Senate

Supplementary Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 1 - Outline

1. The Corporate Law Economic Reform Program (CLERP) was initiated in 1997 as a vehicle for the ongoing review and reform of Australia's corporate and business regulation to ensure that it is modern, responsive and promotes business activity.

2. The most recent stage in the Government's reform agenda is CLERP 9. A discussion paper - Corporate Disclosure: Strengthening the financial reporting framework - was released in September 2002 and proposed a range of measures designed to enhance audit regulation and the general corporate disclosure framework.

3. The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Bill 2003 (the Bill) implements the CLERP 9 measures and the recommendations contained in Professor Ian Ramsay's report Independence of Australian Company Auditors. The Bill also takes account of the relevant recommendations of the Joint Committee of Public Accounts and Audit's Report 391 (Review of Independent Auditing by Registered Company Auditors) and implements a number of recommendations of the HIH and Cole Royal Commissions.

4. Following a public consultative process that commenced on 8 October 2003, the Bill was introduced into the House of Representatives on 4 December 2003 and was passed by that House on 16 February 2004.

Proposed amendments

5. As a result of ongoing stakeholder consultation since the Bill was introduced into the Parliament, the Government has decided to make some amendments to provisions of the Bill to either clarify their intention or ensure they operate in an effective manner. The Government amendments deal with matters including:

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a modification of the information gathering powers to be used by the Financial Reporting Council (FRC) when overseeing auditor independence requirements to allow the FRC Chairman to issue notices on behalf of the FRC;

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modifications to the forms to be used by registered company auditors and authorised audit companies, including a change to the timing for lodgement of an annual statement;

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refinements to auditor appointment and independence provisions to clarify the legislative intent, and operation of, those provisions;

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changes to the Financial Reporting Panel's administrative and operating procedures;

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changes to Chapter 2M of the Corporations Act to facilitate the introduction of international accounting standards;

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modifications to the whistleblowing provisions to expand the range of people who may make protected disclosures and to provide that certain disclosures are to be treated as confidential;

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the inclusion of a due diligence defence for persons involved in a contravention of the continuous disclosure provisions; and

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the introduction of a requirement for a register of information about relevant interests in listed entities.