1. A Corporate Advisor
Corporate Advisor
IN THIS ISSUE:
• ASIC Surveillance Report 2011and Targets
• Using Non-IFRS Financial Information – ASIC Guidance
• Centro Judgement – Actions Items for Directors and Management
• Better Disclosure Needed in Remuneration Reports
• Financial Reporting Penalties
• Personal Property Securities Register
• Better Prospectus Guide Released by ASIC
• Reform to Dividends Payment Test Treasury Discussion Paper
• A New Statutory Definition of Charity Proposed
• ACNC Release of Draft Legislation and DP on Implementation Design
• Recently Issued AASB Standards and EDs – Much to Do
2. Introduction
In this edition of the Corporate Adviser we have identified 12
topics in the areas financial reporting, corporate governance
and regulation to inform and assist CFOs and directors in the
discharge of their responsibilities.
In our previous edition we looked at several horizon issues such
as executive remuneration, non-conforming financial information,
the Charities and Not-for-profits Commission, prospectuses, as
well as the 2nd
Wave of IFRS. These are no longer horizon issues
but matters we must understand and address now.
For the 31December reporting season, we bring you up-to-date
on results of the ASIC surveillance program and ASIC’s targets
for 2011 and beyond. The surveillance results provide a basis for
benchmarking financial reporting improvements for all reporting
entities.
On the corporate governance front, there have been several
noteworthy developments that directors and company secretaries
need to focus on. These include the Centro judgement and
financial reporting penalties.
We look forward to working with you on the challenges ahead.
3. Corporate Advisor 1
As a Christmas present, ASIC released the results of
its reviews of financial reports for the year ended 30
June 2011 and announced its targets for 31 December
2011 financial reports and beyond. In this next
reporting season, given the current difficult economic
climate that confronts all companies, ASIC will focus
particularly on: asset values and going concern
assessments, including adequate disclosure of material
assumptions; consolidation decisions and off balance
sheet arrangements; proper disclosure of segment
information in a manner that enables useful assessment
of the separate businesses; and non-IFRS reporting.
Some current events that may affect asset values
include: exposures to countries with economic
uncertainties; the impact of exchange rate movements;
the imminent carbon tax and the proposed mineral
resource rent tax. Focus should also be placed on
values of financial assets and investment properties
measured at fair value. In addition the lessons from
the Centro case should encourage directors to
carefully consider values in light of their knowledge of
the business and its prospects in the context of the
economic conditions. Lets look at the recently released
ASIC financial reporting surveillance findings.
>>> ASSET VALUES:
Impairment testing of goodwill,
identifiable intangibles and other
assets continues to be an area
requiring improvement. A number of
companies have made substantial
impairment write-downs following
ASIC enquiries. ASIC is currently
making further enquiries of a
number of entities where there
are indicators of possible asset
impairments, such as reported
net assets being significantly
higher than the entity’s market
capitalisation.
ASIC has concerns that some
entities are ignoring the significance
of these indicators.Other impairment
issues identified included:
• Use of unrealistically optimistic discount and
growth rates
• Failure to disclose carrying amounts
allocated to each cash generating unit
and the basis for determining recoverable
amounts
• Lack of disclosure of assumptions used
in discounted cash flow calculations,
particularly growth rates and discount rates,
and
• No sensitivity analysis for changes in key
assumptions.
>>> GOING CONCERN:
There continues to be instances where companies
have failed to make adequate disclosures relating to the
ability to continue as a going concern. Going concern
assessments are critical. Directors need to be realistic
in their assessment of the business, its’ prospects and
future cash flows. Entities should also continue to focus
on the ability to refinance debt at appropriate cost and
compliance with lending covenants.
>>> CURRENT VS. NON-CURRENT
CLASSIFICATIONS:
The correct classification of liabilities and assets
between current and non-current is important to an
understanding of the financial position of an entity.
ASIC continues to find cases where current liabilities
have been incorrectly classified as non-current and
adjustments have been required. Directors should
ensure that there are appropriate processes to ensure
the correct classification, and should review the
classification having regard to their knowledge of the
business and its’ funding arrangements.
ASIC Surveillance Report 2011 and Targets
Contributed by: Drew Townsend
4. 2 Corporate Advisor
ESTIMATES AND ACCOUNTING
POLICY JUDGEMENTS:
Some entities did not make material disclosures of
significant judgements in applying accounting policies
and sources of estimation uncertainty. Other entities
included ‘boiler plate’ disclosures. These disclosures
should be specific to the entity and its assets, liabilities,
equity, income and expenses. Sources of estimation
uncertainty are important, as is information on
accounting policy judgements. Directors should ensure
that meaningful disclosures are made in these areas.
