ASIC CLASS ORDER [CO 06/50]
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
There are two separate sets of requirements for the disclosure of information on director and executive remuneration in annual reports of listed companies:
(a) section 300A of the Act requires disclosure of information in the directors’ report by listed companies; and
(b) accounting standards having the force of law under s.296(1) of the Act require disclosure of information in the financial report.
Regulation 2M.6.04 and Schedule 5B to the Corporations Regulations allowed the transfer of remuneration information required by accounting standard AASB 1046 “Director and Executive Disclosures by Disclosing Entities” (AASB 1046) from the financial report into the directors’ report.
On 20 December 2005, the Australian Accounting Standards Board (AASB) issued a new accounting standard dealing with disclosure of director and executive remuneration and transactions by disclosing entities. The new AASB 124 “Related Party Disclosures” (the new AASB 124) replaces AASB 1046. The new AASB 124 applies for years ending on or after 31 December 2005.
Because regulation 2M.6.04 and Schedule 5B specifically refer to AASB 1046 and use its terminology, the replacement of AASB 1046 with the new AASB 124 caused the regulations to cease to operate. However, the regulation could not be amended in sufficient time for listed companies with financial years ended 31 December 2005.
2. ASIC Class Order [CO 06/50] “Transfer of remuneration information into directors’ report”
For years ending 31 December 2005 to 31 March 2006 inclusive, ASIC Class Order [CO 06/50] “Transfer of remuneration information into directors’ report” allows listed companies to transfer remuneration information required to be disclosed in the financial report under the new AASB 124 into the directors’ report. This will enable listed companies to combine the remuneration disclosures required by accounting standards with those already required to be included in the directors’ report under s.300A of the Act.
The relief replaces regulation 2M.6.04 and Schedule 5B to the Corporations Regulations and will enable companies to reduce duplication of remuneration information between the directors’ report and financial report, save costs and present the remuneration information in a manner that is more convenient to users of their annual reports.
The relief provided by ASIC Class Order [06/50] is on similar terms to the regulations that it replaces. In particular, the information transferred into the director’s report will still be required to be audited and a separate statement of the auditor’s opinion on this information given in the auditor’s report.
The ASIC relief is of an interim nature. The Government is considering the operation of the regulations following the withdrawal of AASB 1046.
3. Consultation
As [CO 06/0050] is minor and machinery in nature, ASIC did not undertake any consultation with stakeholders before that class order was made.
Overview
ASIC Class Order [CO 06/50], enacted in 2006, addresses a gap created by the Australian Accounting Standards Board's (AASB) issuance of a new accounting standard, AASB 124 "Related Party Disclosures," which replaced AASB 1046 "Director and Executive Disclosures by Disclosing Entities." This change caused the existing regulations, specifically Regulation 2M.6.04 and Schedule 5B to the Corporations Regulations, to cease operating, as they specifically referenced AASB 1046. The Australian Securities and Investments Commission (ASIC) introduced this class order to provide interim relief for listed companies with financial years ending between 31 December 2005 and 31 March 2006, allowing them to transfer remuneration information required under the new AASB 124 into their directors' reports. This measure aimed to reduce duplication of information between the directors' report and financial report, save costs, and present remuneration information in a manner more convenient to users of annual reports, aligning with the existing disclosure requirements under section 300A of the Corporations Act 2001.
Scope and Application
ASIC Class Order [CO 06/50] applies to listed companies, registered schemes, and disclosing entities within the scope of the Corporations Act 2001. This class order specifically addresses the transition period for financial years ending between 31 December 2005 and 31 March 2006, during which the Australian Accounting Standards Board replaced AASB 1046 with AASB 124, leading to the cessation of certain regulatory provisions. The class order facilitates the transfer of remuneration information from the financial report to the directors' report, thereby allowing companies to consolidate remuneration disclosures and comply with both statutory and accounting standards requirements. Notably, the class order extends to directors and auditors of the affected entities, ensuring they are relieved from certain disclosure obligations under Parts 2M.2, 2M.3, and 2M.4 of the Act, excluding Division 4. The relief is temporary and is contingent on the Government's future review of the relevant regulations.
Key Provisions
The ASIC Class Order [CO 06/50] provides a temporary solution to a transitional issue arising from changes in accounting standards. Section 341(1) of the Corporations Act 2001 allows ASIC to make an order that temporarily relieves a specified class of companies, registered schemes, or disclosing entities from certain requirements under Parts 2M.2, 2M.3, or 2M.4 of the Act. This specific order enables listed companies to transfer remuneration information from their financial reports into their directors' reports for financial years ending between 31 December 2005 and 31 March 2006. The aim of this relief is to streamline the disclosure of remuneration information, thus reducing duplication and presenting it in a manner that is more convenient for users of the annual reports.
The obligations imposed by this class order on the relevant entities include ensuring that any remuneration information transferred into the directors' report is still subject to audit and that the auditor provides a separate opinion on this information in the auditor’s report. This ensures that the integrity and reliability of the disclosed remuneration information are maintained. Furthermore, these companies must comply with all other disclosure requirements under the Corporations Act 2001 and the relevant accounting standards, including those under the new AASB 124, which deals with related party disclosures.
Failure to comply with the provisions of this class order or any other requirements of the Corporations Act 2001 may result in civil or criminal consequences. For instance, directors and officers of the affected companies may be personally liable for breaches of the Act. In the case of companies, non-compliance can lead to penalties such as fines, which can be significant depending on the severity and nature of the breach. The maximum penalties for contraventions of the Corporations Act 2001 can include substantial fines for both individuals and corporations, along with potential imprisonment for natural persons found guilty of serious breaches.