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.