HallChadwick Corporate Newsletter

A Corporate Advisor

Corporate Advisor

IN THIS ISSUE:

• ASICSurveillanceReport2011andTargets• UsingNon-IFRSFinancialInformation–ASICGuidance• CentroJudgement–ActionsItemsforDirectorsandManagement• BetterDisclosureNeededinRemunerationReports• FinancialReportingPenalties• PersonalPropertySecuritiesRegister• BetterProspectusGuideReleasedbyASIC• ReformtoDividendsPaymentTestTreasuryDiscussionPaper• ANewStatutoryDefinitionofCharityProposed• ACNCReleaseofDraftLegislationandDPonImplementationDesign• RecentlyIssuedAASBStandardsandEDs–MuchtoDo

IntroductionInthiseditionoftheCorporateAdviserwehaveidentified12topicsintheareasfinancialreporting,corporategovernanceandregulationtoinformandassistCFOsanddirectorsinthedischargeoftheirresponsibilities.

Inourpreviouseditionwelookedatseveralhorizonissuessuchasexecutiveremuneration,non-conformingfinancialinformation,theCharitiesandNot-for-profitsCommission,prospectuses,aswellasthe2ndWaveofIFRS.Thesearenolongerhorizonissuesbutmatterswemustunderstandandaddressnow.

Forthe31Decemberreportingseason,webringyouup-to-dateonresultsoftheASICsurveillanceprogramandASIC’stargetsfor2011andbeyond.Thesurveillanceresultsprovideabasisforbenchmarkingfinancialreportingimprovementsforallreportingentities.

Onthecorporategovernancefront,therehavebeenseveralnoteworthydevelopmentsthatdirectorsandcompanysecretariesneedtofocuson.TheseincludetheCentrojudgementandfinancialreportingpenalties.

Welookforwardtoworkingwithyouonthechallengesahead.

Corporate Advisor 1

AsaChristmaspresent,ASICreleasedtheresultsofitsreviewsoffinancialreportsfortheyearended30June2011andannounceditstargetsfor31December2011financialreportsandbeyond.Inthisnextreportingseason,giventhecurrentdifficulteconomicclimatethatconfrontsallcompanies,ASICwillfocusparticularlyon:assetvaluesandgoingconcernassessments,includingadequatedisclosureofmaterialassumptions;consolidationdecisionsandoffbalancesheetarrangements;properdisclosureofsegmentinformationinamannerthatenablesusefulassessmentoftheseparatebusinesses;andnon-IFRSreporting.

Somecurrenteventsthatmayaffectassetvaluesinclude:exposurestocountrieswitheconomicuncertainties;theimpactofexchangeratemovements;theimminentcarbontaxandtheproposedmineralresourcerenttax.Focusshouldalsobeplacedonvaluesoffinancialassetsandinvestmentpropertiesmeasuredatfairvalue.InadditionthelessonsfromtheCentrocaseshouldencouragedirectorstocarefullyconsidervaluesinlightoftheirknowledgeofthebusinessanditsprospectsinthecontextoftheeconomicconditions.LetslookattherecentlyreleasedASICfinancialreportingsurveillancefindings.

>>> ASSETVALUES: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.

>>> GOINGCONCERN:Therecontinuestobeinstanceswherecompanieshavefailedtomakeadequatedisclosuresrelatingtotheabilitytocontinueasagoingconcern.Goingconcernassessmentsarecritical.Directorsneedtoberealisticintheirassessmentofthebusiness,its’prospectsandfuturecashflows.Entitiesshouldalsocontinuetofocusontheabilitytorefinancedebtatappropriatecostandcompliancewithlendingcovenants.

>>> CURRENTVS.NON-CURRENTCLASSIFICATIONS:

Thecorrectclassificationofliabilitiesandassetsbetweencurrentandnon-currentisimportanttoanunderstandingofthefinancialpositionofanentity.ASICcontinuestofindcaseswherecurrentliabilitieshavebeenincorrectlyclassifiedasnon-currentandadjustmentshavebeenrequired.Directorsshouldensurethatthereareappropriateprocessestoensurethecorrectclassification,andshouldreviewtheclassificationhavingregardtotheirknowledgeofthebusinessandits’fundingarrangements.

>>> ASIC Surveillance Report 2011 and TargetsContributedby:DrewTownsend

2 Corporate Advisor

>>>ESTIMATESANDACCOUNTINGPOLICYJUDGEMENTS:

Someentitiesdidnotmakematerialdisclosuresofsignificantjudgementsinapplyingaccountingpoliciesandsourcesofestimationuncertainty.Otherentitiesincluded‘boilerplate’disclosures.Thesedisclosuresshouldbespecifictotheentityanditsassets,liabilities,equity,incomeandexpenses.Sourcesofestimationuncertaintyareimportant,asisinformationonaccountingpolicyjudgements.Directorsshouldensurethatmeaningfuldisclosuresaremadeintheseareas.