SEGMENT REPORTING:
Listed entities must disclose segment information
to enable users to evaluate the nature and financial
effects of their business activities and the economic
environments in which they operate. They are also
required to identify and report on segments having
regard to components of their business for which
there is regular internal reporting of operating results to
the entity’s chief operating decision maker. Following
ASIC enquiries, some entities are now reporting more
segments. In some cases, information disclosed in
documents such as market announcements or the OFR
suggest that there may be more segments that should
be reported in the financial report. Directors should
ensure that segment disclosures at 31 December 2011
provide information based on internal reporting and any
other segment information needed by investors.
FINANCIAL INSTRUMENTS:
A number of entities did not make adequate disclosures
to enable users of financial reports to understand and
evaluate the nature and extent of the specific market,
credit and liquidity risks associated with their use of
financial instruments. Disclosures should be meaningful
to users, and specific disclosures should be made rather
than boilerplate disclosures. A number of entities failed
to disclose financial asset fair value information using
a three level hierarchy reflecting the extent to which
observable market data is used in the measurement
, or failed to disclose the methods and significant
assumptions used to value assets for which there was
no observable market data. Other deficiencies related to
disclosing an ageing analysis of financial assets that are
past due but not impaired and an analysis of impaired
financial assets. Directors should focus on financial
instrument disclosures at 31 December 2011.
5. Corporate Advisor 3
MINERALS RESOURCE
RENT TAX (MRRT):
The MRRT legislation passed the lower House of
Parliament but is yet to be considered by the Senate.
When enacted or substantively enacted, entities
impacted by the tax may need to re-measure their
deferred tax balances. The MRRT is an income tax
to be accounted for under AASB 112 ‘Income Taxes’
(similar to the Petroleum Resource Rent Tax). Where
an entity re-measures the tax base of its depreciable
mining assets under the legislation, there could be
a significant impact on deferred tax balances and
income tax expense. Entities should adequately
plan for any valuation advice required and take care
when re-measuring the tax base of their depreciable
assets. Entities should assess the impact of the
proposed MRRT on asset impairment and consider
disclosing expected future impacts on deferred tax
balances.
OFF BALANCE SHEET
ARRANGEMENTS:
ASIC queried a number of entities that had not
consolidated entities in which they hold an ownership
interest of over 50%. Many of these entities are
now consolidating those interests. While ownership
interest is only an indicator of control, directors
should review off-balance sheet investments
in which a majority ownership is held.Leaving
arrangements off-balance sheet on the basis that
risks may be remote is unlikely to be appropriate
where no significant risks are borne by other parties.
Where adverse economic circumstances may result
in the entity bearing most losses, it is likely that
arrangements should be on-balance sheet. Where
arrangements remain off balance sheet, the details
of the arrangements and any exposures should be
disclosed, together with the reasons why they are not
on balance sheet.
RIGHTS TO FUTURE INCOME:
ASIC is making further enquiries of some entities
that have recognised a right to future income as
a financial asset at fair value rather than intangible
assets required to be measured at amortised cost.
Recently, two companies have amended their
treatments. Directors should ensure the correct
classification of rights to future income at 31
December 2011.
INTANGIBLE ASSET REVALUATION:
Accounting standards only allow entities to revalue
certain identifiable intangible assets to fair value and
only then where an active market exists for the asset.
ASIC is not aware of any identifiable intangible assets
for which an active market exists in Australia. After
ASIC enquiries, some entities have recently ceased
using fair values. Recent changes in accounting
standards will not change the ‘active market’ test.
NEW ACCOUNTING STANDARDS:
A number of new accounting standards have been
issued recently that may impact materially on the
financial reports in future years, including a new
standard on consolidation accounting. The impacts of
the new standards must be disclosed in 31 December
2011 full year financial reports.
OPERATING AND FINANCIAL REVIEW:
ASIC reviewed the Operating and Financial Reviews
(OFRs) of 120 listed companies at 30 June 2011
for compliance with sections 299 and 299A of the
Corporations Act. ASIC is concerned with a lack of
meaningful disclosure of information in many OFRs,
including the extent of meaningful analysis of underlying
drivers of results. ASIC is also concerned by poor
disclosure by many entities of business strategies and
prospects for future financial years. ASIC is making
enquiries of a number of companies and are planning
a consultation on the proper content of these reports
in the coming year. The consultation paper will also
deal with the possible over-use of the exemption from
disclosing information on the basis of unreasonable
prejudice. Providing a meaningful OFR should continue
to be a focus for directors at 31 December 2011.
6. 4 Corporate Advisor
ASIC has released Regulatory
Guide 230 ‘Disclosing non-IFRS
financial information (RG 230)’. The
purpose of Regulatory Guide 230 is
to:
• Promote more meaningful communication
of non-IFRS financial information to investors
and other users of financial reports
• Assist directors in ensuring that the
information is not misleading, and
• Provide greater certainty in the market
as to ASIC’s views on disclosure of the
information.
