Sir David Tweedie, distinguished guests, ladies and gentlemen. It is a great pleasure to be here tonight and I join with Lindsay in extending a warm welcome to Sir David.
Corporate Governance
There is no doubt that the global debate about corporate governance and its regulation is one of the most important policy challenges facing Governments today.
As investigators sift through the corporate wreckages such as Enron and Worldcom in the United States, and HIH and OneTel in Australia, the most important task for legislators is to ensure there is a proper framework to address the systemic failures that have been identified.
United States
What has really shaken investor confidence in the US is not so much the tricky accounting, out of control executive pay, boards that are little more than puppets of management and malleable auditors, but rather the appearance that the system is able to be manipulated from the inside.
The need to restore confidence in the United States in the institutions that regulate corporate behaviour has seen the signing into law by President Bush of tough new measures in the Sarbanes-Oxley Act of 2002.
As most people here would be aware, the new measures, amongst other things, implement tough new provisions to deter and punish corporate and accounting fraud and corruption, create a public company accounting oversight board and strengthen the independence of firms that audit public companies.
Australia
The question is what lessons do we need to learn in Australia and what solutions are appropriate here?
After all, it is not as if we have no problems to address, but Australia has a different corporate governance approach to the approach taken in the United States.
In Australia we have a practice of maintaining a fairly strict separation between the office of company chairman and the office of company managing director or CEO - a practice not followed to the same extent in the United States.
In addition, the US has a pronounced rules-based or black letter law approach to corporate governance regulation whereas Australia has a principles based approach. A third key difference is the continuous disclosure required in Australia - which can be contrasted to the periodic reporting requirements in the United States.
So whilst the cries from some quarters for more corporate wrong-doers to be issued with striped pyjamas and lengthy prison terms may be excessive, there is a good case to take stock of our regulatory framework.
It is the role of the Government to ensure that the framework for regulation and the resolution of corporate failure are attuned to business practices and the needs of the community in Australia. We need to ensure that regulation encourages competition and growth and protects investors and market participants without stifling innovation or wealth creation. But this is not just an issue for Government, it is also an issue of enormous importance to the business community, the professions and consumers.
We do have existing laws against fraud and illegal behaviour. It is important that those laws are enforced but it is equally important that we do not have a knee-jerk reaction and impose yet more layers of regulation that may not add much to what already exists.
CLERP in Australia
In Australia, the Howard Government has been progressively modernising and improving elements of Australia's corporate governance framework since taking office in 1996. The Corporate Law Economic Reform Program (CLERP) has steadily modernised Australia's corporations law and given it an economic focus. The work is ongoing and market developments continue to focus the Government's attention on regulation that protects the legitimate interests of all market participants.
Although it would be inappropriate for me to comment directly on issues which may be under investigation, the recommendations of the HIH Royal Commission will no doubt provide further focus for corporate governance reforms and the role of directors, auditors, accountants, actuaries and regulators in the general insurance industry.
Of course, there may also be valuable lessons for other parts of the financial system and for corporate and prudential regulation.
The community's expectations of the safety of financial institutions are higher than those for other corporations. In the case of superannuation for example, an issue in my portfolio, there is a very clear expectation that superannuation funds into which compulsory contributions are deposited should be safer than other non-superannuation investments.
Ongoing CLERP process
In continuing the CLERP process, the Government will shortly release a policy proposal paper (CLERP 9) which will address the recommendations of the Ramsay Report on Independence of Australian Company Auditors and a number of other issues on financial disclosure. Consultation with industry on the paper will be important to ensure that any regulatory proposals are well targeted and manageable for business.
Accounting standards
Substantial work has also progressed at the Government and industry level on accounting standards - which are the backbone of financial reporting.
The CLERP program has already seen significant reform in the accounting standards setting process. These reforms included new arrangements for the Australian Accounting Standards Board and its oversight body, the Financial Reporting Council.
In terms of the accounting and auditing professions, the Government is committed to ensuring Australia continues to have a world's best practice regulatory and disclosure framework.
It is pleasing to see the accounting profession is responding to recent market problems and changing expectations. The two main professional accounting bodies recently announced the approval of a new professional standard for audit independence. In addition, business and other stakeholders have given strong support for the adoption by Australia of a uniform set of high quality accounting standards capable of acceptance in the major capital markets and eventual adoption world-wide.
