Part A

Accounting scandals in Australia since the late 1980s

Garry D. Carnegie, Professor of Accounting, School of Business, University of Ballarat and Brendan T. O'Connell, Professor of Accounting, School of Business, James Cook University

Extract

Apart from the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act of 2004, another major reform of recent years is the Australian Stock Exchange Principles of Good Corporate Governance and Best Practice Recommendations of March 2003. Within this document, there were 10 key corporate governance principles for publicly listed companies to follow relating to areas such as ensuring a balance of executive and non-executive directors on the board of directors, maintaining well documented risk management processes and ensuring proper oversight by management, and ensuring the adoption of a properly constituted and well qualified selection process in appointing individuals to the audit committee.

Following a 12-month review of the Principlesand Recommendations and extensive public consultation, in August 2007 the Council released the RevisedCorporate Governance Principles and Recommendations. This revision featured eight principles of corporategovernance and 27 practice recommendations.The current version of the guidelines, Corporate Governance Principles and recommendations with 2010 Amendments as released on 30 June 2010 and came into effect on 1 January 2011.

Required

1. List (a) andexplain (b) the key corporate governance principles

2. Each principle entails several recommendations.Choose any five companies from the ASX/S&P 200 and comment on compliance with the following ASX Listing Rule

ASX Listing Rule 4.10.3 requires entities to disclose in their annual report the extent to which they have followedthe Recommendations and, if they have not followed all the Recommendations, to identify the Recommendationsnot followed and give reasons why they have not been followed ("if not, why not" reporting). To comply with thatListing Rule, therefore, a listed entity is required to report in respect of each Recommendation either: (a) that ithas followed the Recommendation; or (b) that it has not followed the Recommendation and stated the reasonswhy it has not.

The AASX has undertaken analysis of Corporate Governance Disclosures in annual reports for the years 2008/2009/2010 which can be accessed as follows:

Past Reviews of Corporate Governance Disclosures by Listed Entities

3. Comment on the general thrust of these reports

Part B.

Financial failures over the past decade such as HIH, One.Tel and Harris Scarfe  Ltd have for the most part represented fundamental breakdowns in the structure of corporate governance

The responsibility of corporate governance can be seen to rest with the following parties:

• Shareholders
• Board of Directors
• Management
• Audit Committee
• Self-regulatory organisations such as CPAA, ICAA and IPA
• Australian Stock Exchange
• ASIC
• External Auditors
• Internal Auditors

Discuss briefly the broad responsibilities of the aforementioned parties and conclude with a 500 word overview of the alleged corporate governance failures that surrounded most of the financial failures