Non-IFRS(AASB) financial information, including non-
IFRS profit measures, can be useful to investors and
other users of financial information according to ASIC.
The information can be presented in documents such
as directors’ reports, market announcements, investor
briefings and transaction documents, provided it is not
misleading. While the presentation of the information
in financial reports is subject to particular legislative
and accounting standards restrictions, there is more
flexibility to present the information in documents
attached to financial reports and other documents.
Non-IFRS financial information can provide useful
information to investors and other users of financial
reports. However, it is important that information is
not misleading. This ASIC guidance will be useful
to stakeholders by providing guidance to assist
in reducing the risk that information is misleading.
Guidance to assist directors and preparers of financial
information in reducing this risk includes:
• Giving equal or greater prominence to IFRS
financial information
• Explaining the non-IFRS information and
reconciling it to the IFRS financial information
• Calculating the information consistently from
period to period, and
• Not using information to remove ‘bad news’.
Listed entities will now have to be far more careful in
the use of non-IFRS financial information in statutory
accounts and existing corporate reporting policies
will require reconsideration. Listed entities should
give more attention to telling their story in MDA, using
the IASB/AASB Practice Statement ‘Management
Commentary’.
Using Non-IFRS Financial Information – ASIC Guidance
Contributed by: Graham Webb
7. Justice Middleton of the Federal Court recently handed down his decision in ASIC v Healey [2011]
FCA 717 (the Centro Case). The 186 page judgement provided directors, management and auditors
with precious little time to fully absorb the judgement and its implications for the 30 June reporting
season.Now it is the time for a fuller reflection and action.
The central question in the proceeding was whether the directors were required to apply their own
minds to, and carry out a careful review of, the proposed financial statements and the proposed
directors report, to determine that the information they contained was consistent with the director’s
knowledge of the company’s affairs, and that they did not omit material matters known to them or
material matters that should have been known to them.
Company directors must take positive steps to review and form their own opinion on their
company’s financial statements. These steps include reading and understanding the financial
statements. ‘Reading’ means carefully reading and reviewing, not simply skimming and then seeking
assurances from the CFO and auditors. Directors cannot rely on management and auditors to
complete the financial statements without critically assessing the work delegated to those people.
It is necessary to understand what the judgement is not:
• It does not mean directors cannot rely on advice – only they need to form their own
views based on their knowledge of the company and transactions, and
• Nor does it require directors to have detailed expertise in accounting standards
– the judgment does imply basic financial literacy and basic understanding of
accounting standards.
As for the need to understand accounting standards, in relation to the requirements of AASB 101
“Presentation of Financial Statements” regarding the classification of liabilities Justice Middleton
noted: “I accept that note 1(w) does not record everything that ‘one needs to know about the
accounting standards’. However, it was all each director needed to know to have a sufficient
knowledge of the accounting standard relating to classification so that each director would have
been able to read and understand the financial statements and apply his own knowledge to that
task.”The judgement did not explicitly address what information the directors need to obtain to
discharge their financial reporting responsibilities.
Each member of the board must bring and apply their own skills and knowledge when declaring
financial statements give a true and fair view. This is not a responsibility company boards can
delegate or merely rubber stamp.Directors may wish to consider the following action items:
Read and question the financial statements based on the director’s individual knowledge
Require revision to reporting timetable to allow more time for the financial statement review
Do not rely solely on internal processes, the director(s) with the accounting expertise, the audit
committee, or the external auditor to meet individual director’s statutory obligations regarding the
financial statements
Keeping a record of contemporary business issues identified during the year as a memory aid when
reading the financial statements (how have these been reflected in the financial statements?)
Centro Judgement – Actions Items for
Directors and Management
Contributed by: Colin Parker, Head of the GAAP Consulting Network and a AASB member (2006-9)
8. 6 Corporate Advisor
1. Consider a diagnostic review of the financial reporting process to highlight issues and
weaknesses (e.g. quantum of material, timeliness and relevance of board papers)
2. Re-familiarise with procedures and controls in place over the financial reporting process
and the need for additional information
3. Review the AICD publication into ‘How to Review a Company’s Financial Reports – A
Guide for Boards’
4. Understand accounting standards fundamentals (concentrate on the application of those
accounting standards stated in the Summary of Accounting Policies in note 1 to the
financial statements) in the context of the current economic and regulatory environment
5. Understand the Corporations Act financial reporting requirements
6. Spend more time on the financial statement component of the director’s obligations
and focus on what has changed since the previous reporting period, and the high risk
areas (e.g., such as those identified by ASIC as part of its financial reporting surveillance
program)
