That the Corporations Act 2001 be amended to require all publicly listed companies to have an independent audit committee and the Act prescribe the minimum requirements in regard to the role, responsibilities and composition of an audit committee.

That the Financial Reporting Council.

• develop a set of corporate governance standards, including prescriptions for internal audit, taking primary guidance from the findings of the ASX's Corporate Governance Council; and

• take all steps to ensure these standards be given legislative backing in the Corporations Act 2001, as either pursuant to or mirroring Section 334.

That Section 1288 of the Corporations Act 2001 be amended to incorporate the following principles:

• require audit firms undertaking assurance audits of publicly listed companies to submit a report to the Australian Securities and Investments Commission (ASIC) on an annual basis detailing how audit firms have managed independence issues in the preceding period and any future independence management issues that are deemed pertinent;

• provide AISC with the authority to investigate and address independence issues arising from these reports or from other sources as ASIC considers appropriate; and

• require publication of the ASIC benchmark criteria used for determining the adequacy of the internal systems and processes of large audit firms.

In the process of adopting the international accounting standards by January 1 2005, as announced by the FRC, the AASB should ensure that those contentious issues and deficiencies identified by the Committee are resolved as a matter of priority at the earliest possible date.

That Section 297 of the Corporations Act 2001 be amended as follows:

• add the requirements that, in undertaking the assessment of a true and fair view, directors must consider the objectives contained in section 224(a) of the ASIC Act and must include a statement in the financial report that they have done so.

• delete the current footnote that states:

  If the financial statements and notes prepared in compliance with the accounting standards would not give a true and fair view, additional information must be included in the notes to the financial statements under paragraph 295(3)(c).

• add the following new sub-sections:

  In the case of conflict between sections 296 (compliance with accounting standards) and 297 (true and fair view), the notes to the financial statements must indicate why, in the opinion of the directors, compliance with the accounting standards would not give a true and fair view of the financial performance and position of the company.

  The notes to the financial statements must include a reconciliation to provide additional information necessary to give a true and fair view.

It is recommended that Sections 307 and 308 of the Corporations Act 2001 be amended to require the auditor to form an opinion and report on any additional disclosure made pursuant to Section 297.

• commentary on internal control systems, including risk management processes;

• management discussion and analysis;

• commentary on the main factors affecting reported financial performance and financial position;

• commentary on the key judgements made in the application of accounting policies;

• results for a set of key performance indicators pointing to the health of the organisation; and

• details of directors' and executives' performance appraisal or management systems.

• the following statement

  The Auditor must be independent of the company in performing or exercising his or her functions or powers under this Act.

• a footnote to indicate that this statement may be interpreted by reference to the Code of Professional Conduct of the Professional Accounting Bodies.

That the following sections of the Corporations Act 2001 be amended:

• Section 307 be amended to require that auditors form an opinion on whether the company has complied with corporate governance standards (see Recommendation 3);

• Section 308 be amended to require the auditor to report as to whether the company has complied with corporate governance standards (see Recommendation 3); and

• Section 308 be amended to require the audit report to include comment on significant matters arising during the audit process.

That ASIC explore the cost and benefits and alternative methods of introducing performance audits in the private sector and, in conjunction with the ASX, evaluate the costs and benefits of requiring pronouncements and other disclosures under the continuous disclosure listing rule to be subject to a credible degree of assurance and report its findings to the Treasurer.

To support an expansion in the role of registered company auditors, the following reforms should be put in place to provide a greater level of protection for their personal assets:

• principle of joint and several liability replaced with the principle of proportional liability, so as to provide a more equitable basis for allocating damages;

• amend the Corporations Act 2001 so that audit firms can operate within limited liability structures; and

• introduce a cap for professional liability claims to limit the quantum of damages which can be awarded against auditors.