Inside AICD

  • Date:01 Oct 2007
  • Type:CompanyDirectorMagazine

An outline of some of the issues addressed by AICD’s policy department, committees and taskforces over the last month.

Policy Update


Reporting Standards for SMEs

AICD lodged a submission in response to the Australian accounting Standard Board’s (AASB’s) Exposure Draft on an Australian differential reporting regime and the proposed IFRS for SMEs issued by the International Accounting Standards Board (IASB).

AICD supports the removal of the existing requirement for unlisted SMEs to comply with full IFRS and the idea of designing a basic set of standards for unlisted SMEs. The article on p47 details some of the reasons why and contains some of the points argued by AICD in its submission.

AICD believes that unless there are material changes to the draft IFRS for SMEs, Australia should develop its own accounting standards for unlisted SMEs. AICD strongly opposes the proposal to link IFRS compliance to public filings of financial reports and believes the issue of whether lodgment of financial reports should trigger compliance with accounting standards is a public policy matter requiring broader consultation.

In its submission, AICD noted that the AASB’s proposed linkage of compliance with accounting standards to lodgment of financial statements will necessitate an immediate re-examination by Treasury of existing lodgment requirements for financial statements and a public policy decision by the Government as to the nature of information that is needed from unlisted companies that are not currently defined as ‘reporting entities’. AICD also believes that it is incumbent upon the AASB to publish an analysis of the regulatory impact of the proposed changes as part of its consultation process.


Review of Sanctions in Corporate Law – Treasury Roundtables

In March 2007, Treasurer Peter Costello announced a review to establish the extent to which sanctions under corporate law may be influencing business decisions. In response, AICD has proposed a general defence for directors (modelled on the Business Judgement Rule in section 180(2) of the Corporations Act). The defence would extend to other sections of the Corporations Act, unlike the Business Judgement Rule that only applies as a defence to section 180(1) for breaches of care and diligence by a director. The AICD general defence has a high threshold and would only be available if directors acted in good faith, informed themselves about the subject matter of the decision and believed it was in the best interests of the corporation. Treasury’s terms of reference are available the their website.

AICD attended a Treasury Roundtable in late August 2007 to discuss with other interested parties what policy reform might be necessary to enable reasonable risk-taking decisions by directors which ultimately enable increased shareholder value. Two additional Treasury Roundtables will follow, focussing on other aspects of sanctions in corporate law. The Government will then form an advisory group to contribute to the policy and legislative drafting process.

All AICD policies, submissions and FAQs can be found at: www.companydirectors.com.au under ‘Policy and Advocacy’.

For feedback, or further information, please contact Rob Elliott, general manager, Policy and General Counsel at: relliott@companydirectors.com.au



FAQ of the month


QUESTION

I have recently accepted a board position. Am I able to obtain some sort of ‘sign-off’ from current directors that the board has met its compliance and statutory obligations prior to my appointment?

ANSWER

Joining a board can bring stimulating professional challenges, rewards and opportunities, but also involves exposure to risks. Directors need to make an informed decision about joining an organisation. This involves making appropriate inquiries to satisfy themselves of the organisation’s position and practices as well as the calibre of its people prior to accepting a directorship.

Under the Corporations Act, directors are liable for decisions and actions taken during their term of office. Technically, a director joining a board today will not be responsible for decisions made prior to their joining. However, problems may arise in the future as a result of those earlier decisions. If the current board, including the new director, does not respond with proper care and diligence, there may be legal repercussions. For instance, the ability to rely on the Business Judgment Rule as a defence could be compromised.

The ability to trust fellow board members and work collegially is crucial to the effective functioning of the board. Asking fellow directors to sign-off on the adequacy of their past decisions and actions may be misconstrued as the new director not trusting the current board. This would not be a productive beginning to the relationship.

It is imperative to fully understand issues such as an organisation’s financial position, risk exposures and control processes, prior to deciding to join, as well as to meet with as many of the current directors as possible and to discuss issues and concerns. The Frequently Asked Question on AICD’s website, Evaluating an organisation prior to joining, outlines some basic questions to ask. The questions could be addressed to the chair of the board and through the chair to management. One such question would be about the availability of indemnities and D&O insurance.

If a director has misgivings after his or her research is completed, it would be wise to refuse the offer.