Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (Cth)

Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 No. 103, 2004 An Act to amend the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001, and for related purposes Contents 1 Short title 2 Commencement 3 Schedule(s) Schedule 1—Audit Reform Part 1—Audit oversight Australian Securities and Investments Commission Act 2001 Corporations Act 2001 Part 2—Qualifications of auditors Corporations Act 2001 Part 3—Auditor appointment, independence and rotation requirements Corporations Act 2001 Part 4—Registration of authorised audit companies Corporations Act 2001 Part 5—Auditors and AGMs Corporations Act 2001 Part 6—Qualified Privilege Corporations Act 2001 Part 7—Expansion of auditors' duties Corporations Act 2001 Part 8—Companies Auditors and Liquidators Disciplinary Board Australian Securities and Investments Commission Act 2001 Corporations Act 2001 Schedule 2—Financial reporting Part 1—CEO and CFO declarations in relation to listed entity's financial report Corporations Act 2001 Part 2—Content of directors' report for listed public companies Corporations Act 2001 Part 3—Financial Reporting Panel Australian Securities and Investments Commission Act 2001 Corporations Act 2001 Part 4—Content of financial reports Corporations Act 2001 Schedule 2A—Financial reporting (true and fair view) Corporations Act 2001 Schedule 3—Proportionate liability Australian Securities and Investments Commission Act 2001 Corporations Act 2001 Trade Practices Act 1974 Schedule 4—Enforcement Part 1—Revision of criminal penalties Corporations Act 2001 Part 2—Protection for employees reporting breaches Corporations Act 2001 Part 3—Disqualification of directors Corporations Act 2001 Part 4—Civil penalty provisions Corporations Act 2001 Part 5—Other amendments Corporations Act 2001 Schedule 5—Remuneration of directors and executives Corporations Act 2001 Schedule 6—Continuous disclosure Part 1—General Corporations Act 2001 Part 2—Infringement notices Corporations Act 2001 Schedule 7—Disclosure rules Part 1—Presentation of disclosure documents Corporations Act 2001 Part 2—Product Disclosure Statements for continuously quoted securities Corporations Act 2001 Part 3—Exemptions from disclosure requirements Corporations Act 2001 Schedule 8—Shareholder participation and information Corporations Act 2001 Schedule 9—Officers, senior managers and employees Australian Securities and Investments Commission Act 2001 Corporations Act 2001 Schedule 10—Management of conflicts of interest by financial services licensees Corporations Act 2001 Schedule 11—Miscellaneous amendments Australian Securities and Investments Commission Act 2001 Corporations Act 2001 Schedule 11A—Register of information about relevant interests Corporations Act 2001 Schedule 12—Transitional provisions Australian Securities and Investments Commission Act 2001 Corporations Act 2001 Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 No. 103, 2004 An Act to amend the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001, and for related purposes [Assented to 30 June 2004] The Parliament of Australia enacts: 1 Short title This Act may be cited as the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004. 2 Commencement (1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, on the day or at the time specified in column 2 of the table. Commencement information Column 1 Column 2 Column 3 Provision(s) Commencement Date/Details 1. Sections 1 to 3 and anything in this Act not elsewhere covered by this table The day on which this Act receives the Royal Assent. 30 June 2004 2. Schedule 1 The later of: 1 July 2004 (a) 1 July 2004; and (b) the day after this Act receives the Royal Assent. 2A. Schedule 2, Parts 1 and 2 The later of: 1 July 2004 (a) 1 July 2004; and (b) the day after this Act receives the Royal Assent. 2B. Schedule 2, Part 3 1 January 2005. 1 January 2005 2C. Schedule 2, Part 4 The later of: 1 July 2004 (a) 1 July 2004; and (b) the day after this Act receives the Royal Assent. 2D. Schedule 2A The later of: 1 July 2004 (a) 1 July 2004; and (b) the day after this Act receives the Royal Assent. 3. Schedule 3 A single day to be fixed by Proclamation. 26 July 2004 (Gazette 2004, No. GN28) However, if any of the provision(s) do not commence within the period of 6 months beginning on the day on which this Act receives the Royal Assent, they commence on the first day after the end of that period. 4. Schedule 4, Part 1 The later of: 1 July 2004 (a) 1 July 2004; and (b) the day after this Act receives the Royal Assent. 5. Schedule 4, Part 2 The day after this Act receives the Royal Assent. 1 July 2004 6. Schedule 4, Part 3 The later of: 1 July 2004 (a) 1 July 2004; and (b) the day after this Act receives the Royal Assent. 7. Schedule 4, Part 4 The day after this Act receives the Royal Assent. 1 July 2004 8. Schedule 4, Part 5 The later of: 1 July 2004 (a) 1 July 2004; and (b) the day after this Act receives the Royal Assent. 9. Schedule 5 The later of: 1 July 2004 (a) 1 July 2004; and (b) the day after this Act receives the Royal Assent. 