NO.034

REVIEW OF AUDIT REGULATION AND CORPORATE DISCLOSURE

The Treasurer and the Parliamentary Secretary to the Treasurer today announced

a process which will review audit regulation and the wider corporate disclosure

framework as the next phase in the Government’s Corporate Law Economic Reform

Program (CLERP).

The process will commence with the release of an issues paper (CLERP 9) in

August which will address the Ramsay report on auditor independence together

with a number of other issues on financial disclosure. A list of key issues

proposed for inclusion in the discussion paper is attached.

The Government’s CLERP Program has steadily modernised Australia’s corporations

law and given it an economic focus, introducing world’s best practice in business

regulation. Market developments continue to focus the Government’s attention

on regulation that protects the legitimate interests of all market participants,

including the individual owners of shares and the companies in which they invest.

Australia is well served by a highly skilled accounting profession. However

it is timely, in view of widespread questioning overseas of the quality of financial

disclosure and supporting regulatory structures, for Australia to review its

own regulatory framework in this area.

The Ramsay Report on Independence of Australian Company Auditors made recommendations

to the Government designed to ensure the independence of auditors from the companies

they audit. As well as providing a response to the Ramsay report, the discussion

paper will consider a range of issues relating to the quality of audit, including

a review of oversight structures for the profession and for auditing standards.

Accountability and disclosure are central to the integrity and efficiency of

markets. The package of proposals to be addressed in the CLERP 9 paper will

be directed at ensuring Australia has an effective regulatory and disclosure

framework that is at the forefront of defining world’s best practice and provides

the structures and incentives for a fully informed market.

Final implementation of reforms in the audit area will need to take account

of any relevant recommendations of the HIH Royal Commission, work currently

being undertaken by the Joint Committee of Public Accounts and Audit and developments

overseas, particularly in the United States in response to the Enron collapse.

The Government will also examine the effectiveness of other corporate disclosure

mechanisms, including a review of Australia’s present continuous disclosure

regime and ways of further encouraging shareholder participation in companies.

Extensive consultation continues to be a key feature of the CLERP process.

The Government will develop the proposals in the discussion paper in consultation

with the Business Regulation Advisory Group. Such a group was first established

in 1997 to provide feedback on the earlier CLERP reforms and proved enormously

successful in providing professional and business advice early in the process.

The Government will seek comments on the issues and proposals in the discussion

paper by mid-October and release exposure draft legislation for further public

comment by early December. It plans to introduce legislation into Parliament

in 2003. This will allow final implementation to take account of any relevant

recommendations of the HIH Royal Commission and further developments overseas.

CANBERRA

27 June 2002

Contact: Wayne Grant

Senator Campbell’s Office

02 62773955 or 0407 845280

Niki Savva

Treasurer’s Office

02 6277 7340

KEY ISSUES IN THE DISCUSSION PAPER

Audit Reform

• audit reform, including:
  • the market for audit and non-audit services;
  • the institutional framework for setting auditing standards and whether

    they should be given the force of law;

  • the rules and practices governing the audit engagement including appointment

    and removal of auditors and related corporate governance arrangements;

  • auditor independence issues canvassed in the Ramsay report including:
    • proposed amendments of the Corporations Act to strengthen the independence

      objective, require an annual independence statement from auditors,

      and strengthen provisions relating to employment, financial and business

      relationships between auditors and their clients;

    • proposals to require disclosure of individual non-audit services

      and fees, address the question of limits on the provision of non-audit

      services, and strengthen the role of audit committees in relation

      to auditor independence;

    • whether a new oversight body is needed to monitor and advise the

      Government on auditor independence issues, including a role in monitoring

      the adequacy of independence processes used by audit firms and compliance

      by companies;

  • the structures for oversight of the profession, including disciplinary

    procedures, ethical rules, external quality assurance, educational requirements,

    professional development, competency standards etc; and

  • liability issues, drawing on current work in the context of public

    liability and medical indemnity insurance, including the question of incorporation

    of auditors.

Disclosure Framework

• a review of the present continuous disclosure regime;
• conflicts of interest in relation to the provision of financial product

  advice; and

• review of the current disclosure requirements for shares and debentures

  including:

  • whether they should be merged into the general financial product disclosure

    requirements inserted by the Financial Services Reform Act;

  • placements and other disclosure issues; and

  • the sophisticated investor test.

Shareholder Participation

• consideration of possible amendments to the Corporations Act to encourage

  investors to become more active in companies they invest in (eg. simplification

  of notices of meetings).