>>>SEGMENTREPORTING:Listedentitiesmustdisclosesegmentinformationtoenableuserstoevaluatethenatureandfinancialeffectsoftheirbusinessactivitiesandtheeconomicenvironmentsinwhichtheyoperate.Theyarealsorequiredtoidentifyandreportonsegmentshavingregardtocomponentsoftheirbusinessforwhichthereisregularinternalreportingofoperatingresultstotheentity’schiefoperatingdecisionmaker.FollowingASICenquiries,someentitiesarenowreportingmoresegments.Insomecases,informationdisclosedindocumentssuchasmarketannouncementsortheOFRsuggestthattheremaybemoresegmentsthatshouldbereportedinthefinancialreport.Directorsshouldensurethatsegmentdisclosuresat31December2011provideinformationbasedoninternalreportingandanyothersegmentinformationneededbyinvestors.

>>> FINANCIALINSTRUMENTS:Anumberofentitiesdidnotmakeadequatedisclosurestoenableusersoffinancialreportstounderstandandevaluatethenatureandextentofthespecificmarket,creditandliquidityrisksassociatedwiththeiruseoffinancialinstruments.Disclosuresshouldbemeaningfultousers,andspecificdisclosuresshouldbemaderatherthanboilerplatedisclosures.Anumberofentitiesfailedtodisclosefinancialassetfairvalueinformationusingathreelevelhierarchyreflectingtheextenttowhichobservablemarketdataisusedinthemeasurement,orfailedtodisclosethemethodsandsignificantassumptionsusedtovalueassetsforwhichtherewasnoobservablemarketdata.Otherdeficienciesrelatedtodisclosinganageinganalysisoffinancialassetsthatarepastduebutnotimpairedandananalysisofimpairedfinancialassets.Directorsshouldfocusonfinancialinstrumentdisclosuresat31December2011.

Corporate Advisor 3

>>> MINERALSRESOURCERENTTAX(MRRT):

TheMRRTlegislationpassedthelowerHouseofParliamentbutisyettobeconsideredbytheSenate.Whenenactedorsubstantivelyenacted,entitiesimpactedbythetaxmayneedtore-measuretheirdeferredtaxbalances.TheMRRTisanincometaxtobeaccountedforunderAASB112‘IncomeTaxes’(similartothePetroleumResourceRentTax).Whereanentityre-measuresthetaxbaseofitsdepreciableminingassetsunderthelegislation,therecouldbeasignificantimpactondeferredtaxbalancesandincometaxexpense.Entitiesshouldadequatelyplanforanyvaluationadvicerequiredandtakecarewhenre-measuringthetaxbaseoftheirdepreciableassets.EntitiesshouldassesstheimpactoftheproposedMRRTonassetimpairmentandconsiderdisclosingexpectedfutureimpactsondeferredtaxbalances.

>>> OFFBALANCESHEETARRANGEMENTS:

ASICqueriedanumberofentitiesthathadnotconsolidatedentitiesinwhichtheyholdanownershipinterestofover50%.Manyoftheseentitiesarenowconsolidatingthoseinterests.Whileownershipinterestisonlyanindicatorofcontrol,directorsshouldreviewoff-balancesheetinvestmentsinwhichamajorityownershipisheld.Leavingarrangementsoff-balancesheetonthebasisthatrisksmayberemoteisunlikelytobeappropriatewherenosignificantrisksarebornebyotherparties.Whereadverseeconomiccircumstancesmayresultintheentitybearingmostlosses,itislikelythatarrangementsshouldbeon-balancesheet.Wherearrangementsremainoffbalancesheet,thedetailsofthearrangementsandanyexposuresshouldbedisclosed,togetherwiththereasonswhytheyarenotonbalancesheet.

>>> RIGHTSTOFUTUREINCOME:ASICismakingfurtherenquiriesofsomeentitiesthathaverecognisedarighttofutureincomeasafinancialassetatfairvalueratherthanintangibleassetsrequiredtobemeasuredatamortisedcost.Recently,twocompanieshaveamendedtheirtreatments.Directorsshouldensurethecorrectclassificationofrightstofutureincomeat31December2011.

>>> INTANGIBLEASSETREVALUATION:Accountingstandardsonlyallowentitiestorevaluecertainidentifiableintangibleassetstofairvalueandonlythenwhereanactivemarketexistsfortheasset.ASICisnotawareofanyidentifiableintangibleassetsforwhichanactivemarketexistsinAustralia.AfterASICenquiries,someentitieshaverecentlyceasedusingfairvalues.Recentchangesinaccountingstandardswillnotchangethe‘activemarket’test.

