Business conditions and regulatory initiatives have resulted in a variety of codes and regulations to meet the needs of local capital markets[i]. For instance, in the United States, several major corporate and accounting scandals such as those perpetrated by Enron, WorldCom, Tyco International, and Adelphia communications resulted in the enactment of laws and rules to restore and maintain confidence in the financial markets. Other nations experienced similar situations and enacted rules and regulations to promote consumers and investors’ confidence in the financial market.
This paper examined the major events that led to the enactment of corporate governance regulations in Australia, South Africa, and the United Kingdom (UK). And analyzed the similarities and differences among the regulations, and opined on the most comprehensive regulation. Impetus for the Promulgation of the Regulations Australia’s Principles of Good Governance and Best Practices Poor corporate practices and governance resulted in the enactment of Australia’s Principles of Good Governance and Best Practices.
In 2001, the National Australia Bank, the largest financial service institution on the Australian Stock Exchange (ASX), reported an operating loss of AUD 4.
1 billion (US$ 4. 1 billion). This huge loss emanated from poor corporate governance and reckless risk taking by the bank’s management. Thus, in 2003, the Principles of Good Corporate Governance and Best Practice was promulgated to avert future occurrence and enhance corporate governance. Further studies indicated that the loss was mainly due to the lack of auditors’ independence and ineffective risk management practices.
This scandal displayed an operating environment characterized by lax oversight, poor risk management, and weak internal control. The United Kingdom’s Combined Code on Corporate Governance Major corporate abuse and failures triggered the enactment of the Combined Code on Corporate Governance (2008). Apart from the reported corporate abuse by Maxwell and British Gas managements, there were other reported failures resulting from weak corporate governance structures. One of them was the failure of a major British bank, Barings, which created shock waves throughout corporate and financial communities.
All these events forced the corporate world to rethink the role of risk management and internal control[ii]. South Africa’s King Report on Corporate Goverance Various factors contributed to the corporate governance reform in South Africa. Corporate scandals perpetrated by Macmed, Regal Treasury Bank, and LeisureNet became the strongest impetus for the corporate governance reform. Macmed owed 16 banks about R1 billion (US$139 million) in unsecured loans in 1999. Regal Treasury Bank’s former chief executive officer perpetrated financial fraud worth millions of dollars. And LeisureNets collapsed with a liability of R1. 2 billion (US$139. million) due to fraud perpetrated by its executive officers[iii].
These events finally fostered the establishment of the King Report on Corporate Governance. Another important reason of the reform is the market: falling equity prices led to changes in corporate structure and conduct. As noted above, unfavorable business conditions, corporate failures and abuse are the major impetus for the governance regulations in Australia, South Africa, and the UK. Similarities and Differences among the Regulations We reviewed and compared the governance regulations and found the following similarities and differences among them.
Similarities As noted above, major impetus for the governance regulations in the countries are similar. Therefore, the following are the key similarities among them: • Strengthen Internal Control System: Provisions to enhance the independence of external auditors–including mandatory rotation of audit partners, and restrictions on non-audit services external auditors. For instance, in the UK, the audit committee monitors the effectiveness of internal audit function. It reviews annually whether there is a need for an internal audit function and makes recommendations to the board.
The committee also presents the reasons for the absence of internal audit function in its annual report10. The chief executive officer and the chief financial officer are required to certify annual/quarterly financial reports and provide assurance for the effectiveness of internal controls[iv]. For example, the Combined Code in the UK stipulates that the board should conduct a review of the effectiveness of the group’s internal control system at least annually and report to shareholders. • Enhance Independence and Objectivity: Measures to enhance the independence of audit committees and their effectiveness[v].
For instance, in South Africa, the chairperson of the audit committee is expected to be an independent non-executive director and not the chairperson of the board. However, the chairperson of the board could be invited to attend meetings as needed by the chairperson of the audit committee3. • Effective Financial Reporting: Rules requiring disclosure of off-balance sheet transactions and use of pro forma financial information. Also a requirement for real-time disclosure of material changes in the financial condition/operations of public companies[vi].
For example, companies in Australia are required to implement mechanisms that will ensure compliance with the ASX Listing Rule requirements; this is to allow investors to gain access to listed company’s material information (e. g. , company performance, ownership, and governance) Differences • Australia emphasizes objectivity and ethical issues more than the other two countries[vii]. It specifies the objective of an effective internal auditing [add value to the corporation] and the importance of ethics in decision-making and financial reporting. UK pays more attention to corporate remuneration and audit committee’s routine meetings. The UK code requires audit committee to meet privately with the CAE at least annually while Australia’s regulation does not issue detail requirements for the meeting. • South African requires the board to follow the ‘apply or explain’ approach in its collective decision-making, which could help explain how the principles and recommendations were applied or not applied. The Most Comprehensive Governance Regulation Based on this review, we believe Australia has the most comprehensive governance requirements.
The Corporate Governance Council of the ASX[viii] issued 10 Principles of Good Corporate Governance and Best Practice Recommendations and specified two major requirements that worth mentioning. [ix] • Disclosure Requirement-Companies listed under ASX are required to provide statements in their annual reports detailing how they follow the 10-core principles and best practices recommendation. They are also expected to explain what they do not follow. • Audit Committee Requirement-ASX requires all listed companies to have an audit committee to serve as an oversight body for risk management and control.
Cite this Governance Regulations Among Australia, South Africa, and United Kingdom
Governance Regulations Among Australia, South Africa, and United Kingdom. (2017, Feb 17). Retrieved from https://graduateway.com/governance-regulations-among-australia-south-africa-and-united-kingdom/