The Financial Reporting Council's announcement on 3 July of its support for the adoption by Australia of International Accounting Standards by 1 January 2005 marked a significant milestone for the development of financial reporting in this country.
The convergence objective was first advanced in 1997 as part of the Government's CLERP program, and was reflected in legislative amendments made in 1999.
In a globalised economy with large and growing international capital movements, a single set of high quality accounting standards will facilitate cross-border comparisons by investors and reduce the cost of capital by reducing risk premiums associated with information asymmetry.
It is true that Australia already has a set of high quality accounting standards. This is acknowledged by other standard setters.
However, while our companies are active and competitive players internationally, Australia represents less than two per cent of the world's capital market. This means that market participants overseas have little incentive to get across our standards. This difficulty will be overcome when one set of standards is accepted globally.
In relation to timing of Australia's adoption of the international standards, the commitment to adopt by 2005 keeps Australia in step with the European Community. The timing will pose some challenges for business, the accounting profession and the Financial Reporting Council but the Government has every confidence the transition will be a smooth one.
United States accounting standards
As we know, the United States has yet to commit to the adoption of IASB standards for domestic use, although I understand that efforts are being made to achieve greater convergence of IASB and US standards. We welcome those efforts.
It is hoped that the adoption by the European Union of IASB standards from 2005 as part of its single market objective will lead the United States to at least accept IASB standards for cross-border purposes - as recommended by the International Organisation of Securities Commissions at their meeting here in Sydney 2 years ago.
Australia already allows foreign companies wanting to raise funds or list here to lodge accounts prepared in accordance with international accounting standards - or indeed a wide range of acceptable national standards.
Our adoption of international standards will allow Australian companies to access foreign markets using an accounting language others can understand.
And this language is one we can learn fairly easily given the work of the Australian Accounting Standards Board over recent years in harmonising Australian standards with International Accounting Standards.
Financial commitment to accounting standards
The Government is committed to the promotion and adoption of international accounting standards. The Government announced in June that an additional $2 million over two years would be provided to boost Australia's contribution to the setting of these standards sourced from the Financial Industry Development Account maintained by the Australian Stock Exchange.
Other contributions to standard setting come from:
- Commonwealth, State and Territory Governments;
- the Institute of Chartered Accountants in Australia, CPA Australia, the National Institute of Accountants;
- the Australian Stock Exchange; and
- voluntary contributions now being sought from the top 100 listed companies.
Thus, as well as providing continued intellectual input to the IASB, Australia will also be able to make a substantial financial contribution to the International Accounting Standards Committee Foundation through the Financial Reporting Council.
This broad funding approach is consistent with the approach outlined by the Government in 1997. It provides a transparent funding mechanism that eliminates any concern about undue influence or lack of independence in the standard setting process.
Voluntary contributions from business will put in place the final stage of this funding partnership, to which I am sure the business community remains committed.
In addition to funding issues, I encourage the corporate sector to engage actively in commenting on IASB exposure drafts. This will be a key part of Australia's ongoing intellectual contribution to high quality standard setting outcomes.
Sir David Tweedie
Before introducing Sir David, I would like to take this opportunity to thank him on behalf of the Australian Government for his outstanding contribution to the development of a single set of international accounting standards, and to accounting standard setting generally.
Given the current international focus on corporate governance, financial reporting practices and globalisation, he is clearly a man of the moment.
Under his leadership, the IASB has achieved much in a short time.
Prior to becoming IASB Chairman in January 2001, Sir David served as the inaugural full time chairman of the UK Accounting Standards Board from 1990 to 2000; as chairman of the UK Auditing Practices Committee from 1989 to 1990; as the UK and Irish representative on the International Auditing Practices Committee from 1983 to 1988.
He has had a distinguished career in the audit profession and as an accounting standard setter. He has dedicated himself in recent years to the adoption of international accounting standards - an outcome which will benefit businesses and economies around the world.
It is now my pleasure to introduce tonight's guest of honour Sir David Tweedie, Chairman of the International Accounting Standards Board.