ASIC fixes reporting anomaly

The Australian Securities and Investments Commission (ASIC) has released a new class order to clarify what directors and key management personnel (KMP) have to disclose about their company shareholdings in the upcoming reporting season. This was a result of the identification of an anomaly in the regulations by the Reporting Committee of the Australian Institute of Company Directors.

The relief means that directors and KMP only need to disclose equity instruments they have in the reporting entity or its subsidiaries rather than every company they have an investment in.

Class Order [CO 14/632] Key management personnel equity instrument disclosures addresses drafting anomalies in KMP disclosure requirements relating to:

  • Equity instruments (such as shares and options) held by KMP or their close family members.
  • Certain transactions involving equity instruments between the disclosing entity and members of KMP or their close family members.
  • Options or rights over equity instruments held by KMP or their close family members.

Lynda Tomkins, Ernst & Young’s Australian International Financial Reporting Standards Leader, explains that the anomalies emerged after steps were taken last year to better align Australian disclosure requirements with those internationally. To do this, disclosure requirements were moved from accounting standard AASB 124 Related Party Disclosures (AASB 124) into the corporations regulations.

However, unintentional drafting inconsistencies resulted in the resolutions requiring directors and KMP to disclose all their equity and investments  and would have resulted in additional work and unnecessary information being released.

“The class order brings things back to what directors had to disclose in the accounting standards and moves these disclosures to the remuneration report,” says Tomkins. “It only applies for financial years ending on or before 30 September 2014 because the regulations are expected to be changed by then.”

“Had the inconsistencies not been addressed, users of the financial report would have potentially been provided with a great deal of information that would be of little relevance,” says Alasdair Whyte GAICD, assurance and advisory partner at RSM Bird Cameron.

But he adds that with the reporting season upon us, the situation is an opportune reminder that directors should be questioning management regarding its systems to track and monitor director’s equity holdings that remain subject to disclosure within the director’s report. “In addition, directors must ensure that management is aware of equity holdings in the company and its subsidiaries that are held via director related entities and the close family members.”