Thursday, 28 June 2012
Corporations Legislation Amendment (Financial Reporting Panel) Bill 2012; Second Reading
It is my pleasure to speak on behalf of the opposition on the Corporations Legislation Amendment (Financial Reporting Panel) Bill 2012. The opposition will not be opposing this legislation, which was introduced last week by the Parliamentary Secretary to the Treasurer. I will briefly run through what the parliamentary secretary outlined in his second reading speech in the House. The Financial Reporting Panel was established some six years ago, in 2006, to resolve disputes between ASIC and companies over accounting standards and financial reporting. It was—I think the parliamentary secretary, those participating in this debate and all members would agree—something that industry had argued for, and its intentions were certainly good. It was intended to help avoid court action and speed up the process of resolving disputes.
Since the inception of the Financial Reporting Panel, only five cases have been referred to it, and none have been referred to it since August 2010. Given this, the government announced sometime ago its intention to close the panel. There was then a delay while some consultation could take place, via a discussion paper that was issued on the future of the panel in 2011. But the government, having considered the views of stakeholders and having considered the fact that so few matters had been referred—in fact no matters in recent months, getting on to almost two years—announced in February that it would close the panel.
The coalition did not express any opposition to the government's announcement in February this year. Certainly given the lack of referrals to the panel, it is hard to justify the ongoing costs in keeping it. On behalf of the opposition I indicate that we are not opposing this legislation. I note that my good friend, the member for Blair, from the other side, is speaking on this bill. It is our happy duty to keep the wheels turning on these matters of technicality to do with taxation—in this case, the Corporations Law.
I speak in support of the Corporations Legislation Amendment (Financial Reporting Panel) Bill 2012. It gives me an opportunity—as this is the first bill I have spoken on that the parliamentary secretary has carriage of—to congratulate my good friend, the member for Oxley, on his overdue and welcomed elevation to the position of Parliamentary Secretary to the Treasurer, and I thank him for asking me to speak on the bill.
The Financial Reporting Panel was established with the best of intentions by the Howard coalition government, pursuant to legislation in 2004 under the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004. Small- and medium-size enterprises wish to avoid at all cost litigation. That is why so many of them engage, for example, in debt collection agencies and pursue all they can to avoid litigation. It has been my experience with more than 20 years as a lawyer that business does not wish to go to court if at all possible.
Governments of all persuasions set in place arbitration, mediation and conciliation mechanisms by which business can avoid actually going to court. One of the things established, with the best of intentions, was the Financial Reporting Panel as a third-party vehicle which small and medium enterprises could use if there were any issues concerning the application of accounting standards. It was thought that those SMEs would actually consult with the panel in relation to issues if they had disputes between them and ASIC, but that did not happen. This was put in place with the best of intentions, but it did not proceed. The panel commenced on 3 July 2006 and virtually nothing took place. For three years it heard no cases and it cost the Australian taxpayer $800,000.
I do not criticise the previous coalition government in relation to that. It was at the request of industry and stakeholders that that panel was established. In fact, when Treasury circulated in November 2011 a discussion paper in relation to this, 11 submissions were made and organisations like KPMG, Deloittes and Ernst and Young recommended, with some amendment, that the panel continue. Regrettably, despite, as the member for Casey said, a number of cases being referred to the panel, very little activity has taken place. In circumstances where we want to get back into surplus, where the budget is tight and where across the forward estimates we can save $1.2 million of taxpayers' money, I think the parliamentary secretary is to be commended for the decision that was made. There are a number of options that could have been undertaken—he could have retained the panel; maintained the current processes and powers; modified any referral process; or repealed it and closed it—and I think he chose the right path in the circumstances. It is not as if these decisions of the panel were actually binding from a legal point of view. They would have had to be accepted by the corporate sector and by ASIC. We are not leaving industry without the opportunity to refer this to some sort of arbitration or indeed to go to court in relation to these matters. It has always been the case that industry could have taken matters to court. Further, the International Financial Reporting Interpretations Committee is able to provide interpretations when issues in relation to accounting standards still remain on foot. Reporting entities and ASIC could have the dispute in relation to that and refer to that particular committee for consideration. I note there is a transitional provision so that the courts, if they are going to look at these types of things, can have regard to decisions and reports made by the panel prior to its closure. That is a sensible suggestion in the circumstances.
This is a non-contentious bill. Even the fact that there were only 11 submissions made on the Treasury website in relation to the consultation process indicates that it is not a controversial issue and it is a sensible way to maintain the taxpayers' dollars in the circumstances. I support the legislation.
I welcome the opportunity to speak on the Corporations Legislation Amendment (Financial Reporting Panel) Bill 2012 introduced by my colleague the Parliamentary Secretary to the Treasurer. I would like to echo the words of the member for Blair in congratulating him for his promotion, long overdue. He is doing a wonderful job. I am very much looking forward to hosting my second financial literacy seminar tomorrow with the parliamentary secretary. It is going to be held in the Griffith neighbourhood centre. I am looking forward to getting a number of people from the community, from the multicultural community as well as the seniors community and the general community in to learn about scams and how to avoid them, and also to learn about the fabulous MoneySmart website and the range of skills that you can gain from accessing that website to find out how much super you need, how to manage a budget, and if you are pregnant how to manage the transition in terms of pay. I am a strong advocate of MoneySmart. I am constantly sending it out to people on my Facebook site and also when it is released every month I give notification through my Twitter as well. It is a wonderful way of getting free information to improve your financial literacy and free information you would probably need to pay quite a bit for, and I have paid for it in the past, through a financial adviser. So I am very much looking forward to my second financial literacy seminar and hosting many more for Canberrans in coming years.
