House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Parliamentary Secretary to the Treasurer, the Hon Bernie Ripoll MP)

Chapter 1 - Closure of the Financial Reporting Panel

Outline of chapter

1.1 This Bill amends the Australian Securities and Investments Commission Act 2001 (ASIC Act), the Corporations Act 2001 (Corporations Act) and the Corporations ( Fees ) Act 2001 (Corporations (Fees) Act) to close the Financial Reporting Panel (FRP) by repealing its functions and powers.

1.2 The amendments will commence on a day to be fixed by Proclamation. However, if the amendments do not commence within the period of six months beginning on the day the Act receives Royal Assent, they will commence on the day after the end of that period.

Context of amendments

1.3 The FRP was established in 2006 to resolve contested issues between the Australian Securities and Investments Commission (ASIC) and reporting entities over the application of accounting standards to financial reports.

1.4 Prior to the establishment of the FRP, disputes concerning the application of accounting standards or the true and fair view were resolved through legal action between ASIC and a reporting entity. The FRP was created to provide a faster avenue for resolving disputed cases than through the courts.

1.5 The role of the FRP is to consider whether or not an entity has correctly applied specific accounting standards in its financial report. The FRP is required to prepare a report stating whether, in its opinion, the financial report complies with the relevant financial reporting requirements.

1.6 Matters can be referred to the FRP by ASIC, or by a reporting entity with the consent of ASIC.

1.7 Until mid-2010, only one matter had been referred to the FRP for a determination. This case was resolved before the determination was made because the entity changed its accounting treatment before the matter was heard.

1.8 In 2010-11, the Government announced that it would close the FRP due to lower than expected referral rates. However, in August 2010, ASIC referred four cases to the FRP. The FRP concluded these matters in a little over two months. Consequently, the Government deferred its decision to close the FRP while it reviewed whether there was a future role for the FRP.

1.9 In November 2011, the Government issued a discussion paper seeking public comment on the future of the FRP. The discussion paper outlined three main options:

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maintain the current processes and powers of the FRP;

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modify the referral process, including by allowing reporting entities to refer matters to the FRP without ASIC's consent; and

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repeal the FRP's functions and close the FRP.

1.10 Submissions on the discussion paper supported retaining the FRP, with most supporting modifications to the referral process. They argued that although the FRP has determined a low number of cases, it provides an incentive for reporting entities to meet their reporting requirements or to reach an agreement with ASIC when there is a dispute.

1.11 On 7 February 2012, the then Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP, announced that the Government would implement its original decision to close the FRP. The costs of maintaining and reporting on the FRP cannot be justified in the absence of referrals. No cases have been referred to the FRP since August 2010. Some submissions on the discussion paper noted that modifying the referral process would not necessarily increase the number of referrals.

Summary of new law

1.12 This Bill amends the ASIC Act, the Corporations Act and the Corporations (Fees) Act to close the FRP by repealing its functions and powers.

1.13 It includes a transitional provision so that courts or tribunals can continue to have regard to previous reports by the FRP despite its closure.

Comparison of key features of new law and current law

Detailed explanation of new law

1.14 This Bill will close the FRP by repealing its functions and powers.

1.15 Part 13 of the ASIC Act will be repealed. This Part currently establishes the FRP and specifies the functions and powers of the FRP, including in relation to membership and proceedings. [ Schedule 1, Part 1, item 2, Part 13 ]

1.16 The reference to the FRP in paragraph 1(1)(d) of the ASIC Act will be omitted. [ Schedule 1, Part 1, item 1, paragraph 1(1 )( d )]

1.17 The definition of lodging entity in section 9 of the Corporations Act will be repealed. This definition is used only in the context of the FRP and is no longer needed. [ Schedule 1, Part 1, item 3, section 9, definition of lodging entity ]

1.18 Division 9 of Part 2M.3 of the Corporations Act will be repealed. This Division currently specifies the process for referrals to the FRP, and the powers and processes of the FRP in dealing with a referral. [ Schedule 1, Part 1, item 4, Division 9 of Part 2M.3 ]

1.19 Paragraph 1317C(c) of the Corporations Act will be repealed. This paragraph currently provides that a decision by ASIC not to consent to the referral of a financial report to the FRP under Subdivision C of Division 9 of Part 2M.3 is not reviewable by the Administrative Appeals Tribunal. [ Schedule 1, Part 1, item 5, paragraph 1317C(c )]

1.20 Table item 116A of Schedule 3 of the Corporations Act will be repealed. This table item currently specifies the penalty units that apply to an offence against section 323EE of the Corporations Act, which requires lodging entities to respond to a notice from ASIC proposing to refer the entity's financial reports to the FRP. [ Schedule 1, Part 1, item 6, table item 116A of Schedule 3 ]

1.21 Paragraphs (ja) and (jb) of the definition of chargeable matter in subsection 4(1) of the Corporations (Fees) Act will be repealed. These paragraphs currently specify that the referral of a financial report to the FRP and the doing of any act by the FRP in dealing with a referral are chargeable matters. The fees payable for these matters are specified in the Corporations ( Fees ) Regulations 2001 . [ Schedule 1, Part 1, item 7, subsection 4(1), paragraphs ( ja ) and ( jb ) of the definition of chargeable matter ]

Transitional provisions

1.22 A transitional provision is included so that courts and tribunals may continue to have regard to a report issued by the FRP when determining whether a financial report has complied with the financial reporting requirements. The courts may continue to do this despite the closure of the FRP and the repeal of section 323EM of the Corporations Act, which currently gives them the power to do so. This will ensure that if a court is determining a case previously considered by the FRP, it may take into account the FRP's determination on the matter. [ Schedule 1, Part 2, item 8 ]