching of professional and business ethics by the professional accounting bodies and tertiary institutions.

Monitor and assess the adequacy of the disciplinary procedures of the accounting bodies. Provide broad oversight of the process for setting Accounting Standards in Australia and to give the Minister reports and advice on that process. Establish appropriate consultative mechanisms, including committees and advisory groups. Additional Responsibilities. Advice the accounting bodies on issues of independence.

Monitor and report on the nature and adequacy of the systems and processes used by audit firms to deal with issues of audit independence.


Corporate Law Economic Reform Program Act 2004

It was enacted in July The changes were based on the reform proposals contained in the CLERP 9 discussion paper, Corporation disclosure - strengthening the financial reporting framework , which was released by the Australian government in September The amendments also enacted some reforms flowing from the recommendations in the Report of the HIH Insurance Royal Commission released in April The CLERP 9 changes were intended to improve investor confidence in relation to listed corporations and their financial reports. The evidence regarding their effectiveness in this regard remains mixed. There is some evidence that changes affecting the board of directors were more important to small shareholders than large shareholders. From Wikipedia, the free encyclopedia.


CLERP 9 What you need to know Cover Story


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