>>> NEWACCOUNTINGSTANDARDS:Anumberofnewaccountingstandardshavebeenissuedrecentlythatmayimpactmateriallyonthefinancialreportsinfutureyears,includinganewstandardonconsolidationaccounting.Theimpactsofthenewstandardsmustbedisclosedin31December2011fullyearfinancialreports.

>>> OPERATINGANDFINANCIALREVIEW:ASICreviewedtheOperatingandFinancialReviews(OFRs)of120listedcompaniesat30June2011forcompliancewithsections299and299AoftheCorporationsAct.ASICisconcernedwithalackofmeaningfuldisclosureofinformationinmanyOFRs,includingtheextentofmeaningfulanalysisofunderlyingdriversofresults.ASICisalsoconcernedbypoordisclosurebymanyentitiesofbusinessstrategiesandprospectsforfuturefinancialyears.ASICismakingenquiriesofanumberofcompaniesandareplanningaconsultationonthepropercontentofthesereportsinthecomingyear.Theconsultationpaperwillalsodealwiththepossibleover-useoftheexemptionfromdisclosinginformationonthebasisofunreasonableprejudice.ProvidingameaningfulOFRshouldcontinuetobeafocusfordirectorsat31December2011.

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)financialinformation,includingnon-IFRSprofitmeasures,canbeusefultoinvestorsandotherusersoffinancialinformationaccordingtoASIC.Theinformationcanbepresentedindocumentssuchasdirectors’reports,marketannouncements,investorbriefingsandtransactiondocuments,provideditisnotmisleading.Whilethepresentationoftheinformationinfinancialreportsissubjecttoparticularlegislativeandaccountingstandardsrestrictions,thereismoreflexibilitytopresenttheinformationindocumentsattachedtofinancialreportsandotherdocuments.

Non-IFRSfinancialinformationcanprovideusefulinformationtoinvestorsandotherusersoffinancialreports.However,itisimportantthatinformationisnotmisleading.ThisASICguidancewillbeusefultostakeholdersbyprovidingguidancetoassistinreducingtheriskthatinformationismisleading.Guidancetoassistdirectorsandpreparersoffinancialinformationinreducingthisriskincludes:

• 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’.

Listedentitieswillnowhavetobefarmorecarefulintheuseofnon-IFRSfinancialinformationinstatutoryaccountsandexistingcorporatereportingpolicieswillrequirereconsideration.ListedentitiesshouldgivemoreattentiontotellingtheirstoryinMDA,usingtheIASB/AASBPracticeStatement‘ManagementCommentary’.

>>> Using Non-IFRS Financial Information – ASIC GuidanceContributedby:GrahamWebb

JusticeMiddletonoftheFederalCourtrecentlyhandeddownhisdecisioninASIC v Healey [2011]FCA717(theCentro Case).The186pagejudgementprovideddirectors,managementandauditorswithpreciouslittletimetofullyabsorbthejudgementanditsimplicationsforthe30Junereportingseason.Nowitisthetimeforafullerreflectionandaction.

Thecentralquestionintheproceedingwaswhetherthedirectorswererequiredtoapplytheirownmindsto,andcarryoutacarefulreviewof,theproposedfinancialstatementsandtheproposeddirectorsreport,todeterminethattheinformationtheycontainedwasconsistentwiththedirector’sknowledgeofthecompany’saffairs,andthattheydidnotomitmaterialmattersknowntothemormaterialmattersthatshouldhavebeenknowntothem.

Companydirectorsmusttakepositivestepstoreviewandformtheirownopinionontheircompany’sfinancialstatements.Thesestepsincludereadingandunderstandingthefinancialstatements.‘Reading’meanscarefullyreadingandreviewing,notsimplyskimmingandthenseekingassurancesfromtheCFOandauditors.Directorscannotrelyonmanagementandauditorstocompletethefinancialstatementswithoutcriticallyassessingtheworkdelegatedtothosepeople.

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.

Asfortheneedtounderstandaccountingstandards,inrelationtotherequirementsofAASB101“PresentationofFinancialStatements”regardingtheclassificationofliabilitiesJusticeMiddletonnoted:“Iacceptthatnote1(w)doesnotrecordeverythingthat‘oneneedstoknowabouttheaccountingstandards’.However,itwasalleachdirectorneededtoknowtohaveasufficientknowledgeoftheaccountingstandardrelatingtoclassificationsothateachdirectorwouldhavebeenabletoreadandunderstandthefinancialstatementsandapplyhisownknowledgetothattask.”Thejudgementdidnotexplicitlyaddresswhatinformationthedirectorsneedtoobtaintodischargetheirfinancialreportingresponsibilities.

