Commonwealth Numbered Regulations - Explanatory Statements

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CORPORATIONS AMENDMENT REGULATIONS 2005 (NO. 4) (SLI NO 160 OF 2005)

EXPLANATORY STATEMENT

Select Legislative Instrument 2005 No. 160

Issued by the Parliamentary Secretary to the Treasurer

Corporations Act 2001

Corporations Amendment Regulations 2005 (No. 4)

Subsection 1364(1) of the Corporations Act 2001 (the Act) provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed by regulations or necessary or convenient to be prescribed by such regulations for carrying out or giving effect to the Act.

The Corporations Regulations 2001 (the Principal Regulations) prescribe various matters relating to the Act.

The purpose of these Regulations is to amend the Principal Regulations so as to rationalise the remuneration disclosures made by listed companies in their annual reports. 

Section 300A of the Act, in conjunction with current Corporations regulation 2M.3.03, provides for the remuneration of directors and specified executives to be disclosed in the annual directors’ report of a listed company.  In addition, accounting standard AASB 1046 Director and Executive Disclosures by Disclosing Entities provides for elements of director and executive remuneration to be disclosed in the annual financial reports of disclosing entities, which includes listed companies.

The Regulations provide that where the director and executive remuneration disclosures required by AASB 1046 are made in the annual directors’ report and are audited, they do not need to be included in the annual financial report. 

Details of the Regulations are set out in the Attachment.

A draft of the Regulations was released a three week consultation period ending on 27 May 2005.  Treasury received 14 submissions on the draft Regulations.  On the basis of the submissions, several amendments were made to the draft Regulations. 

The Regulations commence on the day after they are registered on the Federal Register of Legislative Instruments


ATTACHMENT

 

Details of the Corporations Amendment Regulations 2005 (No. 4)

 

Regulation 1 – Name of Regulations

 

This regulation provides that the title of the Regulations is the Corporations Amendment Regulations 2005 (No. 4).

 

Regulation 2 – Commencement

 

This regulation provides for the Regulations to commence on the day after they are registered on the Federal Register of Legislative Instruments.

 

Regulation 3 – Amendment of Corporations Regulations 2001

 

This regulation provides that the Corporations Regulations 2001 (the Principal Regulations) are amended as set out in the Schedule.

 

Schedule – Amendments

 

Item [1] – Regulation 2M.6.04

 

Item [1] amends the Principal Regulations by inserting new Regulation 2M.6.04 which provides that the operation of Chapter 2M of the Act in relation to annual financial reports for listed companies is modified in accordance with Schedule 5B (see Item [2] below).

 

Item [2] – Schedule 5B:  Annual financial reports – listed companies

 

Item [2] inserts new Schedule 5B Annual financial reports – listed companies.  Schedule 5B provides that information relating to director and executive remuneration need not be disclosed in the annual financial report in accordance with the accounting standards provided that the information is disclosed in the annual directors’ report and is audited.  Section 7 of AASB 1046 prescribes the disclosures that must be made about the remuneration of directors and executives.  Section 11 of AASB 1046 prescribes the related comparative disclosures that must be made.  Disclosures mandated by the other sections of AASB 1046 must still be disclosed in the annual financial report. 

 

Clause 1 of Schedule 5B inserts definitions relevant to the Schedule. 

 

Clause 2 provides that the Schedule applies to annual reporting periods ending on or after 30 June 2005.

 

Clause 3 provides that the annual financial report for a listed company does not need to contain information about director and executive remuneration if the annual directors’ report contains such information relating to remuneration disclosures as required by AASB 1046 and the requirements of clause 4 are met.  The information relating to remuneration that should be disclosed in the annual directors’ report is that outlined in sections 7 and 11 of AASB 1046.  The Regulations effectively exempt listed companies from disclosing this information in the financial report if that information is contained in the directors’ report. 

 

Clause 4 specifies additional criteria that must be satisfied in order to apply the rationalised disclosure requirements.  In particular:

                paragraph 4(a) requires that the information must be contained in the annual directors’ report under the heading ‘Remuneration report’;

                paragraph 4(b) specifies that the disclosures must relate to the persons who are identified in paragraph 300A(1)(c) of the Act.  In circumstances where AASB 1046 requires disclosure of the remuneration of persons additional to those identified by paragraph 300A(1)(c), subparagraph 4(b)(ii) of Schedule 5B requires disclosure of the remuneration of these persons as well.  Where paragraph 300A(1)(c) and AASB 1046 requires remuneration disclosures in relation to the same persons, these disclosures need only be made in the Remuneration report once;

                paragraph 4(c) requires that the disclosures made in the annual directors’ report pursuant to AASB 1046 must be audited as if they were part of the financial statements.  Although not required by the Regulations, it would be desirable, where possible, for the Remuneration report to identify which information has been audited.  This would assist users of the directors’ report;

                paragraph 4(d) requires information to be disclosed that identifies the person, their position and, in cases where the person has not held the position for a full financial year, the date when the person began or ceased holding the position;

                subparagraph 4(d)(iv) requires disclosure of specific information relating to each bonus or grant mentioned in paragraph 7.5 of AASB 1046; and

                subparagraph 4(d)(v) requires details of payments made to the person (if any) before the person took office as part of the consideration for the person agreeing to hold office, including the monetary value of the payment and the date of the payment.  This information only needs to be disclosed in the financial year in which the person began holding the position. 

 

It is noted that the arrangements are optional for financial reporting periods ending on or after 30 June 2005.  In the event that a listed company chose not to adopt the disclosure framework in the Regulations, separate disclosure of director and executive remuneration as required by section 300A of the Act, regulation 2M.3.03 and AASB 1046 need to be included in the annual directors’ report and the annual financial report.  As the Regulations impact on the financial reporting requirements for the 2004-2005 financial year, it was considered appropriate to that the Regulations be optional for listed companies to adopt.  In the longer term, it is envisaged that the Regulations will be made mandatory and regulation 2M.3.03 will be repealed. 

 

Although there are minor drafting differences between the requirements in paragraph 4(d) of Schedule 5B and the requirements of regulation 2M.3.03, if a listed company chose to adopt the arrangements, it is expected that it would substantially be in compliance with the requirements of regulation 2M.3.03.  The minor drafting differences relate to subparagraph 4(d)(v) of Item [2] of the Regulations and paragraph 2(d) of regulation 2M.3.03.  Minor drafting changes were required to clarify that disclosures made according to subparagraph 4(d)(v) of Item [2] only need to be made in the year that the person begins holding the position. 


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