Daniel Mulino (Fraser, Australian Labor Party, Assistant Treasurer) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

This legislation delivers the biggest reform to our financial reporting standard setting institutions in over two decades.

Integrity in our markets matters because, when people trust the system to be fair and honest, they're more willing to invest, innovate and plan for the future. That confidence underpins a strong economy for everyone.

The creation of External Reporting Australia, or ERA, combines the existing standard-setting functions of the Australian Accounting Standards Board (AASB), Auditing and Assurance Standards Board (AUASB) and Financial Reporting Council.

ERA will be responsible for accounting, auditing and assurance, and sustainability standards.

Our standard setters play a crucial role, supporting the integrity of markets, enhancing investor confidence and ensuring accountability in public sector institutions.

The creation of ERA will facilitate a key enhancement to the development and maintenance of standards for sustainability reporting—with the establishment of a standalone specialist board within ERA to undertake this work.

It will put in place a durable framework that allows us to respond quickly and effectively to changes in reporting standards here and overseas, including setting new standards as the system evolves.

This reform helps ensure the governance and structural arrangements of Australia's economic institutions and structural arrangements are best positioned to help build a more competitive, dynamic and productive economy.

The legislation strengthens the existing system by better positioning it to respond to emerging developments both locally and internationally

The introduction of the bill follows extensive consultation and consideration of feedback. I want to thank all stakeholders for their constructive engagement and insights.

The structure and governance of External Reporting Australia has been designed with a view to balancing three key principles.

The first is flexibility.

By establishing a single body, the bill removes structural barriers and improves the capacity of our standard-setting framework to adjust to emerging issues and evolving priorities as needed over time. This includes taking on new standard-setting functions in the future if required.

Making the most of the greater flexibility that comes with having a single body is key to realising the core benefits and longer-term efficiencies of the reforms.

The second is preserving elements of the existing system that have served us well in the past.

The key focus here has been ensuring that Australia can continue to benefit from the high degree of skills and experience that professional experts in each relevant field bring to settling the technical aspects of our accounting, auditing and assurance and sustainability standards.

ERA's new structure will allow it to effectively marshal and harness this expertise within the construct of a single entity by providing for day-to-day standard setting to continue to be undertaken by boards constituted by technical experts.

The third design principle is accountability.

The bill provides for governance arrangements for ERA which ensure alignment between responsibility for the body's performance and the capacity to drive that performance and address issues that arise in doing so.

These reforms strengthen accountability by introducing new transparency and conflict-of-interest requirements for ERA.

When organisations like ERA rely on current, specialised expertise to set high quality standards, it is natural that many of those experts will still be working in the field. That is why it's important to manage any real or perceived conflicts of interest in a practical and sensible way. The measure in this bill is designed to make sure the public can have confidence in both the integrity of the process and the standards that result from it.

ERA will be led by a governing council. The governing council will be the accountable authority of ERA with an oversight role covering ERA's full remit.

Allowing the governing council to act collectively will promote confidence that standard setting cannot be overly influenced by the perspectives of any individual member or the interests of any particular sector, group or industry. The minister will also have the power to appoint non-voting associate members to the governing council who, while not forming part of the accountable authority, will be able to bring valuable perspectives to its decision-making.

The governing council will create, appoint and oversee a number of internal standard-setting boards that are each authorised to make and formulate specialised standards. At least one board must be established for each of the three 'categories' of standards currently set by the AASB and the AUASB, being accounting, auditing and assurance, and sustainability standards.

The minister will also be able to confer on ERA via legislative instrument additional functions, including for example, responsibility for formulating a new kind of standard. This will enable any future standard-setting needs to be efficiently and effectively addressed by leveraging ERA's standard-setting expertise and governance structure.

The bill also contains a new requirement that when making appointments the minister must have regard to ensuring the governing council as a whole has an appropriate level of representation of persons who are, and are seen to be, independent from Australian auditors.

This is an important accountability requirement, as it recognises that as auditors must comply with auditing standards set by ERA, there is a risk of actual or perceived conflicts arising for appointees who work in the industry applying auditing standards.

The bill also bolsters transparency around the operations of ERA. All parts of meetings of both the governing council and standard-setting boards that concern the contents of particular standards must be held in public. Procedural rules governing the operations of the governing council will be set out in the legislation while rules and processes for the boards will be contained in legislative instruments subject to appropriate consultation requirements and parliamentary scrutiny.

The creation of ERA through the amendments set out in the bill will strengthen Australia's institutional arrangements for setting external reporting standards and ensure they are best positioned for the future.

These amendments set out a new era for financial reporting standard setting in Australia.

Finally, the Legislative and Governance Forum on Corporations was consulted in relation to the proposed amendments contained in the bill and has approved them as required under the Corporations Agreement 2002.

Full details of the measure are contained in the explanatory memorandum.

Debate adjourned.