Submission to Senator Ian Campbell - Guide to Review Operations and Financial Condition (MD&A)

1 October 2003

Senator the Hon Ian Campbell
Parliamentary Secretary
Parliament House
CANBERRA ACT 2600

Dear Senator Campbell

The Group of 100, in conjunction with Deloitte Touche Tohmatsu, recently held a series of CFO Workshops to discuss issues arising in implementing Principles of Good Corporate Governance and Best Practice Recommendations issued by the ASX Corporate Governance Council (CGC).

One particular area of concern identified in those Workshops relates to the interaction of CGC Principle 5 - the Guide to the Review of Operations and Financial Condition (often referred to as the Management Discussion and Analysis or MD&A) and the requirements of AASB 1039 Concise Financial Reports relating to the inclusion of discussion and analysis.

CFOs at the Workshops expressed the view that the audit requirement relating to compliance with AASB 1039 limits the extent and nature of the discussion and analysis that is presently provided in Concise Financial Reports and is an impediment to achieving informative and meaningful discussion and analysis for investors and other users. We believe that it will be counterproductive and potentially misleading to users to encourage companies to provide a comprehensive “Review” that is not subject to formal audit on an “if not, why not” basis and for commentary, which is not as detailed or comprehensive, provided in compliance with AASB 1039 Concise Financial Reports to be subject to audit.

The Group of 100 supports the Government’s response to the HIH Royal Commission’s Recommendation 13 to propose, in the current round of changes being proposed in CLERP 9, that companies present an MD&A and that the MD&A is not included in the scope of the audit opinion.

We believe that the impediment to enhanced concise financial reporting referred to above could also be addressed by amending Section 314(2) of the Corporations Law to require a discussion and analysis by directors as part of the concise report and not as part of the concise financial report. We believe that this amendment to the Corporations Law could also be included in the current round of changes being proposed in CLERP 9. A consequence of this amendment would be that the AASB could remove the discussion and analysis requirement from AASB 1039 Concise Financial Reports to avoid unnecessary duplication of requirements and the need for the discussion and analysis to be audited.

Yours sincerely

John V Stanhope
National President