10. Schedules 6 and 7 The day after this Act receives the Royal Assent. 1 July 2004 11. Schedules 8 and 9 Immediately after the commencement of the provisions covered by table item 9. 1 July 2004 12. Schedule 10 1 January 2005. 1 January 2005 13. Schedule 11 Immediately after the commencement of the provisions covered by table item 2. 1 July 2004 13A. Schedule 11A 1 January 2005. 1 January 2005 14. Schedule 12 The day on which this Act receives the Royal Assent. 30 June 2004 Note: This table relates only to the provisions of this Act as originally passed by the Parliament and assented to. It will not be expanded to deal with provisions inserted in this Act after assent. (2) Column 3 of the table is for additional information that is not part of this Act. This information may be included in any published version of this Act. 3 Schedule(s) Each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms. Schedule 1—Audit Reform Part 1—Audit oversight Australian Securities and Investments Commission Act 2001 1 Paragraph 1(1)(d) After "Standards Board", insert ", an Auditing and Assurance Standards Board". 2 Subsection 5(1) Insert: AUASB means the Auditing and Assurance Standards Board. 3 Subsection 5(1) Insert: auditor independence requirements means the auditor independence requirements provided for in: (a) the Corporations Act; and (b) the codes of professional conduct. 4 Subsection 5(1) Insert: Australian auditor means: (a) an individual auditor; or (b) an audit firm; or (c) an audit company; that is conducting, or that has conducted, audits undertaken for the purposes of the Corporations Act and includes a registered company auditor who is participating in, or has participated in, audits of that kind. 5 Subsection 5(1) Insert: international auditing standards means auditing standards made by: (a) the International Auditing and Assurance Standards Board; or (b) another body specified by the regulations. 6 Subsection 5(1) (after paragraph (ea) of the definition of member) Insert: (eb) in relation to the AUASB—a member of the AUASB; and 7 Subsection 5(1) Insert: professional accounting body means a body prescribed by the regulations for the purposes of this definition. 8 Paragraph 127(4)(a) After "the Disciplinary Board,", insert "the FRC,". 9 After paragraph 213(2)(a) Insert: (aa) to the FRC for the purposes of its performance of its functions under the corporations legislation; or 10 Part 12 (heading) Repeal the heading, substitute: Part 12—The Australian financial reporting system 11 After paragraph 224(a) Insert: (aa) to facilitate the development of auditing and assurance standards and related guidance materials that: (i) provide Australian auditors with relevant and comprehensive guidance in forming an opinion about, and reporting on, whether financial reports comply with the requirements of the Corporations Act; and (ii) require the preparation of auditors' reports that are reliable and readily understandable by the users of the financial reports to which they relate; and 12 Subparagraph 224(b)(iii) Omit "accounting standards", substitute "accounting and auditing standards". 13 Division 1 of Part 12 (heading) Repeal the heading, substitute: Division 1—The financial reporting system 14 Subsection 225(2) Repeal the subsection, substitute: Functions generally (1) The FRC functions are: (a) to provide broad oversight of the processes for setting accounting standards in Australia; and (b) to provide broad oversight of the processes for setting auditing standards in Australia; and (c) to monitor the effectiveness of auditor independence requirements in Australia; and (d) to give the Minister reports and advice about the matters referred to in paragraphs (a), (b) and (c); and (e) the functions specified in subsections (2) (specific accounting standards functions), (2A) (specific auditing standards functions) and (2B) (specific auditor independence functions); and (f) to establish appropriate consultative mechanisms; and (g) to advance and promote the main objects of this Part; and (h) any other functions that the Minister confers on the FRC by written notice to the FRC Chair. Note: The FRC was established by subsection 225(1) of the Australian Securities and Investments Commission Act 1989 and is continued in existence by section 261 of this Act. Specific accounting standards functions (2) The FRC functions include: (a) appointing the members of the AASB (other than the Chair); and (b) approving and monitoring the AASB's: (i) priorities; and (ii) business plans; and (iii) budgets; and (iv) staffing arrangements (including level, structure and composition of staffing); and (c) determining the AASB's broad strategic direction; and (d) giving the AASB directions, advice or feedback on matters of general policy and on the AASB's procedures; and (e) monitoring the development of international accounting standards and the accounting standards that apply in major international financial centres; and (f) furthering the development of a single set of accounting standards for world‑wide use with appropriate regard to international developments; and (g) promoting the continued adoption of international best practice accounting standards in the Australian accounting standard setting processes if doing so would be in the best interests of both the private and public sectors in the Australian economy; and (h) monitoring: (i) the operation of accounting standards to assess their continued relevance and their effectiveness in achieving their objectives in respect of both the private and public sectors of the Australian economy; and (ii) the effectiveness of the consultative arrangements used by the AASB; and (i) seeking contributions towards the costs of the Australian accounting standard setting processes; and (j) monitoring and periodically reviewing the level of funding, and the funding arrangements, for the AASB. Specific auditing standards functions (2A) The FRC functions include: (a) appointing the members of the AUASB (other than the Chair); and (b) approving and monitoring the AUASB's: (i) priorities; and (ii) business plans; and (iii) budgets; and (iv) staffing arrangements (including level, structure and composition of staffing); and (c) determining the AUASB's broad strategic direction; and (d) giving the AUASB directions, advice or feedback on matters of general policy and on the AUASB's procedures; and (e) monitoring the development of international auditing standards and the auditing standards that apply in major international financial centres; and (f) furthering the development of a single set of auditing standards for world‑wide use with appropriate regard to international developments; and (g) promoting the continued adoption of international best practice auditing standards in the Australian auditing standard setting processes if doing so would be in the best interests of both the private and public sectors in the Australian economy; and (h) monitoring: (i) the operation of auditing standards to assess their continued relevance and their effectiveness in achieving their objectives in respect of both the private and public sectors of the Australian economy; and (ii) the effectiveness of the consultative arrangements used by the AUASB; and (i) seeking contributions towards the costs of the Australian auditing standard setting processes; and (j) monitoring and periodically reviewing the level of funding, and the funding arrangements, for the AUASB. Specific auditor independence functions (2B) The FRC functions include: (a) monitoring and assessing the nature and overall adequacy of: (i) the systems and processes used by Australian auditors to ensure compliance with auditor independence requirements; and (ii) the systems and processes used by professional accounting bodies for planning and performing quality assurance reviews of audit work undertaken by Australian auditors to the extent to which those reviews relate to auditor independence requirements; and (iii) the action that Australian auditors who have been subject to such quality assurance reviews have taken in response to the reports prepared as a result of those reviews; and (iv) the action taken by professional accounting bodies to ensure that Australian auditors who have been subject to such quality assurance reviews respond appropriately to the reports prepared as a result of those reviews; and (v) the investigation and disciplinary procedures of professional accounting bodies as those procedures apply to Australian auditors; and (b) monitoring the overall compliance by companies, registered schemes and disclosing entities with the audit‑related disclosure requirements of the Corporations Act and the accounting standards; and (c) giving the Minister reports and advice about the matters referred to in paragraphs (a) and (b); and (d) giving professional accounting bodies reports and advice about the matters referred to in subparagraphs (a)(ii), (iii), (iv) and (v); and (e) monitoring international developments in auditor independence, assessing the adequacy of the Australian auditor independence requirements provided for in: (i) the Corporations Act; and (ii) codes of professional conduct; in the light of those developments and giving the Minister, and professional accounting bodies, reports and advice on any additional measures needed to enhance the independence of Australian auditors; and (f) promoting, and monitoring the adequacy of, the teaching of professional and business ethics by, or on behalf of, professional accounting bodies to the extent to which the teaching of those subjects relates to auditor independence. 15 Subsection 225(6) Omit "formulated and recommended", substitute "made, formulated or recommended". 16 At the end of section 225 Add: (7) The FRC does not have power to direct the AUASB in relation to the development, or making, of a particular auditing standard. (8) The FRC does not have power to veto a standard made, formulated or recommended by the AUASB. 