Eachmemberoftheboardmustbringandapplytheirownskillsandknowledgewhendeclaringfinancialstatementsgiveatrueandfairview.Thisisnotaresponsibilitycompanyboardscandelegateormerelyrubberstamp.Directorsmaywishtoconsiderthefollowingactionitems:

Readandquestionthefinancialstatementsbasedonthedirector’sindividualknowledge

Requirerevisiontoreportingtimetabletoallowmoretimeforthefinancialstatementreview

Donotrelysolelyoninternalprocesses,thedirector(s)withtheaccountingexpertise,theauditcommittee,ortheexternalauditortomeetindividualdirector’sstatutoryobligationsregardingthefinancialstatementsKeepingarecordofcontemporarybusinessissuesidentifiedduringtheyearasamemoryaidwhenreadingthefinancialstatements(howhavethesebeenreflectedinthefinancialstatements?)

>>> Centro Judgement – Actions Items for Directors and Management

Contributedby:ColinParker,HeadoftheGAAPConsultingNetworkandaAASBmember(2006-9)

6 Corporate Advisor

1. Consideradiagnosticreviewofthefinancialreportingprocesstohighlightissuesandweaknesses(e.g.quantumofmaterial,timelinessandrelevanceofboardpapers)

2. Re-familiarisewithproceduresandcontrolsinplaceoverthefinancialreportingprocessandtheneedforadditionalinformation

3. ReviewtheAICDpublicationinto‘HowtoReviewaCompany’sFinancialReports–AGuideforBoards’

4. Understandaccountingstandardsfundamentals(concentrateontheapplicationofthoseaccountingstandardsstatedintheSummaryofAccountingPoliciesinnote1tothefinancialstatements)inthecontextofthecurrenteconomicandregulatoryenvironment

5. UnderstandtheCorporationsActfinancialreportingrequirements

6. Spendmoretimeonthefinancialstatementcomponentofthedirector’sobligationsandfocusonwhathaschangedsincethepreviousreportingperiod,andthehighriskareas(e.g.,suchasthoseidentifiedbyASICaspartofitsfinancialreportingsurveillanceprogram)

7. Prepareforgreaterquestioningofmanagementandauditorsonfinancialreportingmatters,and

8. Considertheneedformentortouseasasoundingboardonfinancialreportingissues.

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. Contentofinductionandupdatetrainingfordirectorsonaccountingstandards,theCorporationsAct,andthefinancialreportingrisksfacingthecompany

2. Volume,contentandtimingoftheperiodicBoardpackage(includingaccountingdimensionoftransactions,andtheeconomicenvironmentasthereportingdate)

3. ReviewofBoardCharters,and

4. Adequacyofthefinancialreportingresourcesavailabletothecompany.

InjudgmenttheCourtrefusedthedirectors’applicationstobeexoneratedfromtheircontraventions,andmadedeclarationsthatalldirectorsandtheCFOcontravenedtheCorporationsLaw.Inaddition,theCourtfinedMrAndrewScott(theformerChiefExecutiveOfficer)$30,000,anddisqualifiedMrNenna,theformerCFO,frommanagingcorporationsfortwoyears.TheCourtorderedthedefendantstopayASIC’scostsoftheaction.Whilesomemayconsiderthepenaltiesplacedonthedirectors’light,itismostunlikelythatoutcomesofanyfutureprosecutionswillbeso,asthelawhasbeenclarifiedanddirectorsandofficerswarned.Forfuturereportingperiods,directorsmustturntheirmindstoembeddingthelessonslearnt.

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’sreviewexaminedthenarrativecontentoftheremunerationreportanditscompliancewithsection300Aof60companiesintheASX300.ASICconductedthisreviewtomeasureandidentifyareaswherecompaniescouldimprovetheirdisclosuretoshareholders.Inconductingitsreview,ASICwasmindfulofthepurposeofremunerationreportssetoutintheExplanatoryMemorandumtotheCorporateLawEconomicReformProgram(AuditReformandCorporateDisclosure)Bill2004.

ThatExplanatoryMemorandumstated:“Inmakingdisclosuresaboutdirectorandexecutiveremunerationcompaniesshouldapproachtheirobligationfromthestartingpointofprovidingshareholderswithcomprehensivedisclosures.Shareholdersshouldbeplacedinapositionwheretheycanunderstandthenatureoftheremunerationincludinganyperformancehurdlesorcontingenciesonwhichthepaymentisbased.Thiswillensureshareholdersareinformedabouttheframeworkandmaincomponentsofremunerationandunderstandtherelationshipbetweenperformanceandremuneration.Inadditionthedisclosureframeworkwilllimittheelementofsurpriseintheeventofapaymentbeingmadeespeciallywherethatpaymentaccruedoveranumberofyears.”

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.

