Disclosure Compliance – Please Get The Numbers Right!

Maintaining Australia’s only online database of director and executive pay disclosures is an interesting exercise. We not only get to wonder at the big picture trends of how quickly remuneration is changing in this country, but we also have cause to wonder at the aberrations of minutiae that, we hope, we catch before sending others less familiar with disclosure requirements down the wrong path!

In future newsletters we will get to grips with things directors should be watchful of in reviewing drafts of their remuneration report and AASB 124 disclosures. But for now, we ask auditors and boards to make sure the numbers are in the right place and add up. Some examples:

  • Almost 5% of ASX 300 companies had typos in their remuneration disclosure tables. Most of the time this is a figure in the wrong column. Depending on the number and column, some serious mistakes can be made, and picking up the mistake is often not that easy. Interestingly, despite the frequency of these errors, we know of only one company that has resubmitted their disclosures correcting the error. The “she’ll be right” approach should be consigned to another era. And it does not compare well with more rigorously policed regimes, such as the USA.
  • Salary sacrifice equity is… how can we put this… equity! It is not (under the now discarded AASB 1046) a primary benefit. It is not, under the now operational AASB 124, a short term benefit. Being equity, it goes, believe it or not, in the “share-based payment” column! Over 10% of companies get this wrong. While these accounting standards may not be written to provide an understanding of remuneration in ways that are more in keeping with the traditional way we view pay in Australia, they nevertheless are still standards that require some consistency in application. And some things, like equity, are indisputable. There is plenty of scope to explain why the CEO took home only $2.32 in cash in tabular footnotes, or, even better, in the remuneration report. But please insist that your company adheres strictly to disclosure requirements when it comes to putting the right figures in the right boxes.
  • Annual leave is accrued during the service period of the year in which the executive is paid, and is effectively encompassed by the annual salary the executive is paid that year and disclosed in the remuneration table as regular annual cash received. It should not be reported as a separate amount in a separate column. It also need not be reported in following years if he/she did not take annual leave. One of the few reasons to disclose a leave accrual dollar amount would be if there was a significant increase in annual pay that applied to banked leave accruals. Some companies seem to be leave accrual happy, disclosing banked leave accruals for everybody every year. Many others, say on promoting the CFO to CEO and slapping another $500k onto his/her base pay, seem to forget. Australian companies and their auditors could do better.

We could go on, and on…. the minutiae gets to us after awhile. But in sharing these few examples we trust that boards put in place the financial controls that ensure disclosures are prepared correctly, and that we do not have to correct as much as we do before it gets into our database. But we do worry. If so many can get such a widely read part of annual disclosures wrong, what does that say about the rest of a company’s financial reporting?

© Guerdon Associates 2021
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