New Australian Corporate Governance Regime Now In Force

by Mary Swire, for LawAndTax-News.com, Hong Kong

10 September 2004

Australia's Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act (known as CLERP 9) has been in force since July, and most of its provisions apply to financial years commencing on or after 1st July, 2004. The Act substantially strengthens disclosure requirements for listed Australian companies.

Key requirements in the Act are as follows:

• There must be disclosure of the details of directors' and executives' remuneration packages in a dedicated Remuneration Report section of annual reports. The Remuneration Report will then be subject to shareholder advisory approval at the company's AGM. Directors and certain executives are to be individually named and each component of their remuneration disclosed. The components are to be classified under the headings: primary; post-employment; equity compensation; and other benefits.
• There is a requirement that companies include a review of operations and financial condition, commonly known as Management Discussion and Analysis (MD&A), in the Directors' Report section of their annual reports. The MD&A must contain information that shareholders would reasonably require to make an informed assessment of: the operations of the entity; the financial position of the entity; and the entity's business strategies and its prospects for future financial years.
• The CEO and CFO are to make a written declaration to the board that the annual financial statement is in accordance with accounting standards and presents a true and fair view, and confirm that financial records are kept in accordance with the Corporations Act.
• The directors' report is to list non-audit services that the auditor provides, what they cost, and explain why they do not compromise audit independence.

The Australian Securities and Investment Commission (ASIC) has been given additional powers under the legislation. Auditors are obliged to report breaches of their independence, and attempts to influence audits. ASIC has been empowered to penalise breaches of the continuous disclosure regime, while shareholders will have a greater say at company AGMs - and on executive pay. A Financial Reporting Panel will be established to resolve disputes between ASIC and companies concerning the accounting in financial reports. ASIC may issue infringement notices and fines to companies that contravene the continuous disclosure regime and seek penalties against company officers and other individuals involved.

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