The main function of this bill is to close down the Treasury-administered Financial Reporting Panel by repealing its functions and its powers. The panel is an independent third-party review mechanism consisting of nine part-time panel members from the business and accounting community. At the time it was established in 2006 under the Howard government its aim was to examine and resolve contested issues between the Australian Securities and Investments Commission, ASIC, and reporting bodies in relation to the accounting standards of financial reporting. Over recent years there have been a number of significant changes in financial reporting stemming from the global financial crisis and other reviews and it is important that people keep up-to-date with what is going on and their accountants, most importantly, keep up with what is going on.
It has been almost six years since the panel was established and in that time only five cases have been referred to the panel. Of these four were only introduced because the government in 2010 decided to close down the panel. Not only is this significantly lower than the expected number of referrals but it is also an inefficient use of our resources. After the four extra cases had been brought before the panel in late 2010, the government deferred the panel's closing and issued a discussion paper for review. It contained various options, including retaining the panel in its current state, making modifications to the tedious referral process or closing it down altogether. The 11 submissions received in the consultation process have been made available publicly through the Treasury website. The submissions generally supported the retention of the panel with some amendments, because it can be an incentive for companies to meet their financial reporting requirements and because it can facilitate cooperation and agreement where there is dispute. However, it became clear that any changes made to the way the panel operates would not necessarily increase the number of referrals, which is the main reason its closure was initiated.
It is simply unsustainable for a panel which has reviewed just five cases in six years to continue operating. It adds pressure to our budget, makes it increasingly difficult to find high-quality panel members and reduces its effectiveness as an intermediary review board between ASIC and reporting entities. Closing it down by enacting this legislation would save $1.2 million over four years. However, doing so would not leave ASIC and reporting companies without any dispute resolution process, and it would not have a significant impact on the standards of financial reporting. As my colleague the member for Blair mentioned, the International Financial Reporting Standards Interpretations Committee can still provide advice where issues with accounting standards are identified. Furthermore, companies have always had access to, and in many cases have preferred, legal action though the courts for disputes that cannot be resolved between ASIC and reporting companies.
Though the panel was initially viewed as a way of bypassing court proceedings—that is admirable, because it cuts down on costs—its findings are not legally binding, unlike a court's. In fact, the industry's use of other more certain and effective methods of dispute resolution such as the courts has contributed to the lack of use of this panel. As we all know, from someone who has been in business herself, time is money in business. If you are investing significant time in getting a case together you would like to know that it will end in a resolution you are going to be happy with—hence, the preference of some to go through the courts, and get a legally binding decision, rather than to use other mechanisms.
I note from my own experience that most companies are keen to resolve issues internally, particularly on financial matters. I know from being on a number of boards and on a number of audit committees of those boards that when it comes to financial and accounting issues you do everything in your power to ensure that you are abiding by the appropriate standards. You go out and get your own professional education on it through the AICD or other bodies and you ensure that you have an annual audit, of course. But throughout the year you conduct a number of internal audits in a range of different areas to ensure that you are abiding by the appropriate accounting standards and that you are keeping an eye on what is going on in the company. It is by doing those more forensic dips through internal audits that you get the opportunity to focus on specific areas that you would not necessarily get the chance to with a more general audit. I know that most companies are very keen to ensure that they abide by those standards and set up a number of mechanisms—internal mechanisms as well as external audits—to ensure that they do. Organisations can now go to an external committee as well to get decisions on matters of accounting.
Clearly, a review of the Financial Reporting Panel has been long overdue and its lack of use by companies and ASIC allows for its immediate closure through the enactment of this bill. With the inclusion of a transitional provision in this bill, courts can continue to refer to reports previously issued by the panel, even after its closure, as a point of reference.
Enacting this bill will save money. It will also ensure that other methods of upholding financial accounting standards are available to ASIC. That is particularly important, because, as I mentioned, there is a range of mechanisms that companies use, including internal and external audits, and they will be able to ensure that they can uphold accounting standards through access to ASIC and reporting companies. For this reason, I commend the bill to the House.
Firstly, I thank all those honourable members who have taken part in this debate on the Corporations Legislation Amendment (Financial Reporting Panel) Bill 2012. I particularly thank the member for Casey, the member for Blair and the member for Canberra for their good work in this area and their support of this bill—and of course the support across the chamber. The Financial Reporting Panelwas designed to provide an alternative means of resolving disputes relating to the application of accounting standards to financial statements. However, due to lower than expected referral rates, the panel will be wound up.
The amendment in this bill will close the Financial Reporting Panel by repealing references to its functions and powers in the ASIC Act and the Corporations Act. To give companies greater certainty, the amendment in this bill clarifies that courts may continue to have regard to reports previously issued by the panel despite its closure. I thank the House and commend the bill.
Question agreed to.
Bill read a second time.
Ordered that this bill be reported to the House without amendment.