Director Reports need further scrutiny

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Monday 3 December 2012  - The Australian Securities and Investments Commission (ASIC) should focus on reviewing the requirements of Directors Reports, says EY.

EY outlined its views in its response to ASIC’s Consultation Paper 187: Effective disclosure in an operating and financial review and its attached draft regulatory guide (the guide).

Lynda Tomkins, EY’s National IFRS leader says the guide could be useful to companies and directors when preparing their operating and financial review as required by the Corporations Act but the reality is the requirements [of the Act] were written many years ago.

“There are a large number of other sources of information that shareholders and other market participants of large listed companies now have access to, such as investor reports and quarterly updates,” Ms Tomkins said.

Ms Tomkins said the Directors Report while being a good source of information, is not usually issued until at least three months after year end so it’s not relied on to understand a company’s position, financial performance or business strategies – particularly for the large listed companies.

“Rather than providing guidance on how the existing law should be applied, a review should be undertaken into the requirements of the Directors Report and its purpose,” Ms Tomkins said.

Ms Tomkins says the Corporations and Markets Advisory Committee proposal earlier this year to reconsider reporting requirements should be given priority by ASIC.

Ms Tomkins said ASIC is concerned that the current requirements are not being applied appropriately and as an interim measure the guidance could be useful.

Some of EY’s key concerns about the guide: 

  • It appears to broadens the requirements of the law and could add to the issue of complexity for shareholders
  • It reinforces no cross-referencing, which EY feel should be permitted
  • Providing guidance on how to assess what information is unreasonably prejudicial can assist directors, however could be seen as broadening Directors’ risk.

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Contact details:

Katherine Meier
EY Australia
Tel: +03 9655 2620 or 0417 859 323