7. Prepare for greater questioning of management and auditors on financial reporting
matters, and
8. Consider the need for mentor to use as a sounding board on financial reporting issues.
Directors and management should undertake a more
formalised process to assess how the Middleton judgement
impacts the governance accountability and what changes
are necessary to ensure compliance with the Corporations
Act. A diagnostic review of the financial reporting process to
highlight issues and weaknesses should be undertaken that
may include the following:
1. Content of induction and update training for directors on accounting standards, the
Corporations Act, and the financial reporting risks facing the company
2. Volume, content and timing of the periodic Board package (including accounting
dimension of transactions, and the economic environment as the reporting date)
3. Review of Board Charters, and
4. Adequacy of the financial reporting resources available to the company.
In judgment the Court refused the directors’ applications to be exonerated from their
contraventions, and made declarations that all directors and the CFO contravened the
Corporations Law. In addition,the Court fined Mr Andrew Scott (the former Chief Executive
Officer) $30,000, and disqualified Mr Nenna, the former CFO, from managing corporations for
two years. The Court ordered the defendants to pay ASIC’s costs of the action. While some
may consider the penalties placed on the directors’ light, it is most unlikely that outcomes
of any future prosecutions will be so, as the law has been clarified and directors and officers
warned. For future reporting periods, directors must turn their minds to embedding the
lessons learnt.
9. Corporate Advisor 7
ASIC has called for companies
to provide more clarity on the
remuneration arrangements for their
directors and executives. ASIC
identified a number of areas where
disclosure to shareholders can be
improved based on a review of
60 remuneration reports for listed
companies. Under section 300A of
the Corporations Act 2001, listed
companies are required to publish
annually in the ‘Remuneration report’
section of the director’s report for
the financial year:
• Discussion of the board policy for
remuneration
• Discussion of the relationship between the
board policy and company performance
• Explanation of performance related
remuneration and performance conditions
• Additional information where securities are
an element of remuneration
• Additional information where options are an
element of remuneration, and
• Additional information where a person is
employed under a contract.
ASIC’s review examined the narrative content of
the remuneration report and its compliance with
section 300A of 60 companies in the ASX300. ASIC
conducted this review to measure and identify areas
where companies could improve their disclosure to
shareholders. In conducting its review, ASIC was
mindful of the purpose of remuneration reports set
out in the Explanatory Memorandum to the Corporate
Law Economic Reform Program (Audit Reform and
Corporate Disclosure) Bill 2004.
That Explanatory Memorandum stated: “In making
disclosures about director and executive remuneration
companies should approach their obligation from
the starting point of providing shareholders with
comprehensive disclosures. Shareholders should be
placed in a position where they can understand the
nature of the remuneration including any performance
hurdles or contingencies on which the payment is
based. This will ensure shareholders are informed about
the framework and main components of remuneration
and understand the relationship between performance
and remuneration. In addition the disclosure framework
will limit the element of surprise in the event of a
payment being made especially where that payment
accrued over a number of years.”
The review was undertaken as a
‘health check’ on market practices
in remuneration reporting. In
examining compliance with the
statutory requirements, the ASIC
review exposed some areas where
disclosures about remuneration
arrangements could be more
effective. These areas are:
• The board’s policy on the nature and amount
of remuneration of the key management
personnel
• The non-financial performance conditions in
short-term incentive plans
• Why performance conditions have been
chosen, and
• The terms and conditions of incentive plans.
ASIC encourages company directors to prepare this
year’s reports with the overriding objective in mind
of explaining the relationship that exists between the
company’s performance and the remuneration of its
executives.
Better Disclosure Needed in Remuneration Reports
Contributed by: Graham Webb
10. 8 Corporate Advisor
Financial Reporting Penalties
Contributed by: David Kenney
TAKE 1: FAILURE TO LODGE ANNUAL
REPORTS – $15,000 FINE
A Victorian public company was fined $15,000
by the Melbourne Magistrates Court for failing to
lodge its annual financial reports with ASIC and not
reporting to its members. An ASIC investigation
found that between 1 November 2008 and 18
November 2010 Fulcrum Equity Limited failed to
hold an annual general meeting, and its company
director and secretary, Michael Boyd, failed in his
obligations to lodge the company’s financial report,
directors’ report, auditor’s report or a concise
report for the financial year in breach of sections
314 and 319 of the Corporations Act 2001. Mr
Boyd pleaded guilty to the offences but had no
conviction recorded against him.
TAKE 2: DIRECTORS’ PLEAD GUILTY TO
FALSE STATEMENTS IN COMPANY’S
ACCOUNTS
Three former directors of Australian Capital
Reserve Limited (ACR) pleaded guilty in the New
South Wales District Court to charges relating to
false or misleading statements in the company’s
accounts and a prospectus brought by ASIC.
