ASX eases audit committee rules

Two hundred of Australia's Top 500 listed companies have had their audit committee requirements made easier.

Under the current Corporate Governance Council (CGC) regime, companies in the ASX Top 500 must have audit committees that comply with the CGC guidelines on composition, operation and responsibility.

ASX has just announced that the rules are about to change (probably effective from late April).

• the Top 500 companies will still be required to have an audit committee;
• however, only the top 300 companies in that group will be required to comply with the CGC recommendations as regards composition, operation and responsibility.

The remaining 200 will still have to have an audit committee, but the rules for operation and composition of that committee will not have to follow the CGC requirements.

Effectively, those companies have been handed a discretion on whether to follow the CGC guidelines. If they choose not to, their annual Corporate Governance Report will need to provide an explanation of why they adopted that course (under ASX's "if not, why not" rule).

Membership requirements

The major impact of this change will, of course, be in the area of audit committee membership.

The current membership requirements for Top 500 audit committees are:

• until 1 July 2005, the committee must have a majority of non-executive directors, one of whom is independent;
• from 1 July 2005, the audit committee must
  • consist only of non-executive directors;
  • have a majority of independent directors;
  • have an independent chairperson, who is not the chairperson of the board; and
  • consist of at least three members.

The Listing Rules state that all Top 500 companies were required to have complying audit committees during the current year. Removing that requirement for 200 of those companies may reflect the fact that some may have had difficulty complying with that requirement.

In any event, those 200 companies will now be relieved of the even more onerous burden of finding enough independent non-executive directors to meet the post 1 July 2005 requirements.

Looking ahead, it will be interesting to see if there are any other revisions to the CGC guidelines in the pipeline.