ASICencouragescompanydirectorstopreparethisyear’sreportswiththeoverridingobjectiveinmindofexplainingtherelationshipthatexistsbetweenthecompany’sperformanceandtheremunerationofitsexecutives.

>>> Better Disclosure Needed in Remuneration ReportsContributedby:GrahamWebb

8 Corporate Advisor

>>> Financial Reporting PenaltiesContributedby:DavidKenney

TAKE1:FAILURETOLODGEANNUALREPORTS–$15,000FINE

AVictorianpubliccompanywasfined$15,000bytheMelbourneMagistratesCourtforfailingtolodgeitsannualfinancialreportswithASICandnotreportingtoitsmembers.AnASICinvestigationfoundthatbetween1November2008and18November2010FulcrumEquityLimitedfailedtoholdanannualgeneralmeeting,anditscompanydirectorandsecretary,MichaelBoyd,failedinhisobligationstolodgethecompany’sfinancialreport,directors’report,auditor’sreportoraconcisereportforthefinancialyearinbreachofsections314and319oftheCorporationsAct2001.MrBoydpleadedguiltytotheoffencesbuthadnoconvictionrecordedagainsthim.

TAKE2:DIRECTORS’PLEADGUILTYTOFALSESTATEMENTSINCOMPANY’SACCOUNTS

ThreeformerdirectorsofAustralianCapitalReserveLimited(ACR)pleadedguiltyintheNewSouthWalesDistrictCourttochargesrelatingtofalseormisleadingstatementsinthecompany’saccountsandaprospectusbroughtbyASIC.MrSamuelPogsonofWahroonga,NSWandMrMurrayLaphamofTurramurra,NSWeachpleadedguiltytoonechargeundertheNSWCrimesActofmakingafalseormisleadingstatementtoobtainafinancialadvantageforACR.MrStevenMartinofWestPennantHills,NSWpleadedguiltytoasimilarchargeon19August2011.

EstatePropertyGroupLimited(EPG)(formerlyCIC)andits21subsidiaries,includingACR,wentintovoluntaryadministrationon28May2007.ACRwasthefund-raisingarmofthegroup.ItraisedfundsthroughaseriesofnineprospectusesofferingunsecureddepositnotestotheinvestingpublicbetweenApril2000andDecember2006.ACRlentthefundsitraisedtootherEPGsubsidiariesthatusedthefundsforthepurchaseanddevelopmentofproperties.By28May2007,ACRhadlent$332millionofnoteholders’fundsto13ofEPG’s

propertyowningsubsidiaries.On17September2007,theAdministratorofEPGenteredintoaDeedofCompanyArrangement(DOCA)withEPGandACR.TheDOCAwastoreturntoACRunsecurednoteholdersapproximately59centsinthedollar.Asat12April2011,ACRcreditorshavereceivedatotalof49.4centsinthedollar.

ASICallegedthatthedirectorsconcurredinthemakingofastatementinACR’sProspectus6lodgedon7April2004,whichcontainedthefinancialstatementsofACR’sparentcompany,CastleInvestmentCompanyLimitedandcontrolledentities(CIC)asat31December2003.ASICallegedthattheCICstatedprofitbeforeincometaxasat31December2003of$7,409,483wasfalseormisleadinginamaterialparticularinthatthestatedprofitbeforeincometaxwasinflated.

MrPogsonhasalsopleadedguiltytoonechargeunders1308(2)oftheCorporationsAct2001formakingafalseormisleadingstatementinaformlodgedwithASIC.ASICallegesthatinACR’sProspectus6,MrPogsonmadeastatementinaDirector’sDeclarationthatthefinancialstatementsofCICgave‘atrueandfairviewofthefinancialpositionasat31December2003andoftheperformanceforthehalf-yearendedonthatdateoftheCompanyandEconomicEntity’,thattohisknowledgewasfalseormisleadinginamaterialparticularinthatthestatedprofitbeforeincometaxwasinflated.Thedefendantsareawaitingsentencing.

TAKE 3: AFS LICENCE OF EQUITITRUST LTD SUSPENDED BY ASIC

ASICsuspendedtheAustralianfinancialserviceslicence(ASF)ofGoldCoast-basedEquititrustLtdfor12months,forfailingtocomplywithanumberofkeyobligationsasafinancialserviceslicensee.EquititrustistheresponsibleentityoftheEquititrustIncomeFund(EIF)andtheEquititrustPriorityClassIncomeFund(EPCIF).ASICfoundthatEquititrusthasbreacheditslegalobligationsandlicenceconditionsinthatitfailedto:

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.

