ASIC CLASS ORDER [CO 05/0640]

EXPLANATORY STATEMENT

Prepared by the Australian Securities and Investments Commission

Corporations Act 2001

Subsection  341(1) - Order

Subsections 341(1) of the Corporations Act 2001 (the Act) provides that the Australian Securities and Investments Commission (ASIC) may make an order in respect of a specified class of companies, registered schemes or disclosing entities that relieves the entities in question, their directors and/or auditors from specified requirements of Parts 2M.2, 2M.3 or 2M.4 (other than Division 4) of the Act.

1. Background

ASIC Class Order [CO 98/0110] “ADIs – related party transactions and balances” provides relief to ADI's (ie Authorised Deposit-Taking Institutions, such as banks, building societies and credit unions), their parents and controlled entities from disclosing in their financial reports certain arms length transactions and balances between an ADI and the related entities and persons of directors and executives.

The relief concerned the related party transaction and disclosure requirements in connection with:

(a) directors of non-disclosing entities and their related entities under AASB 1017 “Related Party Disclosures” (“AASB 1017”);  and

(b) directors and executives of disclosing entities and their related entities under AASB 1046 “Director and Executive Disclosures by Disclosing Entities” (“AASB 1046”).

The relief does not extend to director, executives or their controlled entities.

For financial reports for years commencing on or after 1 January 2005, entities preparing financial reports under Chapter 2M of the Act must comply with the Australian equivalents of International Financial Reporting Standards.  AASB 1017 is replaced by AASB 124 “Related Party Disclosures”.  AASB 1046 continues to apply to the disclosure of transactions and balances involving directors and executives of disclosing entities instead of AASB 124.  Key management personnel include specified executives.  The requirements of AASB 1046 are consistent with, but more extensive than, the requirements of AASB 124.

AASB 124 is the Australian equivalent of International Accounting Standard IAS 24 “Related Party Disclosures” and includes a requirement to disclose transactions and balances involving close members of the family of key management personnel (generally spouses and dependent children).  [CO 98/0110] currently provides ADIs, their parent entities and controlled entities with relief from the requirement to disclose such information under AASB 1017 and AASB 1046.

2. ASIC Class Order [CO 05/0640] “ADIs – related party transactions and balances”

For years commencing on or after 1 January 2005, ASIC Class Order [CO 05/0640] “ADIs – related party transactions and balances” replaces [CO 98/0110] and relieves ADIs, their parent entities and controlled entities from the requirement to disclose in their financial report certain arms length balances and transactions involving the ADI and persons other than directors and specified executives of the entity, their close family members, and the entities they control or significantly influence.

[CO 05/0640] only affects disclosing entities, which are subject to the requirements of AASB 1046.  As it only applies in relation to the more distant relatives of directors and specified executives, the relief available under [CO 05/0640] does not result in non-convergence with International Financial Reporting Standards.    AASB 124 doesn’t require disclosures in relation to more distant relatives by non-disclosing entities and so no relief is necessary in relation to the requirements of that standard.

ASIC could only grant relief from the relevant requirements where the “unreasonable burdens” pre-condition in s.342(1) of the Act is met.  The relief under [CO 98/0110] was based on the administrative difficulties in obtaining certain information.  The relief had regard to the difficulties in identifying relationships and information on transactions and balances involving distant relatives of directors and executives.  ADIs, and their directors and executives, should have less difficulty in obtaining information relating to close family members than distant relatives.

Privacy considerations are not a basis for ASIC relief from the requirements of the relevant standards as it is reasonable to expect that the standard setters will have had regard to these considerations in setting the standards.

[CO 98/0110] will continue to apply for years commencing before 1 January 2005 and the level of relief provided by that order won’t be changed.

3.  Consultation

As [CO 05/0640] is minor and machinery in nature, ASIC did not undertake any consultation with stakeholders before that class order was made.