27 June 2002

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).