Claire Clutterham (Sturt, Australian Labor Party) Share this | Hansard source

I rise today to speak in support of the Treasury Laws Amendment (Financial Reporting System Reform) Bill 2026, which represents the biggest reform to Australian financial reporting standard settings in 20 years, and, critically, it marks an important step in embedding sustainability reporting within Australia's core financial reporting framework.

The reforms proposed in the bill will have positive implications for the integrity in our markets, which matters. If we want to encourage people to invest and innovate, to look to the future, to take calculated risks and to grasp opportunities, only the highest standards of integrity in the market will be acceptable. When people trust the system to be fair, transparent, stable and honest, they will invest and innovate. They will look to the market to provide opportunities to invest long into the future. They will look to the market for opportunities in general, and they will take them. A strong and productive economy requires this level of integrity to inspire confidence, and we know that only markets that investors have confidence in will grow. Good governance, accurate and timely reporting, fairness and transparency mean a stronger economy for everyone.

The bill proposes reforms to the financial reporting architecture that will have meaningful implications for sustainability reporting in Australia. Most significantly, the bill proposes the establishment of External Reporting Australia, bringing sustainability standards setting into the same national infrastructure that governs accounting and assurance. The effect of this is that sustainability reporting will be embedded in core reporting systems, rather than treated as an adjunct. This is important because it promotes consistency and comparability, which are essential and useful ingredients for investors in their decision-making.

With respect to the establishment of External Reporting Australia, the bill makes amendments to part 12 of the Australian Securities and Investments Commission Act to combine the core functions and powers of the Australian Accounting Standards Board, the Auditing and Assurance Standards Board and their respective offices and the Financial Reporting Council relating to standard setting. These will be combined into a single entity known as External Reporting Australia. To achieve this, the bill continues the existence of the Office of the Auditing and Assurance Standards Board, a non-corporate Commonwealth entity, for the purposes of the Public Governance, Performance and Accountability Act and renames it External Reporting Australia. The amendments therefore abolish the Australian Accounting Standards Board, the Auditing and Assurance Standards Board, the offices and the Financial Reporting Council.

External Reporting Australia's responsibilities will include making and formulating accounting, auditing and assurance, and sustainability standards. The difference between the previous system and what is being proposed in this bill is the facilitation of External Reporting Australia as the single source of standard setting. Under the previous framework, various responsibilities in relation to accounting, auditing and assurance, and sustainability standard setting were split across the separate statutory entities, their respective offices and the Financial Reporting Council. Now a single entity, External Reporting Australia, will be responsible for all of these relevant standard-setting functions.

External Reporting Australia will be led by a governing council, the Governing Council of External Reporting Australia, and it will establish internal standard-setting boards that are authorised to exercise the powers and perform the functions in relation to standard setting within the accountability framework of a single entity. The minister may also give External Reporting Australia responsibility for formulating new kinds of standards in response to future needs. External Reporting Australia will be a listed entity, with the governing council as the accountable authority for the purposes of finance law within the meaning of the PGPA Act.

Turning to the governing council, this is a key feature because it is one of the elements in the bill that is designed to instil confidence—in market participants, industry and other stakeholders—that integrity, a commitment to procedural fairness and due process, and adherence to relevant technical expertise in setting standards will underpin the operation of the governing council. The governing council will be a multimember accountable authority to promote collective and strategic decision-making and to ensure that no one particular industry, interest group or cause can unduly influence outcomes. The governing council will be the accountable authority and therefore responsible for approving External Reporting Australia's corporate plan, setting its priorities and ensuring appropriate management of its budget and resources.

With respect to appointments to the governing council, the minister must have regard to the principle that the governing council should contain an appropriate level of representation of persons who are and are seen to be independent from Australian auditors and that it should, as far as practicable, have an appropriate balance of expertise or experience in fields relevant to External Reporting Australia's functions. The governing council is to consist of between five and nine members, including the chair, and the minister may also appoint up to four non-voting associate members to the governing council.

As for appointments to the standard-setting boards, the governing council must ensure, to the extent practicable, that the composition of a standard-setting board reflects an appropriate mix of persons, with experience reflecting both the standards and the board issues, and that reports are prepared in accordance with those standards. In short, the obligation of the governing council is to set up standard-setting boards with the authority to make and formulate standards on behalf of External Reporting Australia to ensure that the day-to-day determination of the technical content of accounting, auditing and assurance, and sustainability standards are tasked to boards with expertise directly relevant to the standards being set.