EquititrustistheresponsibleentityofEIF,aregisteredmanagedinvestmentschemewhoseprimarybusinessislendingretailinvestors’pooledfundsforpropertydevelopmentandtakingmortgagesovertheproperty.EquititrustisalsotheresponsibleentityofEPCIF,anotherregisteredscheme,whichisdormant.TheseschemesaretobewoundupinaccordancewithordersmadeintheSupremeCourtofQueenslandon21November2011.ThesuspensionofEquititrust’sAFSlicencefollowsearlieractionbyASICtopreservethestatusquooftheschemes.ThesuspensionofEquititrust’sAFSlicenceispartofASIC’songoingeffortstoimprovestandardsacrossthefinancialservicesindustry.

TAKE 4: FORMER ONQ CFO PLEADS GUILTY

TheformerChiefFinancialOfficerofOnQGroupLimited,PeterCouper,pleadedguiltyintheMelbourneMagistrates’CourttofourchargesbroughtfollowinginvestigationsbyASIC.MrCouper,ofWantirna,Victoria,pleadedguiltytotwocountsoffalsifyingthebooksofBillExpressLimited,onecountofprovidingmisleadinginformationtoBillExpress’sauditorandonecountofprovidingfalseormisleadinginformationtoASICduringanexamination.

InrelationtothefirsttwochargesASICallegedthat,between5August2007and18February2008,MrCouperfalsifiedthebooksofBillExpressbyinstructingemployeestopostentriesinBill

Express’saccountingsystemwhichrecorded:asaleof$5.4millionofstockwhentherehadbeennosuchsale;acreditnotetothevalueof$5.4millionwhentherewasnobasistoenterthecreditnote,andthepurchaseof$1.875millionofstockwhentherehadbeennosuchpurchase.Inthethirdcharge,ASICallegedthatMrCoupersuppliedinformationrelatingtothesetransactionstotheCFOofBillExpress,whenheknewtheinformationtobefalse,andthatitwouldbesuppliedtotheauditorsofthecompany.

ThefirstthreechargeswerebroughtafterinvestigationsbyASICfollowingthesubmissionofareportbytheadministratorsofBillExpress.BillExpressanditsparentcompanyOnQGroupLimitedwentintoadministrationinJuly2008,alongwithanumberofrelatedcompaniesknownastheBillExpressGroup.ThefinalchargearisesfromaseparateASICinvestigationandconcernsfalseandmisleadinginformationgivenbyMrCoupertoASICofficersinrelationtothetradinginBillExpresssharespriortothecompany’scollapse.

TAKE 5: ASIC SUSPENDS AFS LICENCE FOR FAILING TO LODGE FINANCIAL STATEMENTS

ASICsuspendedtheAFSlicenceofSydney-basedFarEastCapitalLimited(FarEast)forfailingtocomplywithanumberofkeyobligationsasafinancialserviceslicensee.ASICfoundthatFarEastfailedtolodgefinancialstatements,auditorreportsandauditoropinionsoverconsecutiveyears,inbreachofbothitslegalobligationsandlicenceconditions,despiterepeateddemandsfromASICtocomply.AlsoFarEastdidnotadviseASICofthesebreaches.FarEastoffersanumberoffinancialservicesincludingresearchreportsonmarkettrendsforprospectiveinvestors.

10 Corporate Advisor

ThenewnationalPersonalPropertySecurity(PPS)Registerisduetocommenceon30January2012.Afterthisdate,theregistrationofsecurityinterestsagainstcompanyassetswillbelodgedonthePPSRegister.TheASICRegisterofCompanyChargeswillbeclosedandfromthisdateallcompanychargesorsecurityinterests(astheywillbeknown)mustbelodgedonthePPSregister.ThePPSRegisterwillbeanonlineserviceandaccessibletosearchandregistersecurityinterests24hoursaday,sevendaysaweek.ThePPSregisterwillbeadministeredbytheInsolvencyandTrusteeServiceAustralia(ITSA).

ThePPSRegisteristhecornerstoneofanewCommonwealthlaw,the‘PersonalPropertySecuritiesAct2009’andwillreplacenumerousexistingassetregistersofsecurityinterests,includingstateandterritoryregistersofencumberedvehiclesandvehiclesecuritiesandAustralianGovernmentregistersincludingtheAustralianRegisterofCompanyCharges,theAustralianRegisterofShips(mortgagesonly)andtheFisheriesRegister.ThePPSRegistrarwillberesponsiblefortheongoingmaintenanceofthenewPPSRegisterafterthecommencementdateandhisofficewillbeestablishedwithinITSA.

SecurityinterestsinpersonalpropertytobelistedonthePPSRegisterwillincludeassetsthatmaybeusedtosecurealoan.Personalpropertyisanypropertyotherthanlandorbuildings.Itincludesphysicalgoodssuchasworksofart,furniture,jewellery,cars,boats,farmmachinery,businessequipment,cropsandlivestock.Italsoincludesintangiblepropertysuchasrightsunderacontractandintellectualproperty.