17 After section 225 Insert: 225A Financial Reporting Council's information gathering powers (1) The Chair of the FRC, acting on behalf of the FRC, may give a professional accounting body a written notice requiring the body to give the FRC: (a) a copy of: (i) a code of professional conduct of the body; or (ii) a proposed code of professional conduct of the body; or (iii) a proposed amendment of a code of professional conduct of the body; or (b) information about the body's planning or performance of quality assurance reviews; or (c) details of the body's investigation or disciplinary procedures. (2) The notice may require the body to give the FRC information under paragraph (1)(b) or (c) only to the extent to which the information relates to audit work done by Australian auditors. (3) A professional accounting body has qualified privilege in respect of a disclosure made by the body in response to a notice given to the body under subsection (1). (4) A person has qualified privilege in respect of a disclosure made by the person, on behalf of a professional accounting body, in response to a notice given to the professional body under subsection (1). (5) The Chair of the FRC, acting on behalf of the FRC, may give an Australian auditor a written notice requiring the auditor to give the FRC information about, or documents or copies of documents that relate to, one or more of the following: (a) one or more audits conducted by the auditor or in which the auditor participated; (b) the measures the auditor adopted, or the procedures the auditor put in place, to ensure that the auditor was, and continues to be, independent of entities it audits; (c) any other matter prescribed by the regulations for the purposes of this paragraph. Without limiting this, the documents may be audit working papers. Note: A person responding to a notice under this subsection has qualified privilege in respect of the response (see section 1289 of the Corporations Act). (6) Without limiting subsection (5), the notice: (a) may require the Australian auditor to give the FRC information or a document even if doing so would involve a breach of an obligation of confidentiality that the auditor owes an audited body; and (b) may require that a copy of a document to be given to the FRC must be certified by a particular person or a person holding a particular office or position. (7) The notice under subsection (1) or (5) must specify: (a) the information or documents the professional accounting body or Australian auditor must give; and (b) the period within which the body or auditor must give the information or documents. The period specified under paragraph (b) must be not less than 28 days after the day on which the notice is given. (8) The Chair of the FRC, acting on behalf of the FRC, may, by written notice to the professional accounting body or Australian auditor, extend the period within which the body or auditor must give the information or documents. (9) A person commits an offence if: (a) the Chair of the FRC gives the person notice under subsection (1) or (5); and (b) the person does not comply with the notice. Penalty: 10 penalty units. (10) An offence against subsection (9) is an offence of strict liability. Note: For strict liability see section 6.1 of the Criminal Code. (11) A person commits an offence if: (a) the Chair of the FRC gives a firm a notice under subsection (5); and (b) the person is a member of the firm when the notice is given; and (c) the notice is not complied with. Penalty: 10 penalty units. (12) An offence against subsection (11) is an offence of strict liability. Note: For strict liability see section 6.1 of the Criminal Code. (13) A member of a firm does not commit an offence at a particular time because of a contravention of subsection (11) if the member either: (a) does not know at that time that the Chair of the FRC has given the firm the notice under subsection (5); or (b) knows that the Chair of the FRC has given the firm the notice under subsection (5) at that time but takes all reasonable steps to ensure that the notice is complied with as soon as possible after the member becomes aware of those circumstances. Note: A defendant bears an evidential burden in relation to the matters in this subsection, see subsection 13.3(3) of the Criminal Code. 18 Subsection 227(7) Repeal the subsection, substitute: 227A The Auditing and Assurance Standards Board (1) The Auditing and Assurance Standards Board is established. (2) The Auditing and Assurance Standards Board: (a) is a body corporate with perpetual succession; and (b) must have a common seal; and (c) may acquire, hold and dispose of real and personal property; and (d) may sue and be sued in its corporate name. Note: The Commonwealth Authorities and Companies Act 1997 applies to the Auditing and Assurance Standards Board. This Act makes provision for reporting obligations (annual report, interim reports and estimates), accounting records, audit, banking, investment of funds and duties of officers. (3) All courts, judges and persons acting judicially must: (a) take judicial notice of the imprint of the common seal of the Auditing and Assurance Standards Board appearing on a document; and (b) presume that the document was duly sealed. 