The proposed governing council is required to include skills in sustainability or climate change, including scientific expertise, to strengthen the technical capability of the standard-setting boards. This is an important signal to the market about the capability of the governing council and the standard-setting boards themselves.

The bill also includes a requirement that certain actions taken by the minister, the governing council and the standard-setting boards be done by legislative instrument, which has the effect that the actions will be subject to appropriate consultation requirements and scrutiny by the parliament. These actions include the establishment and setting of certain procedural requirements for the standard-setting boards, like providing for the broad strategic direction of the board and the manner in which it is to perform its functions, the conferral of responsibility for new kinds of standards or other functions on External Reporting Australia and the giving of any ministerial direction about the role of international standards. Again, this element is another signal to the market about capability.

The bill also signals an important focus on transparency, because there is a requirement for meetings in which standards are discussed to be held in public. This is to improve visibility and to help reduce the risk of late-stage requirements. Early and public consultation will remain critical to ensure standards are practical to implement and to support higher quality reporting, particularly for data systems and controls and assurance readiness. The bill also supports continuity and certainty as reforms take effect and seeks to maintain robust due process in every respect. Further nods to transparency include the setting of rules governing the disclosure and handling of material personal interests by any members of the governing council or the standard-setting boards that adopt and supplement the PGPA Rule, which simply means disclosures of personal interests must be made as soon as practicable rather than waiting for the next meeting. This is entirely appropriate, and it's hard to argue against this reform.

Finally, a code of conduct will be developed, which will apply to people who are statutory appointees within External Reporting Australia, as well as any other staff or other persons assisting who are not otherwise subject to the APS Code of Conduct. Nothing less than a targeted and appropriately tailored code of conduct that meets community expectations will satisfy the level of integrity that must be applied to the External Reporting Australia framework.

As to sustainability reporting, embedding this within Australia's financial reporting system recognises that environmental, social and governance information is now central to business decision-making. It is critical for investors, and it is now business as usual. However, the production of reasonably practicable sustainability reporting standards is critical. We do not want reporting for reporting's sake or something that is no more than a box-checking exercise. This is why it's important that the bill provides that, prior to making or formulating a sustainability standard or in fact before making or formulating any standard on accounting or auditing and assurance, whether or not in reliance on an international standard, External Reporting Australia must, to the extent practicable in the circumstances, carry out a cost-benefit analysis of the impact of the proposed standard.

It is intended that the cost-benefit analysis carried out may consider financial factors as well as other factors, such as anticipated environmental, social or governance costs and benefits. This cost-benefit requirement retains but updates and simplifies to reflect current practices, and it's retaining the pre-existing requirements regarding cost-benefit analysis of proposed setting standards issued by the Australian Accounting Standards Board and expands the requirement to also apply to auditing and assurance standards. This requirement supplements whole-of-government regulation impact assessment processes, which may require impacts of proposed regulation to be quantified and published, and ensures that a cost-benefit analysis continues to be required for all standards issued by External Reporting Australia.

In this respect, one of the objectives of the bill is to create a more flexible institutional arrangement for standard setting to ensure the efficiency and adaptability of Australia's financial reporting system. This objective is entirely appropriate to accommodate the development and ongoing maintenance of new sustainability standards, as well as to futureproof Australia's financial reporting system so that it can respond to future standard-setting needs. Sustainability standards produced only after the development of a cost-benefit analysis and reporting against those standards prepared in accordance with the law help maintain and promote confidence and integrity in Australia's capital markets and help users and investors make informed investment decisions.

Sustainability standards and reporting are not, as some might argue, virtue-signalling. It's important to report against meaningful standards so that governments can use the data to determine whether policy objectives are being met, whether they require amendment or improvement, or whether they should be simply cut out. If the data being produced is not capable of meaningful use, then it is not useful data. With useful data, good policy is made when it is relied on in conjunction with facts and evidence. This produces meaningful, sustainable and practical policy.

The creation of External Reporting Australia, through the amendments set out in this bill, will strengthen the framework for setting external reporting standards and ensure those standards are meaningful, produced after a cost-benefit analysis, future focused and dedicated to providing further trust and confidence in Australia's capital markets to encourage further investment. I commend the bill to the House.

See this speech in context