ThenewPPSRegisterispartofareformthatwillaffectthewaybusinessesandconsumersdealwithsecuredfinanceinAustralia.Businessownersandconsumersmaybeaffectedbychangestopersonalpropertysecuritylawsas:buyersofpropertiesthatmaybesubjecttoasecurityinterest,businessorconsumerborrowers,providersofcredit,orinvestorswhoarecontemplatingbuyingintoabusiness.ThePPSRegisterwillalsohelpbusinessownersmanagecreditrisk,checkwhetherpropertyplannedforpurchaseisencumberedandsearchandregisterassetsusedtosecurealoan.

TheASICcompanyregisterwillretaininformationonchargesthatarenolongercurrent,i.e.,chargesthathavealreadybeensatisfiedbeforethecommencementdateofthePPSRegister.Toobtaincompletedetailsofacompany,auserwillneedtocheck:ASIC’sRegisterofCompanyChargesforchargessatisfiedbeforethecommencementdateofthePPSregisteronJanuary2012,andthenewPPSRegisterforcurrentandprovisionalcharges.

>>> Personal Property Securities RegisterContributedby:MarkLester

Corporate Advisor 11

ASICfinalisedguidancethatwillhelpcompaniesproducebetterprospectuses.IthasalsoreleasedawebpageonMoneySmartthatwillhelppotentialinvestorstounderstandthem.ASIC’sguideRegulatoryGuide228‘Prospectuses:Effectivedisclosureforretailinvestors’addressesproblemsASIChasidentifiedwithprospectuses.Theguidealsocontainspracticaltoolstoassistissuersandtheiradvisersproducingclear,conciseandeffectivedisclosure.

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.

ASIChasalsodevelopedapageonitsconsumerwebsite,MoneySmart,forretailinvestorstoaccesstolearnmoreaboutunderstandingprospectuses.Itreferencesbacktothekeyissueswehighlightfordisclosureintheregulatoryguide.

>>> Better Prospectus Guide Released by ASICContributedby:DrewTownsend


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

Contributedby:DavidKenney


>>> A New Statutory Definition of Charity ProposedContributedby:GeoffStephens

TheFederalGovernment’scommitmenttointroduceanewstatutorydefinitionofcharitytoclarifyexactlywhatdoes,anddoesnot,qualifyasa‘charity’andasa‘charitablepurpose’isastepcloserfollowingthereleaseofaConsultationPaper.Theconsultationbuildsonarangeofpreviousinquiriesincludingthe2001‘ReportoftheInquiryintotheDefinitionofCharitiesandRelatedOrganisations’,theCharitiesBill2003andrecentcourtdecisionsincludingtheHighCourt’sdecisionin‘Aid/WatchIncorporatedvtheCommissionerofTaxation’.SubmissionsontheConsultationPaperclosedonby9December2011.

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.

Thecurrentdefinitionofcharityisbasedonthe1601

StatuteofElizabeth,withover400yearsworthofoftenconfusingcaselawaddedontop.ItiswellpasttimeAustraliacleansupthismessandcreatesamodern,workableandAustraliandefinitionofcharitytoclarifytheworkofourimportantandvaluablenot-for-profitsector.

TheGovernmentwillalsoconsultonanexposuredraftofthelegislationinthefirsthalfof2012;itisalsoworkingwiththeStatesandTerritoriestoachievegreaterharmonisationbetweentheCommonwealthandtheStatesandTerritoriesthroughtheCouncilofAustraliaGovernments.


TheAssistantTreasurer,theHonBillShortenMPreleasedtheexposuredraftlegislationfortheACNC,andadiscussionpapertogathercommunityfeedbackonelementsofanewreportingframeworkforcharities.TheGovernmentannouncedinthe2011-12BudgetthatitwouldestablishtheACNCby1July2012.Initially,theACNCwilldeterminecharitablestatus(includingpublicbenevolentinstitutionstatus)forallCommonwealthpurposes,willprovideeducationandsupporttothesectorandwilladministeraregulatoryandreportingframework.

TheACNCEDandexplanatorymaterialssetoutthecentralprovisionsthatwillestablishtheACNC,setouttheobjectsandfunctionsoftheACNC,andprovidetheregulatoryframeworkforthecharitiesandNFPsector.AneducationrolefortheNFPsectorwillbeacorefunctionoftheACNC.TheEDalsocontainsdetailontheACNC’senforcementpowerswhichrequireanewlegislativeauthority.ThisreflectsthecomplementaryrolesoftheACNC,inimprovinggovernance,transparency,accountabilityandprovidingeducationalassistancetothesector.

