Regulators turn a blind eye to financial reporting failures

OPINION: The mission statement of the Australian Securities and Investments Commission (ASIC) is that it contributes to Australia's economic reputation and wellbeing by ensuring that Australia's financial markets are fair and transparent, supported by confident and informed investors and consumers.

In carrying out its mission as a corporate regulator, ASIC is required to make information about companies and other bodies available to the public as soon as practicable. It is a simple concept really. Timely financial information is required about companies and other bodies so that investors, consumers and other stakeholders (e.g. employees, creditors and even the government) can make informed decisions.

All company stakeholders should be able to access a minimum standard of financial information about the company. Whilst a controlling shareholder or big bank might have the power to command whatever financial information from the company they need, the many small businesses or contractors or employees or customers depending on the company do not. This is the reason that section 319 of the Corporations Act requires a large proprietary company to place an audited annual financial report on the public record by the deadline of four months after the end of its financial year.

On March 14, 2012 I criticised ASIC because its public database was missing the financial reports of significant Australian companies including the Hancock Prospecting annual financial reports for the years ending June 30, 2010 and June 30, 2011. In June 2012, I tried to join an actionbefore the Administrative Appeals Tribunal between Hancock Prospecting and ASIC relating to whether the company should be excused from having its financial reports on the public record. I was not welcomed by either party.

The action was vacated by Hancock Prospecting in late 2012 perhaps when it finally realised that it had no excuse. On Christmas eve 2012, as I wrapped presents for my children and prepared for some quality family time, Hancock Prospecting finally lodged its annual financial reports for June 30, 2010 and June 30, 2011 with ASIC. March 2013 came and went and the annual financial report of Hancock Prospecting for June 30, 2012 was still missing from ASIC's public database. Sometime around May 6 or 7, 2013 however, the Hancock Prospecting 2012 financial report was finally made accessible to the public.

In my opinion, there is something wrong about the way one of Australia's best known companies handles the financial reporting obligations of the Corporations Act.

In recent years, the directors and financial reporting elves at Hancock Prospecting seem to have overlooked the requirement to lodge an audited annual financial report with ASIC by the four-month deadline of October 31 and preferred something around the following year's Christmas instead. The table below shows the lodgement details of Hancock Prospecting for all years since 2006.

On any objective measure, this is a poor lodgement record and it does not reflect well on the company or its directors. Hancock Prospecting is a great Australian company and should show leadership in its financial reporting practices rather than act in a way that could be construed as not taking the Corporations Act seriously. Hancock Prospecting should set a good example if for no other reason than it has various significant interests in public companies (e.g. Fairfax Media) that are expected by shareholders to reach the high bar of financial reporting practice. The company should also be beyond reproach as a good corporate citizen if it wants to be seen as genuine when lobbying or offering commentary on government regulations or corporate affairs.

The late filings from Hancock Prospecting are a cause for concern. But they are not alone, there are other significant Australian companies acting in a similar way. And where is ASIC? And where is the Institute of Chartered Accountants in Australia (ICAA)? What are they doing or saying about it? The deficiencies in the public record of company financial information are obvious and it should not be too difficult for either organisation to embrace their public duty and speak out about it without fear or favour.

On Xmas eve 2012, the media reported the emergence of the Hancock financial reports for June 30, 2010 and June 30, 2011 as the conclusion of some sort of battle between ASIC and the company where "ASIC's will had finally prevailed". But if ASIC had won a reporting fight with the company, then why wasn't the annual financial report of Hancock Prospecting for June 30, 2012 filed at the same time?

Some years ago I was a part-time technical consultant at the ICAA. One of my roles was to assist members with queries about financial reporting obligations under the law. Every now and then I would take a telephone call from a member that had a client who didn't want to place their accounts on the public record. The telephone call would almost always go something like this:

Institute member: "The client is a large proprietary company but as far as the directors are concerned the financials are private information. What would happen if they just don't file?"

My response: "Don't even think about it. The corporate law is clear and they have to file. There are penalties for breaching section 319 and related sections of the Corporations Act. For a client to expose themselves to these potential penalties is just folly. More importantly, our professional obligations as chartered accountants include a public duty to stand up for the law. If you have a client that refuses to follow the law, then get rid of them. This is the sort of client you shouldn't have."

Today, I would still give the same answer.

As an ageing accounting lecturer and chartered accountant, my newly found fear is that our corporate regulator and some of my colleagues in the accounting profession are paying too much attention to fees, size, economics, politics and brand strategy but not enough attention to the law.

Jeffrey Knapp is an accounting and corporate regulation expert in the Australian School of Business, UNSW.