CLERP 9 and beyond was considered at the recent CPA Australia-ICAA industry forum, attended by government, business and the professions.
Australia should establish a public interest oversight body. This was the message from the recent industry forum, where CPA Australia president Brian Blood outlined CPA Australia's vision for the financial reporting framework. The forum also considered the need for Australia to further explore the application of other elements of oversight, monitoring and review in place overseas.
There was strong support for the Financial Reporting Council (FRC) to be structured as the clear independent champion of the public interest, leaving ASIC as the regulator of the Corporations Act. This was one of the three key principles emerging from the forum and something that will be further developed in CPA Australia's response to CLERP 9.
The forum included presentations by government and the professional bodies, and commentary from key international, academic and industry representatives along with non-government members of parliament.
The forum welcomed CLERP 9's reinforcement of the profession's F1 'Independence' statement, noting the support for the Australian process for determining the provision of non-audit services by auditors. Further, it agreed that CLERP 9 should require CEO/CFOs to sign off their entities' reports consistent with the JCPAA Review of Registered Company Auditors report issued on the same day as the CLERP 9 discussion paper.
The discussion paper's corporate governance measures designed to enhance auditors' independence and to clarify directors' responsibilities and shareholders' rights were also strongly endorsed. Mandatory independent audit committees for the Top 500 listed companies was given the thumbs up and it was agreed that a mechanism to apply similar principles to other listed entities should be encouraged.
The recommendations of CLERP 9 and the JCPAA report in relation to liability reform were welcomed, with calls for proportionate liability, incorporation and the 'safety ceiling' concept to be pursued.
Whether ASIC should be responsible for breaches of continuous disclosure was discussed, and the appropriateness of the proposed mechanisms for ASIC to impose fines for breaches of continuous disclosure questioned. Forum members agreed that this needs debate prior to the finalisation of CLERP 9.
Clear guidance by the AASB on the implementation program for International Accounting Standards was called for, although delegates noted that the IASB Work Program is still emerging.
The forum acknowledged the need for a market-driven move to a much broader corporate reporting and communications model in order to meet the expectations of a larger group of stakeholders.
This theme was consistent with comments by one of the keynote international speakers, Graham Ward, who confirmed that the current corporate governance debate is all about perception and the willingness of the public to trust the people and the processes involved in corporate reporting.
'History shows that there is no exclusively right answer, only a solution that is right for its time and thus clearly aligned with, and sensitive to, the ever-evolving public interest.' He pointed out that when auditing was first mandated under UK law in the 19th century, auditors had to hold a stake in any company they audited to give them 'community of interest' with shareholders.
'This is in stark contrast to the current debate. Not only is the general consensus demanding auditors be 'independent' in every sense from the companies they audit, there is an emerging debate questioning the need for directors to be more independent from the companies they lead,' he said.
Ward, a board member of the International Federation of Accountants (IFAC), indicated that developments in the UK and through IFAC are continuing to draw on and recognise the importance of governments, industry and professional organisations working together. 'As we move to adopt international accounting standards and business continues to expand across national frontiers, a collective approach is vital at the national and international level. Australia has shown a strong willingness to engage at both levels and its contribution is valuable to Australia as well as our international organisations.'
While ensuring the public interest is appropriately served is important, he suggested that the public perception also has bearing on the calibre of individuals willing to take on the leadership roles necessary to generate economic success.
Ward also outlined several of IFAC's initiatives, including the Forum of Firms, which aims to provide international quality assurance and discipline programs for firms that conduct, or plan to conduct, trans-national audits. Firms must comply with IFAC's international standards on auditing and code of ethics and more than 20 audit firms have already signed the initiative.
Forum endorsements
Support for continuation of the current co-regulatory environment, but with the addition of more transparent independent oversight. Relevant professionals must be involved in standard setting and discipline processes to provide the best outcomes in the public interest.
There has been no systemic failure in corporate reporting in Australia, but the forum provided an opportunity to collectively identify areas for further improvement.
Over-regulation of business is not always in the public interest.
