Madonna Jarrett (Brisbane, Australian Labor Party) Share this | Hansard source

I rise to speak on the Treasury Laws Amendment (Financial Reporting System Reform) Bill 2026 today. For most people, this sort of legislation may be a bit abstract and foreign, but the truth is that every person and every business that puts their money into shares, a business or a super fund is affected by the players who are governed by these laws. These laws are fundamental to our financial system. They provide a common method for recording transactions for corporate reporting and a process for review to verify the accuracy of the report.

Corporate reporting covers two areas. I'm going to try and break it down a little bit here. First is finances. For businesses, it's their budgets—the income and expenditure, the profit and loss. Second, they report on matters that might impact the long-term value of the company, such as their approach to climate and sustainability or the diversity of their workforce, just to name two.

These laws also reform how the guardians of the financial truth conduct themselves, and this is when the auditors come into play. They review the accounts, or 'audit' them, to make sure they're fairly represented. This process helps identify errors, misstatements or even fraud, and auditors provide an independent opinion on the financial report.

Then there's assurance, which looks at the accuracy of the system and processes, or non-financial information, of the businesses. These processes, too, are guided by standards. In actual fact, all the processes I've just talked about are guided by standards that are set by three core bodies. These bodies have evolved over long periods of time—as have the standards—as investor expectations, financial assets and instruments have changed, alongside the volume of money that's flowing around the world.

Basically, audit and assurance mean that an investor doesn't need to take the company's word for it before they put their hard-earned savings into that business. They can look at the audited report and get reliable information. Why is this important? It's because a common language and reporting method, as well as a common review process, means every person or every business that might be investing in another is able to compare apples with apples, not apples with oranges. This builds the integrity of our financial markets, and integrity matters. When people trust the system to be fair and honest, they're more willing to invest, businesses are more willing to innovate and it's easier to plan for the future. That confidence also underpins strong financial markets and therefore contributes to the strength of our economy.

So what is the bill? This legislation delivers the biggest reform to our financial reporting institutions in over two decades. It proposes the merging of the Australian Accounting Standards Board, the Auditing and Assurance Standards Board and the Financial Reporting Council into a single entity, External Reporting Australia, or the ERA.

The ERA will centralise standard setting for accounting, auditing and sustainability reporting to enhance efficiency and align with international standards. But what are these standards? We have accounting, auditing, assurance and sustainability standards. These standards are frameworks that guide how financial and non-financial data is recorded, verified and reported by a company. They ensure consistency, transparency and trust in corporate reporting. They enable investors and others to, as I said, compare apples with apples.

Now, without being too technical, I'll try and run through these. The Australian accounting standards define how to measure, recognise and disclose financial transactions. For instance, if you're a business and you have property plant and equipment, the standards might outline how this equipment is recognised in the financial report. It would include consideration of its current value, depreciation and impairment loss.

The auditing standards are a framework that guides the auditors on how to examine these reports or the financial information so that they can obtain a reasonable assurance that the report is free from material misstatement. Here's an example. Auditors have to exercise professional judgement and maintain scepticism—we hear that a lot in that world—and they draw informed conclusions and make decisions surrounding factors in the financial statements. So what they might do is question information. They may look at the value of plant and equipment and look at the depreciation value and make a judgement as to whether or not that makes sense given the age of the equipment.

Assurance standards guide practitioners in providing conclusions on the financial or non-financial information provided by the company. For example, for the standard covering assurance reports on controls, they may look at the controls associated with how a particular business manages its IT provider or its payroll assessors.

Lastly, we have sustainability standards. These standards grew out of calls from investors and market players for companies to report on their environmental, social and governance risks—ESG risks. Put simply, these are really about how a company might manage its carbon footprint and how it manages its reputation factors such as how it treats its workforce and its community impact and ethical conduct. For governance, the company's board and oversight practices are good examples. This type of reporting has been voluntary in Australia, largely guided by the ASX corporate principles and other laws like the Modern Slavery Act. However, as others have said, climate disclosure became mandatory in this country last year for large businesses and is now being phased in for medium and small enterprises. We are seeing these standards being increasingly integrated with assurance standards, which now verify sustainability reports, so all of a sudden we have more interconnectivity.

Our financial and capital markets rely on our standards and reporting systems being robust, relevant and reliable. If financial reports are not correct and there are audit failures, then it's everyday mums and dads, retirees, workers, businesses and others that lose out. Companies can fracture and collapse, and those who put their money into that business may not end up getting their expected returns, or, worse of all, they can lose their money altogether, and workers can lose their jobs.

Just last year we saw the collapse of the First Guardian and Shield investment funds. Between the two schemes, 12,000 Australians are facing the loss of more than $1 billion of retirement savings. According to ASIC, these two funds were riddled with conflicts, misconduct and false statements that were made to investors. ASIC is pursuing these funds through the legal process.

