Majority of ASX300 failing on reporting integrity

Deakin University’s Integrated Reporting Centre tracked and analysed the responses of ASX 300 companies to guidelines launched by the ASX in 2021 to urge companies to disclose how they verify unaudited reports such as cash flow reports, financial statements, directors’ reports, sustainability reports and modern slavery statements.

The research found that, while 84% of ASX 300 companies disclosed at least one integrity mechanism in 2023, a significant minority have continued to provide inadequate transparency; with 10% making no disclosure at all and 4% offering only generic, boilerplate information.

Among those making disclosures in 2023, there were significant disparities in the quality of information between companies: more than half (62%) did not disclose the specific reports or disclosures subject to verification, up to one third (36%) did not have board oversight of unaudited disclosures, and few disclosed review by external auditors (9%) or internal auditors (3%).

Unsurprisingly, larger companies had more robust internal control mechanisms than smaller companies, who tended to rely solely on senior executives to review reports.

There were stark differences found between industries; with consumer staples, healthcare, and communication services sectors producing the highest levels of disclosure, while energy and utilities fell behind.

Director of the Deakin University Integrated Reporting Centre (DIRC), Professor Peter Carey, said the findings were concerning.

‘Over many years, we’ve seen some high-profile cases where large, listed companies have fallen short of community standards and expectations in terms of transparency,’ Professor Carey said.

‘These findings suggest the ASX should strengthen its surveillance and oversight of companies’ compliance with ASX corporate governance principles.

‘While we’ve seen positive steps forward, there is considerable room for improvement in ensuring stakeholders can trust in the integrity of unaudited company disclosures.

‘Investors deserve clear, specific information on how unaudited reports are verified.

‘Companies should specify the reports subject to review and the board should always acknowledge responsibility for the integrity of unaudited disclosures.’

Professor Carey emphasised the importance of trust in corporate reporting.

‘When companies provide detailed, entity-specific disclosures that explain the controls used, it shows they are taking their responsibilities seriously and means that investors can rely on that information.’

Professor Carey welcomed a proposal to address the low rates of external assurance in the new edition of the ASX Corporate Governance Council Principles and Recommendations, due to be released in early 2025.

‘This amendment will enable much more effective oversight, to enhance transparency in areas that are vital for informed investment decisions,’ he said.

Other key findings from the research:

• 52% of companies employed both internal controls and board oversight in 2023, showing a trend toward using multiple (rather than single) verification approaches.
• Larger companies are leading with stronger integrity enhancing mechanisms, including verification against source documents, and reviews by boards of directors, subject matter experts, internal or external auditors, or external consultants.
• Smaller companies had greater reliance on review by senior executives, with 59% of ASX 101-300 companies relying solely on senior executives to review reports.

Key recommendations:

ASX 300 companies should:

• Clearly identify each unaudited report subject to verification
• Formally acknowledge the board’s role in verification processes and their responsibility for ensuring the integrity of disclosures.
• Encourage the use of internal/external auditors in verification.

For more information or to access the full report, visit https://www.deakin.edu.au/faculty-of-business-and-law/research/deakin-integrated-reporting-centre