Researchers at Deakin University have found that only a minority of companies are achieving high levels of compliance with new corporate governance guidelines from the ASX.
Deakin University’s Integrated Reporting Centre examined the compliance of 240 large ASX-listed companies with the ASX’s Corporate Governance Recommendation 4.3, which was designed to make companies more accountable for information they provide to investors.
The recommendation 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”.
According to the research, more than a quarter of the companies had made no effective disclosure in relation to Recommendation 4.3, with most only providing “vague or limited” details about how they had ensured the integrity of unaudited reports.
“Where a corporate report or disclosure is not subject to audit or review by an external party — for example an auditor — it is important that investors understand how a company has ensured the report is accurate, balanced and provides appropriate information for investors to make informed investment decisions,” said Professor Peter Carey from Deakin University.
The recommendation originally took effect for most listed companies last year and was introduced to address concerns about the integrity of periodic corporate reports that are not subject to mandatory auditing requirements.
These can include operating and financial reviews, quarterly activity and cash flow reports, greenhouse gas emissions reports, sustainability reports, integrated reports and modern slavery reports.
The Deakin researchers found that 12 per cent of the companies analysed had provided no identifiable disclosure and 15 per cent had provided ‘boilerplate disclosures’ or a general statement that could be applied to any entity.
Meanwhile, only around a quarter provided what the researchers determined as ‘clear and comprehensive’ descriptions of the processes that had been used to ensure the integrity of other periodic corporate reports.
NAB, QBE, SCA Property Group and 29Metals were among the companies highlighted as examples of best-practice disclosures under the ASX’s recommendation.
Deakin noted that, while directors do have the option of not following the recommendation, they must explain why. Only one ASX 300 company explained why it did not comply, while 12 per cent of entities ignored the recommendation and provided no identifiable disclosure.
“One hopes that in many cases, if not most, the absence of any disclosure was an oversight in the first year of adoption of 4.3, and that there will be improvement in 2022,” commented Professor Carey.
The report made a number of key recommendations for report preparers and the ASX which included taking action to ensure that companies disclose the extent of board involvement in, and their responsibility for, measures to enhance the integrity of unaudited information.
“The ASX should more closely monitor the quality of disclosures and should work towards strengthening Recommendation 4.3 to further propel the journey towards better business reporting,” said Deakin chancellor John Stanhope.
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.