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ASX Welcomes Government Corporate Law Reforms

Date 18/09/2002

Australian Stock Exchange Ltd (ASX) welcomes the release of the Federal Government's initiative for corporate law reform, which paves the way for a sensible review and enhancement of Australian corporate behaviour and performance that should benefit both investors and companies.

The Government's initiatives, contained in the CLERP-9 paper released today by the Treasurer, the Hon. Peter Costello MP, and the Parliamentary Secretary to the Treasurer, Senator Ian Campbell, provide a transparent and practicable framework for Australia's publicly listed companies and market participants.

The reforms should help protect the interests of investors requiring sufficient access to information in order to make their own investment decisions, without imposing unnecessary costs and regulatory inefficiency on listed companies.

"The recommendations represent a sound and considered response to the investment community's concerns that the market be fully informed of all factors that might influence an investment decision," ASX Managing Director and CEO, Mr Humphry said.

"With five million Australians directly involved in the sharemarket, and millions more indirectly exposed to it, all participants in the financial markets must recognise the over-riding importance of preserving and enhancing market integrity. This is an issue of national importance."

Mr Humphry congratulated the Government for recognising the fundamental soundness of Australia's corporate landscape and avoiding measures that would add to companies' and investors' costs without necessarily improving the environment for either. "In particular ASX welcomes the Government's recognition that it would not be appropriate for many smaller companies listed on ASX to comply with the requirement that they have a separate, independent audit committee.

"Since 1993 ASX has required companies to report to the market if they had an audit committee in place - and (in 1994) if not, why not - and has always believed that mandating this practice for smaller companies would be neither desirable nor practicable.

"ASX therefore applauds the Government's support for the ASX Corporate Governance Council's recommendation of mandatory audit committees for the top-500 companies as measured by market capitalisation (that is, those comprising the All Ordinaries index). Listing Rule amendments to incorporate this requirement will be formally proposed as soon as possible, to take effect in the 2002/03 financial year," Mr Humphry said.

In addition to formally establishing an ongoing role for the ASX Corporate Governance Council, the Government specifically endorsed the Council's views on the early adoption of international accounting standards and the provision of non-audit services.

The accompanying measures designed to clarify the status and role of directors, auditors and industry analysts are also firmly supported by ASX, including :

  • The expansion of the Financial Reporting Council's role to oversee the development of audit standards regulation and monitor audit firm's practices;
  • The adoption of guidelines clearly setting out the professional standards required of analysts, in particular noting the necessity to maximise transparency where perceptions of conflict might otherwise arise;
  • Approval for auditing firms to incorporate, thereby enhancing the accountability of this important review mechanism;
  • Clarification of the requirement for audit committees to retain sufficient independence to perform their duties effectively.
"Taken in tandem with Australia's successful continuous disclosure regime, including ASX's proposed "Enhanced Disclosure" improvements announced in July, investors should have every reason to be confident that they are operating in an efficient, transparent and reliably informed market." "ASX has strongly supported providing ASIC with greater flexibility to enforce its decisions. One perceived weakness of the current regime has been that following an ASX referral, the market regulator could be left with insufficient recourse to proportional sanctions to discipline management without unduly harming the interests of shareholders,'' he said.

"Listed companies and market participants must understand that Australia's economic future depends on its markets retaining and building on their reputation for integrity and soundness. While growing rapidly, we remain very small by world standards and therefore this reputation must be maintained if we are to attract investment, reduce the cost of capital and, ultimately, ensure continued employment and investment opportunities for Australians.

"These reforms are a realistic, fair and sensible enhancement of the rules and regulations that govern the conduct of listed entities and market participants, one that acknowledges the success of the present co-regulatory structure and builds on it for the future."