THE Federal Government’s revised corporate law reforms have received a cautious welcome from accountants, auditors and company directors.
Some of the most important reforms, such as the introduction of a proportionate liability regime and the ability for auditors to incorporate, have been clearly flagged previously.
The latest version of CLERP 9, released by Treasurer Peter Costello last week, includes a number of refinements that reflect recommendations made in the report of the HIH Royal Commission,
This includes the proposed restrictions on audit partners and audit staff joining a former audit client.
Audit partners directly involved in the audit of a company will have to wait four years before joining that company as a director or officer.
A ‘professional’ member of an audit team must also wait four years.
Audit partners not directly involved in an audit must wait two years.
BDO Chartered Accountants and Advisers managing partner Geoff Brayshaw said he was pleased that responsibility for these rules would rest with the individual, not their former firm.
“The thing I like about it is that it sheets home responsibility to the individual,” Mr Brayshaw said.
“Its not the current audit partner who has the problem, it’s an offence of the expartner who has joined a board.”
But Mr Brayshaw said he felt the four-year restriction applying to audit staff was “far too restrictive”.
The reforms propose mandatory rotation of auditors after five years, with a two-year cooling off period before an auditor can be reassigned to the company.
In light of concerns about the impact of this rule on smaller firms and those operating in rural and regional areas, ASIC may extend the period out to seven years.
Mr Brayshaw expects there will be many cases where firms seek this extension.
RSM Bird Cameron James Komninos said he supported the five-year rule, which was already a mandatory policy of all firms affiliated with RSM International.
He suggested that audit firms will need to plan ahead for five-year rotations, for instance by getting alternative audit partners to increase their knowledge of specific industries.
Mr Komninos said the overall package would have little impact on his firm.
“It’s not all that different from what we had been expecting,” he said.
“Most of the recommendations have already been adopted in our international policies.”
Mr Brayshaw said the requirement for companies to disclose fees paid to the audit firm for each non-audit service, and to describe each service, would simply create extra paperwork.
“The market has already moved on,” he said. “Most companies are separating their audit services from their other services.”
The proposal to give legislative backing to all auditing standards, rather than just ‘core’ standards, attracted some criticism.
The Government said this change was made because it was “not possible to identify a selection of auditing standards that encompass the key issues”.
The Institute of Chartered Accountants in Australia chief executive Stephen Harrison said he was not aware of any support for the proposal other than from the Australian Securities and Investments Commission.
He said auditing standards were already fully enforceable by ASIC.
“The institute is also concerned that the move to force of law could undermine auditing standards global comparability,” he said.
“We hope parliament demonstrates leadership with this new responsibility as it could play a key role in determining the quality and international harmonisation of audit standards.”
Another reform proposal that attracted criticism was the activities of the Financial Reporting Panel.
Its role is to settle disputes over accounting standards between ASIC and companies on a non-binding basis.
The perceived problem is that the panel will adjudicate only after accounts have been finalised.
“In a situation where someone genuinely doesn’t know or it is a grey area, this isn’t ideal,” Mr Komninos said.
He said it would be much more useful if the panel could adjudicate before accounts were finalised.
The Australian Institute of Company Directors welcomed the proposed reforms but expressed concern on two proposals.
“We support the increased disclosure of remuneration proposed in the draft bill, however the proposal requiring shareholders to cast a non-binding vote on executive remuneration policy is not the solution to excessive executive remuneration,” AICD chief executive John Hall said.
“We continue to be concerned with the proposal granting ASIC the power to fine for breaches of continuous disclosure.”
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