Mr Samuel Pogson of Wahroonga, NSW and Mr
Murray Lapham of Turramurra, NSW each pleaded
guilty to one charge under the NSW Crimes Act of
making a false or misleading statement to obtain a
financial advantage for ACR. Mr Steven Martin of
West Pennant Hills, NSW pleaded guilty to a similar
charge on 19 August 2011.
Estate Property Group Limited (EPG) (formerly CIC)
and its 21 subsidiaries, including ACR, went into
voluntary administration on 28 May 2007. ACR was
the fund-raising arm of the group. It raised funds
through a series of nine prospectuses offering
unsecured deposit notes to the investing public
between April 2000 and December 2006. ACR lent
the funds it raised to other EPG subsidiaries that
used the funds for the purchase and development
of properties. By 28 May 2007, ACR had lent
$332 million of noteholders’ funds to 13 of EPG’s
property owning subsidiaries. On 17 September
2007, the Administrator of EPG entered into a
Deed of Company Arrangement (DOCA) with
EPG and ACR. The DOCA was to return to ACR
unsecured noteholders approximately 59 cents in
the dollar. As at 12 April 2011, ACR creditors have
received a total of 49.4 cents in the dollar.
ASIC alleged that the directors concurred in the
making of a statement in ACR’s Prospectus 6
lodged on 7 April 2004, which contained the
financial statements of ACR’s parent company,
Castle Investment Company Limited and controlled
entities (CIC) as at 31 December 2003. ASIC
alleged that the CIC stated profit before income tax
as at 31 December 2003 of $7,409,483 was false
or misleading in a material particular in that the
stated profit before income tax was inflated.
Mr Pogson has also pleaded guilty to one charge
under s1308(2) of the Corporations Act 2001 for
making a false or misleading statement in a form
lodged with ASIC. ASIC alleges that in ACR’s
Prospectus 6, Mr Pogson made a statement in a
Director’s Declaration that the financial statements
of CIC gave ‘a true and fair view of the financial
position as at 31 December 2003 and of the
performance for the half-year ended on that date
of the Company and Economic Entity’, that to his
knowledge was false or misleading in a material
particular in that the stated profit before income
tax was inflated. The defendants are awaiting
sentencing.
TAKE 3: AFS LICENCE OF EQUITITRUST
LTD SUSPENDED BY ASIC
ASIC suspended the Australian financial services
licence (ASF) of Gold Coast-based Equititrust Ltd
for 12 months, for failing to comply with a number
of key obligations as a financial services licensee.
Equititrust is the responsible entity of the Equititrust
Income Fund (EIF) and the Equititrust Priority Class
Income Fund (EPCIF). ASIC found that Equititrust
has breached its legal obligations and licence
conditions in that it failed to:
11. Corporate Advisor 9
• Comply with its obligation to maintain at
least $5million net tangible assets
• Prepare and lodge annual audited
financial statements and to provide
annual financial reports to members
of EIF and EPCIF for the financial year
ended 30 June 2011, and
• Lodge compliance plan audits for EIF
and EPCIF for the financial year ended
30 June 2011.
Equititrust is the responsible entity of EIF, a
registered managed investment scheme whose
primary business is lending retail investors’ pooled
funds for property development and taking
mortgages over the property. Equititrust is also
the responsible entity of EPCIF, another registered
scheme, which is dormant. These schemes are
to be wound up in accordance with orders made
in the Supreme Court of Queensland on 21
November 2011. The suspension of Equititrust’s
AFS licence follows earlier action by ASIC to
preserve the status quo of the schemes. The
suspension of Equititrust’s AFS licence is part of
ASIC’s ongoing efforts to improve standards across
the financial services industry.
TAKE 4: FORMER ONQ CFO PLEADS
GUILTY
The former Chief Financial Officer of OnQ Group
Limited, Peter Couper, pleaded guilty in the
Melbourne Magistrates’ Court to four charges
brought following investigations by ASIC. Mr
Couper, of Wantirna, Victoria, pleaded guilty to
two counts of falsifying the books of Bill Express
Limited, one count of providing misleading
information to Bill Express’s auditor and one count
of providing false or misleading information to ASIC
during an examination.
In relation to the first two charges ASIC alleged
that, between 5 August 2007 and 18 February
2008, Mr Couper falsified the books of Bill Express
by instructing employees to post entries in Bill
Express’s accounting system which recorded: a
sale of $5.4 million of stock when there had been
no such sale; a credit note to the value of $5.4
million when there was no basis to enter the credit
note, and the purchase of $1.875 million of stock
when there had been no such purchase.In the third
charge, ASIC alleged that Mr Couper supplied
information relating to these transactions to the
CFO of Bill Express, when he knew the information
to be false, and that it would be supplied to the
auditors of the company.
The first three charges were brought after
investigations by ASIC following the submission
of a report by the administrators of Bill Express.
