Incoming ASIC chair James Shipton brings regulatory and financial market knowledge as well as international regulatory experience to the role. He believes financial institutions have been losing the trust of the broader community and has flagged corporate culture as a focal point for his upcoming five-year tenure.
”I have been a great advocate of culture reform in the financial institutions and the financial markets for a long time.” James Shipton
“Culture is one of the greatest challenges for all financial markets globally,” said Shipton on his appointment. “I have been a great advocate of culture reform in the financial institutions and in the financial markets for a long time.”
It isn’t just the corporate sector that will feel the heat of questions about culture and the board’s role. Trust is critical for not-for-profits (NFPs) and charities, and the review of the Australian Charities and Not-for-profits Commission Act 2012 (Cth) includes a focus on the governance standards that apply to the national charities sector. This review will be a priority for the ACNC’s new commissioner, Dr Gary Johns, whose appointment was announced in December 2017.
While there was much talk about corporate culture last year, there hasn’t necessarily been a shift in regulatory enforcement actions. Time will tell if the same can be said at the end of 2018.
With Parliament returning from the summer break this month, we should also expect to see the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017 debated. The Government met its commitment to the Nick Xenophon Team by introducing the legislation in the final sitting week last year.
The AICD is supportive of reform to Australia’s whistleblowing laws. A robust whistleblowing framework should strengthen and support good governance of organisations. Strong internal systems that increase transparency and facilitate disclosure are an important tool for boards on managing culture.
The bill removes the requirement that whistleblowers have to be motivated by good faith in their disclosure and extends protections to a broader range of people including former employees, contractors and auditors. “Emergency disclosures” to media and MPs would also be protected where a disclosure has been made, but not acted on in a reasonable amount of time, and there is an imminent risk of serious harm or danger to public health or safety or to the financial system.
The AICD has reservations about this aspect of the reform, as well as the practicality of some of the expanded definitions in the bill, but is in favour of enhanced whistleblowing protections.
New accounting standards
Directors should be aware of two accounting standards that took effect on 1 January this year: Revenue from Contracts with Customers (AASB 15) and Financial Instruments (AASB 9).
The revenue standard has wide-ranging impacts, because it only allows revenue to be recognised as contractual performance obligations are satisfied. This will require careful assessment of individual terms and conditions and the “unbundling” of distinct goods and services provided to customers.
Given the importance of revenue, directors will want to understand how the new standard impacts their organisation, including any changes to the timing of recognising revenue. Not-for-profits have another year before this standard takes effect, along with a new NFP-specific income standard — Income of Not-for-profit Entities (AASB 1058).
A third standard comes into effect on 1 January 2019 for all entities on the topic of Leases (AASB 16). Leases are a common transaction and the new standard will bring most leases on balance sheet. This could impact gearing ratios, ROI calculations and EBITDA, as well as requiring one-off income adjustments for “peppercorn leases” for NFPs. Boards will want to consider how their organisation is preparing for the change and identifying relevant leases.
Read more in Wayne Basford's 2017 article "The triple whammy".