NO.056

GOVERNMENT ANNOUNCES POLICY PROPOSALS ON AUDIT REGULATION AND CORPORATE

DISCLOSURE

We release today a comprehensive set of policy proposals on audit regulation

and the wider corporate disclosure framework. The paper, Corporate disclosure:

strengthening the financial reporting framework, is the next chapter in the

Government’s Corporate Law Economic Program and will be known as CLERP 9.

The paper proposes a fundamental reshaping of the financial reporting framework.

It builds on existing institutions and clarifies responsibilities to focus on

the quality of financial reporting.

Under the proposals the Government will, among other things:

• Expand the role of the Financial Reporting Council to include public oversight

  of audit independence and audit standard setting in Australia. Auditing standards

  will also have the force of law on the same basis as accounting standards

  issued by the Australian Accounting Standards Board.

• Make audit committees mandatory for Australia’s top 500 listed companies.
• Make audit partner rotation compulsory after 5 years.
• Amend the law to require disclosure in annual reports of fees for all categories

  of all non-audit services provided by an audit firm.

• Amend the law to require audit committees to certify that receipt of certain

  non-audit services did not compromise audit independence.

• Amend the law to increase the maximum civil penalty for contraventions

  of continuous disclosure provisions from $200,000 to $1 million.

• Amend the law to give the Australian Securities and Investments Commission

  the power to impose financial penalties and issue infringement notices in

  relation to contraventions of the continuous disclosure regime.

• Amend the law to provide penalties for retaliation against a company employee

  who reports to ASIC a suspected breach of the law in good faith and on reasonable

  grounds.

• Reform areas of auditor liability by allowing auditors to incorporate and

  seek agreement of the States to introduce proportionate liability.

• Revise civil and criminal penalties applying to financial reporting offences

  to ensure consistency and adequacy.

• Establish a Shareholders and Investors Advisory Council to provide advice

  on disclosure reforms to ensure they meet the needs of retail investors.

• Encourage shorter, more comprehensible notices of meetings and facilitate

  improved shareholder participation by electronic means.

The paper incorporates the Government’s response to the Ramsay report on auditor

independence. A full list of the policy

proposals in the paper is attached.

The 41 proposals in the paper will ensure that Australia enhances its effective

disclosure framework that helps define world’s best practice and provides the

structures and incentives for a fully informed market.

They build on earlier initiatives under the Government’s Corporate Law Economic

Program which aims at ensuring our corporate regulatory structure remains robust,

modern and flexible without burdening business with unnecessary regulation.

Australia’s corporate governance framework has traditionally relied on a mix

of regulation, co-regulation and encouragement of industry best practice. The

balanced approach adopted in the paper released today will result in better

disclosure outcomes, punish corporate misbehaviour where it occurs, but not

hamper innovation and wealth creation.

The Government will continue to consult with business and the community so

that these reforms are effective and achieve quality outcomes for shareholders

and investors. Consultation will close on 22 November 2002. We will then release

exposure draft legislation for comment, with legislation expected to be introduced

early in 2003.

Copies of the paper are available from the Treasury website at: http://www.treasury.gov.au

CANBERRA

18 September 2002

Contact: Wayne Grant (Sen. Campbell’s office) 08 9421 1755 or 0407 845280

Niki Savva (Treasurer’s office) 02 6277 7340

* Comments on the paper should be sent to:

General Manager

Corporate Governance Division

Department of the Treasury

Langton Crescent

PARKES ACT 2600

Submissions are due by 22 November 2002. As submissions may be made public,

any confidential material should be marked accordingly.