ASIC's new listed company disclosure guidelines launched despite concerns

New operating and financial review guidelines released by regulatory watchdog, but concerns are raised that they will complicate annual reports and trigger inappropriate market speculation

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The Australian Securities and Investments Commission has released new guidelines in a bid to improve disclose across listed company annual reports, despite concerns these could complicate such reports and lead to inappropriate market outcomes.

According to the new operating and financial review (OFR) guidelines, listed entities must contain more detailed information for investors required to make informed assessments of their operations, financial position, business strategies and future prospects. The disclosure changes are filed under Regulatory Guide 247 Effective disclosure in an operating and financial review.

The new regulatory guidelines come six months after ASIC issued a consultation paper on proposed OFR changes, and conducted face-to-face meetings with interested parties. OFR refers to the management commentary usually at the beginning of a listed entity’s directors’ report to outline recent company operations and activities.

In its consultation paper 187, ASIC claimed investor presentations and briefings to analysts sometimes provided “better information and analysis than the OFR”.

“However, these presentations and briefings are generally provided in a presentation format, without any supporting narrative, and are not a substitute for providing information, explanations and analysis in an OFR, as required under section 299A of the Corporations Act,” ASIC stated.

In particular, the commission highlighted the lack of analytical information, as well as repetition of information already contained in the financial report without sufficient analysis or explanation. However, industry representatives claim there are better methods used by listed companies to present up-to-date information about their activities already, while the Australian Institute of Company Directors stressed the importance of company directors taking the responsibility for determining the level of disclosure in the OFR.

There are also concerns the new disclosure guidance will make annual reports significantly longer and more complex. In addition, the Group of 100, which represents chief financial officers across Australia, fears the OFR changes could lead to inappropriate disclosure outcomes.

“For example, if a company withholds information about incomplete and confidential M&A deals that may or may not happen, then this proposal would mean the company would need to state in the OFR that it is withholding information about incomplete and confidential M&A Activity,” the industry peer group stated in its submission to ASIC.

“This may lead to inappropriate market speculation and potentially prejudicial announcement of the actual M&A deal.”

ASIC dismissed concerns about the length of annual reports. Its commissioner, John Price, claimed the OFR changes are about helping listed companies make their financial reviews more useful and meaningful to investors.

“This guidance will assist directors in providing an OFR that is tailored to the particular circumstances of each entity,” he said. “Encouraging good, clear and insightful information furthers ASIC’s aims of promoting confident and informed investors and financial consumers, as well as fair and efficient markets.”

RG 247 also includes new guidance around the use of the ‘unreasonable prejudice’ exemption from disclosing specific business strategies and prospects, and uses worked examples to highlight appropriate standards and disclosure.