SubmissionsontheACNCEDlegislationaredueon20January.TohavetheACNCinplaceandupandrunningby1July2012,legislationfortheACNCneedstobereadytobeintroducedintoParliamentinthefirstquarterof2012.Submissionsonthediscussionpaperonimplementationdesignaredueon27February.

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. UnderstandthekeyelementsofboththeinitialandfinalTreasuryreportson‘Scopingstudyforanationalnot-for-profitregulator’,relatedtaxproposals,anddraftlegislativepackage

2. Considerwhethertherevisedtaxationrequirementsnecessitateanybusinessrestructuringand,interalia,seekfinancialreportingadviceonanyproposedrestructuring

3. Forthoseinvolvedwithpublicancillaryfundsunderstandtheimplicationsoftheproposedlegislationandcommencetheplanningprocess

4. MonitortheactivitiesoftheImplementationTaskforcefortheACNCandparticipateintheconsultationprocesses

5. MonitorCouncilofAustralianGovernments(COAG)agenda,includingtheareasofincorporatedassociationsandcharitabletrusts

6. WatchoutforseparatedevelopmentsonfundraisingthoughtheMinisterialCouncilforConsumerAffairs

7. UnderstandtheAASBfinancialreportingrequirements,includingtheReducedDisclosureRegimeandotherspecificNFPdevelopments

8. Reviewprocedurestoprotectassets,and

9. Keepunderactivereviewcorporategovernancepoliciesandproceduresandensuretransparencyinfinancialreporting.

>>> ACNC Release of Draft Legislation and DP on Implementation Design

Contributedby:GeoffStephens


Asmostofusconcentratingonrunningourbusinesses,somemayhavemissedthedelugeofaccountingstandardsissuedbytheAASB,aswellas,anumberoftheproposedchanges.Whilesomeofthemoresubstantivestandardshaveaformaloperativedateacoupleofyearshence,itwellworthstartingtounderstandthekeyelementsofthesestandardsnow.Thereareimplicationsintermsofthethirdbalancesheet,informationgathering,possiblydebtcovenants,systemsissuesandcommunicationwithstakeholders.

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’

• AASB2011-10‘AmendmentstoAustralianAccountingStandardsarisingfromAASB119’(September2011)

• AASBInterpretation20‘StrippingCostsintheProductionPhaseofaSurfaceMine’(andrelatedAASB2011-12‘AmendmentstoAustralianAccountingStandardsarisingfromInterpretation20’)

>>> Recently Issued AASB Standards and EDs – Much to DoContributedby:CarmenRidley,GAAPConsultingNetworkandamemberoftheAASB


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’.

TheIASBissuedamendmentstoIFRS9‘FinancialInstruments’thatdeferthemandatoryeffectivedatefrom1January2013to1January2015.TheAASBisexpectedtosimilarlydeferAASB9.Thedeferralwillmakeitpossibleforallphasesofthefinancialinstrumentsprojecttohavethesamemandatoryeffectivedate.TheamendmentsalsoproviderelieffromtherequirementtorestatecomparativefinancialstatementsfortheeffectofapplyingIFRS9.ThisreliefwasoriginallyonlyavailabletocompaniesthatchosetoapplyIFRS9priorto2012.Instead,additionaltransitiondisclosureswillberequiredtohelpinvestorsunderstandtheeffectthattheinitialapplicationofIFRS9hasontheclassificationandmeasurementoffinancialinstruments.EarlyapplicationofIFRS9/AASB9isstillpermitted.

TheIASBandFASBissuedcommondisclosurerequirementsthatareintendedtohelpinvestorsandotherfinancialstatementuserstobetterassesstheeffectorpotentialeffectofoffsettingarrangementsonacompany’sfinancialposition.Companiesandotherentitiesarerequiredtoapplytheamendmentsforannualreportingperiodsbeginningonorafter1January2013,andinterimperiodswithinthoseannualperiods.IASBalsoclarifieditsrequirementsforoffsettingfinancialinstrumentsbyissuing‘OffsettingFinancialAssetsandFinancialLiabilities(AmendmentstoIAS32)’.Theamendmentsareeffectiveforannualperiodsbeginningonorafter1January2014andarerequiredtobeappliedretrospectively.TheAASBisyettoissuetheseamendmentsintheAustraliancontext.

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).

Withinthenexttwelvemonths,wewillalsoseeacompletefinancialinstrumentsstandard,andthenewrevenueandleasingstandardscomingfromtheIASB.Onthedomesticfront,wewillseetheAustralianversionofIASB‘Conceptualframework–PhaseA:objectiveandqualitativecharacteristics’,moreonthereduceddisclosureregime,andapplicationofthereportingentity.

Itisimportantthedirectorsandmanagementstarttounderstandthekeyrequirementsofthesestandardsanddevelopments,andestablishaprojecttoplanforimplementationnow.





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