Bill Express and its parent company OnQ Group
Limited went into administration in July 2008, along
with a number of related companies known as the
Bill Express Group.The final charge arises from a
separate ASIC investigation and concerns false
and misleading information given by Mr Couper to
ASIC officers in relation to the trading in Bill Express
shares prior to the company’s collapse.
TAKE 5: ASIC SUSPENDS AFS LICENCE
FOR FAILING TO LODGE FINANCIAL
STATEMENTS
ASIC suspended the AFS licence of Sydney-
based Far East Capital Limited (Far East) for failing
to comply with a number of key obligations as a
financial services licensee. ASIC found that Far
East failed to lodge financial statements, auditor
reports and auditor opinions over consecutive
years, in breach of both its legal obligations and
licence conditions, despite repeated demands
from ASIC to comply. Also Far East did not advise
ASIC of these breaches. Far East offers a number
of financial services including research reports on
market trends for prospective investors.
12. 10 Corporate Advisor
The new national Personal Property Security (PPS) Register is due to commence on 30 January 2012. After this
date, the registration of security interests against company assets will be lodged on the PPS Register. The ASIC
Register of Company Charges will be closed and from this date all company charges or security interests (as they
will be known) must be lodged on the PPS register. The PPS Register will be an online service and accessible to
search and register security interests 24 hours a day, seven days a week. The PPS register will be administered by
the Insolvency and Trustee Service Australia (ITSA).
The PPS Register is the cornerstone of a new Commonwealth law, the ‘Personal Property SecuritiesAct 2009’
and will replace numerous existing asset registers of security interests, including state and territory registers of
encumbered vehicles and vehicle securities and Australian Government registers including the Australian Register
of Company Charges, the Australian Register of Ships
(mortgages only) and the Fisheries Register.The PPS
Registrar will be responsible for the ongoing maintenance
of the new PPS Register after the commencement date
and his office will be established within ITSA.
Security interests in personal property to be listed on
the PPS Register will include assets that may be used
to secure a loan. Personal property is any property other
than land or buildings. It includes physical goods such
as works of art, furniture, jewellery, cars, boats, farm
machinery, business equipment, crops and livestock. It
also includes intangible property such as rights under a
contract and intellectual property.
The new PPS Register is part of a reform that will affect
the way businesses and consumers deal with secured
finance in Australia. Business owners and consumers
may be affected by changes to personal property
security laws as: buyers of properties that may be
subject to a security interest, business or consumer
borrowers, providers of credit, or investors who are
contemplating buying into a business. The PPS Register
will also help business owners manage credit risk, check
whether property planned for purchase is encumbered
and search and register assets used to secure a loan.
The ASIC company register will retain information on
charges that are no longer current, i.e., charges that
have already been satisfied before the commencement
date of the PPS Register. To obtain complete details of
a company, a user will need to check: ASIC’s Register
of Company Charges for charges satisfied before the
commencement date of the PPS register on January
2012, and the new PPS Register for current and
provisional charges.
Personal Property Securities Register
Contributed by: Mark Lester
13. Corporate Advisor 11
ASIC finalised guidance that will help companies
produce better prospectuses. It has also released
a webpage on MoneySmart that will help potential
investors to understand them. ASIC’s guide Regulatory
Guide 228 ‘Prospectuses: Effective disclosure for retail
investors’ addresses problems ASIC has identified with
prospectuses. The guide also contains practical tools
to assist issuers and their advisers producing clear,
concise and effective disclosure.
ASIC’s key solutions for more user-
friendly prospectuses include:
• Provide one balanced investment overview
that tells retail investors what key information
to focus on and which helps them navigate
the prospectus
• Only include photographs after this
investment overview and ensure they are
relevant
• Highlight the key risks and explain what
these risks mean to investors and give some
indication of what is likely to happen if the
risk occurs
• Include a clear explanation of the company’s
business model – i.e. how the company
plans to make money and/or generate
income or capital growth
• Use practical communication tools, and
• Reduce length where possible, e.g., by
leaving out irrelevant information and using
incorporation by reference.
ASIC has also developed a page on its consumer
website, MoneySmart, for retail investors to access
to learn more about understanding prospectuses.
It references back to the key issues we highlight for
disclosure in the regulatory guide.
Better Prospectus Guide Released by ASIC
Contributed by: Drew Townsend
14. 12 Corporate Advisor
Treasury released
a discussion paper
‘Proposed Amendments
to the Corporations Act’
canvassing options for
possible amendments to
the dividends payment
test. In June 2010, the
Government made a
range of amendments
to the Corporations Act
2001 to cut down on the
red tape and regulatory
burden of Australian
companies. Following
the implementation
of these reforms, the
Government is examining
options for refining some
of these provisions,
including those relating
to the dividends payment
test and parent entity
reporting requirements.
The discussion paper also
examines whether reform
is needed to clarify the
interaction of the dividends
test with the capital
maintenance provisions and
examines changes to how
the dividends test applies to
group companies.