Australia has seen even bigger corporate collapses, including HIH in 2001. It's the largest corporate collapse in Australia's history, with an estimated up to $5.3 billion in losses, and involved major failings in auditing and supervision by its auditor, Arthur Andersen. This failure contributed to Arthur Andersen's collapse, not just in Australia but globally. At that time, for those who can remember, Arthur Andersen was convicted in the United States of obstructing justice for shredding thousands of documents and deleting emails related to its audit of the failed energy giant Enron. It lost its licence, investors lost their trust, the markets lost trust, and the firm fell apart. We also saw the collapse of Ansett here in Australia quite a few years ago, which was contributed to by poor financial reporting. Not only were there financial losses; 16,000 workers lost their jobs. These are all sad tales of why we need strong, reliable and trustworthy financial reporting systems. They explain the importance of our standards and our standard-setting bodies as well as the importance of our auditors and why investors need this strength.

I want to quickly circle back to sustainability standards because they're included in this whole big world. These guiding standards require an entity to disclose information about climate related risks and opportunities that could be reasonably expected to affect the entity's financial position in the short to long term. There's also an expectation that they disclose their actions and processes around these. This reporting can include relevant processes, procedures and controls as well as the metrics used to measure them—for instance, greenhouse gas emissions. As I mentioned, ESG reporting started out as voluntary, which contributed to it becoming fragmented and incomparable. As a result, there were also allegations of greenwashing by companies who were competing for sustainability focused investment: market saw companies exaggerate claims that their services, products and operations were more environmentally friendly or sustainable than they actually were. So the introduction of the standards was there to set the benchmark for comparability—apples with apples.

This is extremely important, especially in countries committed to climate action like Australia. Individuals are voting with their feet, acting in a more environmentally conscious way and making specific investment choices that promote sustainability outcomes. Without these standards, consumers can be mislead, legitimate environmental efforts are undermined and companies with legitimate sustainability goals don't get the capital they should.

For the past 12 minutes or so, I've tried to paint a picture of the corporate disclosure regime in this country. It's complex and in need of an upgrade. These changes didn't just happen; they grew out of several reviews. Bringing the standard-setting bodies together was a recommendation of the climate related financial disclosure consultation paper released in 2022. We also saw the Parliamentary Joint Committee on Corporations and Financial Services recommending consolidation of the standard-setting bodies. This committee led an inquiry into allegations of, and responses into, misconduct in the Australian operations of the major accounting, audit and consultancy firms. Long story short, the chairman's report states that 'the resulting scandal shook corporate Australia to its core' and that the professional services firm involved 'became synonymous with a profoundly disturbing breach of public trust'.

I talk about this because it's led us to why we are here today. This bill represents a significant overhaul of Australia's financial reporting governance with the merging of the Australian Accounting Standards Board, the Auditing and Assurance Standards Board and the Financial Reporting Council into the single entity External Reporting Australia. It's long overdue. There hasn't been a substantial change to the standard-setting framework for more than 20 years. ERA will be governed by a council responsible for oversight of all functions. It's going to be supported by technical boards for the accounting, auditing, assurance and sustainability standards. But the council may also include associate members who might bring additional expertise that is needed.

The pace of change across our financial markets is rapid, to say the least. If we add the technological advancements driving AI, new financial instruments, new digital assets et cetera to the interconnectivity of markets around the world and the need to meet investor expectations and societal expectations to protect our businesses and to protect consumers, we have a very complex environment indeed.

That's why ERA is designed around three principles. The first is flexibility. Being one organisation—and we've heard criticism about this by earlier speakers—ERA can more efficiently respond to emerging issues, evolving priorities and future standards-setting needs. The second is the preservation of expertise. The development and review of standards is very technical. I know; I've been in that world, and it does require deep expertise. That's going to be retained with the specialised boards within ERA and the ability to bring in others as needed. Then, of course, there's accountability. New transparency provisions require that discussions on standards be held in public forums, and the rules around managing conflicts of interest have been strengthened. These include that the governing council be made up of individuals who are independent of the auditing profession, perceived and real. As Minister Mulino said, this bill aims to create a modern, durable and transparent institutional structure that positions Australia to maintain high-quality reporting standards and adopt to global developments.

We've heard a number of those opposite say, if it ain't broke, don't fix it; don't change it. But I ask this question: would they say that about a racing car that's 20 years old and competing against a modern, new, lighter car that they know, even before the key is turned, will do better on the track? I'll leave it at that.

So Australia needs a financial market that's robust, relevant and reliable. This requires a standards-setting system and reporting frameworks that are built for purpose, and this bill contributes to that. Strong, trusted reporting standards are essential to market integrity and trust. When investors trust in our market, they invest in it. It's this trust and confidence that's crucial to Australia's ongoing broader economic strength and Australia's economic growth. I commend this bill to the House.

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