Recent research from Deakin University has shown that three-quarters of Australia’s top listed companies are still not making clear and comprehensive disclosures about how they ensure the credibility of their unaudited reporting.
These findings come two years after the implementation of the ASX’s Corporate Governance Recommendation 4.3, which states that “a listed entity should disclose its process to verify the integrity of any periodic corporate report it releases to the market that is not audited or reviewed by an external auditor”.
The university’s Integrated Reporting Centre analysed how ASX 300 companies have responded to Recommendation 4.3 since its introduction, revealing minimal progress in the 2021–22 reporting year compared to the previous findings, which highlighted a significant need for improvement.
Professor Peter Carey, one of the lead authors of the report, expressed concern over the lack of development, particularly as companies increasingly adopt broader reporting initiatives that extend beyond strict financials and focus on sustainability.
“One hopes that the information being reported in these areas is credible, but we know as ASIC has recently identified that there’s a lot of greenwashing going on,” Mr Carey said.
“Recommendation 4.3 is an important way the ASX can ensure disclosures like these are credible. But what our research shows is that most companies aren’t following the recommendation as intended.”
Specifically, the university’s analysis of the 2021–22 financial year revealed that more than a third of the ASX 300 provided no entity-specific disclosure and 38 per cent provided limited disclosure.
Meanwhile, only 27 per cent provided what were rated as clear and comprehensive descriptions of the processes they used to ensure the integrity of other periodic corporate reports, up just 1 per cent on the previous year.
“Nothing has changed, and that’s a problem,” Mr Carey commented.
“In fact, we have taken a backward step as the international corporate reporting environment is evolving rapidly through the recent issuing of standards by the International Sustainability Standards Board and the increasing momentum for the adoption of integrated reporting.”
Mr Carey added that the enactment of Recommendation 4.3 is likely slow because companies may perceive informative disclosures as optional and prefer to report on as little as possible, for which there don’t appear to be any consequences.
As such, the report made a number of key recommendations including for the ASX Corporate Governance Council to modify Recommendation 4.3 in the upcoming fifth edition and provide greater direction to companies on the disclosure of integrity-enhancing mechanisms included.
This greater direction includes the identification of all periodic corporate reports subject to Recommendation 4.3, formal acknowledgement of board involvement in the review process, confirmation of the board’s responsibility for the integrity of disclosures, and clear direction that disclosure should be comprehensive and entity specific.
“The ASX must strengthen Recommendation 4.3, particularly in relation to integrated reports including disclosures under the new sustainability disclosure standards, to further propel the journey towards better business reporting,” said Deakin chancellor John Stanhope.
Deakin’s earlier report identified NAB, QBE, SCA Property Group, and 29Metals as prime examples of companies that exemplify best-practice disclosures according to the ASX’s recommendation.