Reform to Dividends Payment
Test Treasury Discussion Paper
Contributed by: David Kenney
15. Corporate Advisor 13
A New Statutory Definition of Charity Proposed
Contributed by: Geoff Stephens
The Federal Government’s commitment to introduce
a new statutory definition of charity to clarify exactly
what does, and does not, qualify as a ‘charity’ and
as a ‘charitable purpose’ is a step closer following
the release of a Consultation Paper. The consultation
builds on a range of previous inquiries including the
2001 ‘Report of the Inquiry into the Definition of
Charities and Related Organisations’, the Charities
Bill 2003 and recent court decisions including the
High Court’s decision in ‘Aid/WatchIncorporated v
the Commissioner of Taxation’. Submissions on the
Consultation Paper closed on by 9 December 2011.
The Government announced in
the 2011-12 Budget that it would
introduce a statutory definition
of charity, applicable across all
Commonwealth laws from 1
July 2013. This Consultation
Paper outlines the background
to a statutory definition, including
previous recommendations and
inquiries, as well as developments
that have occurred since the 2003
consultation package on a charity
definition was released. It discusses
elements of a possible core
definition of charity by raising for
discussion possible refinements to
the exposure draft of the Charities
Bill 2003. It also covers Australian
Disaster Relief Funds, interactions
with State and Territory laws and
transitional issues. The Consultation
Paper makes frequent references to
the exposure draft of the Charities
Bill 2003; these are available on the
Board of Taxation website.
The current definition of charity is based on the 1601
Statute of Elizabeth, with over 400 years worth of often
confusing case law added on top. It is well past time
Australia cleans up this mess and creates a modern,
workable and Australian definition of charity to clarify
the work of our important and valuable not-for-profit
sector.
The Government will also consult on an exposure
draft of the legislation in the first half of 2012; it is also
working with the States and Territories to achieve
greater harmonisation between the Commonwealth
and the States and Territories through the Council of
Australia Governments.
16. 14 Corporate Advisor
The Assistant Treasurer, the Hon Bill Shorten MP
released the exposure draft legislation for the ACNC,
and a discussion paper to gather community feedback
on elements of a new reporting framework for charities.
The Government announced in the 2011-12 Budget
that it would establish the ACNC by 1 July 2012.
Initially, the ACNC will determine charitable status
(including public benevolent institution status) for all
Commonwealth purposes, will provide education and
support to the sector and will administer a regulatory
and reporting framework.
The ACNC ED and explanatory materials set out
the central provisions that will establish the ACNC,
set out the objects and functions of the ACNC, and
provide the regulatory framework for the charities
and NFP sector. An education role for the NFP sector
will be a core function of the ACNC. The ED also
contains detail on the ACNC’s enforcement powers
which require a new legislative authority. This reflects
the complementary roles of the ACNC, in improving
governance, transparency, accountability and providing
educational assistance to the sector.
Submissions on the ACNC ED legislation are due on
20 January. To have the ACNC in place and up and
running by 1 July 2012, legislation for the ACNC needs
to be ready to be introduced into Parliament in the first
quarter of 2012. Submissions on the discussion paper
on implementation design are due on 27 February.
The developments regarding a
national not-for-profit regulator
raises the question as to “what
should NFP entities do now?”.
Simple, stay informed and be
proactive. Specifically,
1. Understand the key elements of both
the initial and final Treasury reports on
‘Scoping study for a national not-for-
profit regulator’, related tax proposals,
and draft legislative package
2. Consider whether the revised
taxation requirements necessitate any
business restructuring and, inter alia,
seek financial reporting advice on any
proposed restructuring
3. For those involved with public
ancillary funds understand the
implications of the proposed
legislation and commence the
planning process
4. Monitor the activities of the
Implementation Taskforce for
the ACNCand participate in the
consultation processes
5. Monitor Council of Australian
Governments (COAG) agenda,
including the areas of incorporated
associations and charitable trusts
6. Watch out for separate developments
on fundraising though the Ministerial
Council for Consumer Affairs
7. Understand the AASB financial
reporting requirements, including the
Reduced Disclosure Regime and
other specific NFP developments
8. Review procedures to protect assets,
and
9. Keep under active review corporate
governance policies and procedures
and ensure transparency in financial
reporting.
ACNC Release of Draft Legislation and DP on
Implementation Design
Contributed by: Geoff Stephens
17. Corporate Advisor 15
As most of us concentrating on running our businesses,
some may have missed the deluge of accounting
standards issued by the AASB, as well as, a number
of the proposed changes. While some of the more
substantive standards have a formal operative date
a couple of years hence, it well worth starting to
understand the key elements of these standards now.
There are implications in terms of the third balance
sheet, information gathering, possibly debt covenants,
systems issues and communication with stakeholders.