227B AUASB's functions and powers Functions (1) The functions of the AUASB are: (a) to make auditing standards under section 336 of the Corporations Act for the purposes of the corporations legislation; and (b) to formulate auditing and assurance standards for other purposes; and (c) to formulate guidance on auditing and assurance matters; and (d) to participate in and contribute to the development of a single set of auditing standards for world‑wide use; and (e) to advance and promote the main objects of this Part. Note 1: The standards made under paragraph (a) are given legal effect by the Corporations Act. The standards formulated under paragraph (b) do not have legal effect under the Corporations Act itself but may be applied or adopted by some other authority. Note 2: See section 224 and sections 234A to 234D for the framework within which the AUASB is to formulate and make auditing standards. Powers (2) The AUASB has power to: (a) engage staff and consultants; and (b) establish committees, advisory panels and consultative groups; and (c) receive money contributed towards its operating costs; and (d) do anything else that is necessary for, or reasonably incidental to, the performance of its functions. Manner of making and formulating standards (3) Without limiting paragraph (1)(a) or (b), the AUASB may make or formulate an auditing standard by issuing the text of an international auditing standard. (4) The text of the international auditing standard may be modified to the extent necessary to take account of the Australian legal or institutional environment. Manner of participating in the development of international standards (5) Without limiting paragraph (1)(d), the AUASB may distribute the text of a draft international auditing standard (whether or not modified to take account of the Australian legal or institutional environment) for the purposes of consultation. 19 Paragraph 232(a) Omit "paragraph 225(2)(d)", substitute "paragraph 225(2)(c)". 20 Paragraph 232(b) Omit "paragraph 225(2)(e)", substitute "paragraph 225(2)(d)". 21 Paragraph 232(c) Omit "paragraph 225(2)(e)", substitute "paragraph 225(2)(d)". 22 After Division 2 of Part 12 Insert: Division 2A—Auditing standards 234A Purposive interpretation of standards Objects of this Part (1) In interpreting an auditing standard made or formulated by the AUASB, a construction that would promote the objects of this Part is to be preferred to a construction that would not promote those objects. Note: Section 224 states the main objects of this Part. Purposes or objects of particular standard (2) In interpreting an auditing standard made or formulated by the AUASB, a construction that would promote a purpose or object of the standard (to the extent to which it is not inconsistent with the objects of this Part) is to be preferred to a construction that would not promote that purpose or object. This is so even if the purpose or object is not expressly stated in the standard. 234B Generic and specific standards Auditing standards made or formulated by the AUASB may: (a) be of general or limited application (including a limitation to different types of audit and specified industries, bodies or undertakings); and (b) differ according to differences in time, place or circumstance. 234C FRC views In performing its functions, the AUASB must: (a) follow the broad strategic direction determined by the FRC under paragraph 225(2A)(c); and (b) follow the general policy directions given by the FRC under paragraph 225(2A)(d); and (c) take into account the advice and feedback on matters of general policy given by the FRC under paragraph 225(2A)(d). 234D International auditing standards (1) The Minister may give the AUASB a direction about the role of international auditing standards in the Australian auditing standard setting system. (2) Before giving a direction under this section, the Minister must receive and consider a report from the FRC about the desirability of giving the direction. (3) The AUASB must comply with the direction. 234E Validity of auditing standards A failure to comply with this Division in relation to the making of an auditing standard does not affect the validity of the standard. 23 At the end of paragraph 235B(1)(a) Add: (iii) the AUASB and its committees, advisory panels and consultative groups; and 24 After subsection 235B(2) Insert: (2A) The report must include details of any change to the AUASB's priorities or business plan that was made as a result of action taken by the FRC. 25 Subsections 235B(5) and (6) Repeal the subsections, substitute: 235BA Report on auditor independence functions (1) As soon as practicable after 30 June in each year, and in any event before 31 October, the FRC must give the Minister a report on: (a) the performance by the FRC, during the year that ended on 30 June in that year, of its functions under subsection 225(2B) (the auditor independence functions); and (b) the findings and conclusions that the FRC reached in performing those functions; and (c) the actions (if any) that were taken by the FRC in respect of those findings and conclusions. The report may be given to the Minister separately or included in th