NO.103

CLERP (AUDIT REFORM AND CORPORATE DISCLOSURE) BILL INTRODUCED

The Treasurer, the Hon Peter Costello, today introduced the Corporate Law

Economic Reform Program (Audit Reform and Corporate Disclosure) Bill into

Parliament. The Bill represents the ninth instalment of the Government’s

corporate law reform program.

The Bill will modernise business regulation and investor protection and enhance

quality disclosure of relevant information to the market.

The Bill contains a number of measures that will strengthen accountability

and enhance audit independence.

Significant measures contained in the Bill include:

Continuous Disclosure

• ASIC will have the power to issue infringement notices to disclosing entities

  where ASIC has reason to believe that have been breaches of the continuous

  disclosure provisions in the Corporations Act. The notices will contain

  financial penalties based upon a company’s market capitalisation, up

  to a maximum of $100,000. The power will enable the corporate regulator with

  the ability to deal with less serious contraventions of disclosure laws in

  a more timely manner.

• The maximum civil penalty that a court can impose on a body corporate for

  breaching continuous disclosure requirements will increase from $200,000 to

  $1 million.

Executive Remuneration

• Directors’ and senior executives’ remuneration is to be clearly

  disclosed in a remuneration report, contained in the directors’ report.

• The Bill expands the number of executives whose remuneration must be disclosed,

  from the top 5 within the listed company to the top 5 across the corporate

  group in addition to the top 5 within the listed company.

• Directors will be required to hold a non-binding shareholder vote to adopt

  the remuneration disclosures within the remuneration report. This recognises

  that directors, while responsible for setting executive remuneration, are

  accountable to shareholders for their decisions.

Audit Oversight and Independence

• CLERP 9 establishes a regulatory framework governing audit oversight and

  independence. It provides for the Financial Reporting Council (FRC) to have

  oversight over a reconstituted Australian Auditing Standards Board, with a

  Government-appointed Chair. The FRC will also have an oversight role to advise

  the Treasurer in relation to auditor compliance with independence requirements.

• Auditing standards will have the force of law. There will be a 2 year transition

  period to enable the auditing standards setter to re-issue standards in a

  format suitable for legal enforcement.

• Mandatory auditor rotation for listed companies will be required after

  5 consecutive years (with an option for ASIC to extend the period to 7 consecutive

  years where appropriate).

• Significant post-audit employment restrictions, including a 2 year ‘cooling

  off’ period for auditor partners wishing to join a client as a director

  or senior manager, will be imposed.

The Bill responds to the recommendations of the Ramsay Report on the independence

of Australian company auditors and takes account of relevant recommendations

of Report 391 of the Joint Parliamentary Committee of Public Accounts and Audit.

The Bill also incorporates recommendations of the HIH and Cole Royal Commissions.

During the consultation process a number of comments were received regarding

the practicality of some earlier proposals given the nature of the Australian

market. The Bill introduced today reflects the Government’s commitment

to reinforce the importance of the independence of auditors, while ensuring

that regulatory requirements take into account local conditions.

This Bill will implement significant reforms in the area of financial reporting

and corporate disclosure more generally and will bring our regulatory framework

into line with world’s best practice.

CANBERRA

4 December 2003

Contact: David Alexander

02 6277 7340