The AASB has recently issued the
following Standards:
Effective from 1 July 2011
• AASB 2011-5 ‘Extending Relief from
Consolidation, the Equity Method and
Proportionate Consolidation’
Effective from 1 July 2012
• AASB 2011-9 ‘Amendments to Australian
Accounting Standards – Presentation of
Items of Other Comprehensive Income’
Effective from 1 January 2013
• AASB 10 ‘Consolidated Financial
Statements’
• AASB 11 ‘Joint Arrangements’
• AASB 12 ‘Disclosure of Interests in Other
Entities’
• AASB 127 ‘Separate Financial Statements
2013’
• AASB 128 ‘Investments in Associates and
Joint Ventures’
• AASB 2011-7 ‘Amendments to Australian
Accounting Standards arising from the
Consolidation and Joint Arrangements
Standards’
• AASB 13 ‘Fair Value Measurement’
• AASB 2011-8 ‘Amendments to Australian
Accounting Standards arising from AASB 13’
• AASB 119 ‘Employee Benefits’
• AASB 2011-10 ‘Amendments to Australian
Accounting Standards arising from AASB
119’ (September 2011)
• AASB Interpretation 20 ‘Stripping Costs
in the Production Phase of a Surface
Mine’(and related AASB 2011-12
‘Amendments to Australian Accounting
Standards arising from Interpretation 20’)
Recently Issued AASB Standards and EDs – Much to Do
Contributed by: Carmen Ridley, GAAP Consulting Network and a member of the AASB
18. 16 Corporate Advisor
Effective from 1 July 2013
• AASB 2011-6 ‘Extending Relief from
Consolidation, the Equity Method and
Proportionate Consolidation – Reduced
Disclosure Requirements’, and
• AASB 2011-11 ‘Amendments to AASB 119
(September 2011) arising from Reduced
Disclosure Requirements’.
The IASB issued amendments to IFRS 9 ‘Financial
Instruments’ that defer the mandatory effective date
from 1 January 2013 to 1 January 2015. The AASB
is expected to similarly defer AASB 9. The deferral
will make it possible for all phases of the financial
instruments project to have the same mandatory
effective date. The amendments also provide relief
from the requirement to restate comparative financial
statements for the effect of applying IFRS 9. This relief
was originally only available to companies that chose
to apply IFRS 9 prior to 2012. Instead, additional
transition disclosures will be required to help investors
understand the effect that the initial application of
IFRS 9 has on the classification and measurement of
financial instruments. Early application of IFRS 9/AASB
9 is still permitted.
The IASB and FASB issued common disclosure
requirements that are intended to help investors and
other financial statement users to better assess the
effect or potential effect of offsetting arrangements
on a company’s financial position. Companies and
other entities are required to apply the amendments
for annual reporting periods beginning on or after
1 January 2013, and interim periods within those
annual periods. IASB also clarified its requirements for
offsetting financial instruments by issuing ‘Offsetting
Financial Assets and Financial Liabilities (Amendments
to IAS 32)’. The amendments are effective for annual
periods beginning on or after 1 January 2014 and are
required to be applied retrospectively. The AASB is yet
to issue these amendments in the Australian context.
Also the AASB has issued the
following exposure drafts:
• ED 214 ‘Extending Related Party
Disclosures to the Not-for-Profit Public
Sector’
• ED 215 ‘Mandatory Effective Date of IFRS 9’
• ED 216 ‘AASB 12 Disclosure of Interests in
Other Entities: Tier 2 Proposals’
• ED 217 ‘AASB 127 Separate Financial
Statements: Tier 2 Proposals
• ED 218 ‘Presentation of Items of Other
Comprehensive Income: Tier 2 Proposals’
• ED 219 ‘AASB 13 Fair Value Measurement’
and AASB 2011-8 ‘Amendments to
Australian Accounting Standards arising
from AASB 13’: Tier 2 Proposals’
• ED 220 ‘Investment Entities (incorporating
IASB ED/2011/4)
• ED 221 ‘Government Loans (proposed
amendments to AASB 1)
• ED 222 ‘Revenue from Contracts with
Customers’ and Tier 2 Supplement to
ED 222 ‘Revenue from Contracts with
Customers’
• ED 223 ‘Superannuation Entities’, and
• ED 224 ‘Transition Guidance (proposed
amendments to AASB 10).
Within the next twelve months, we will also see a
complete financial instruments standard, and the
new revenue and leasing standards coming from the
IASB. On the domestic front, we will see the Australian
version of IASB ‘Conceptual framework – Phase A:
objective and qualitative characteristics’, more on the
reduced disclosure regime, and application of the
reporting entity.
It is important the directors and management start to
understand the key requirements of these standards
and developments, and establish a project to plan for
implementation now.
