Called to account on accounts

In a survey launched late last week by a taskforce set up by the government's Financial Reporting Council, auditors and other financial professionals will also be asked to appraise the financial literacy of Australia's corporate boards.

It follows the sharp focus on financial literacy among Australian company directors sparked by the Centro Federal Court verdict, handed down last June, in which Justice John Middleton found that eight directors of collapsed property group Centro had breached their duty by approving accounts that failed to disclose billions of dollars in short-term debt.

Justice Middleton ruled that directors had a responsibility to "read, understand and focus upon" financial reports before signing off on them a task he said required "diligence" and financial literacy and should not rely on advisers to detect errors.

Kevin Lewis, chief compliance officer of the Australian Securities Exchange and chair of the taskforce in charge of the survey, told BusinessDay that there was an "absence of any empirical evidence about financial literacy of directors in Australia".

Mr Lewis said that although the FRC's taskforce was set up shortly before the Centro judgment, the Centro decision had given it "a degree of currency".

The Australian Securities and Investments Commission, which brought the case against the Centro directors, has warned directors to ensure their skills are adequate in the wake of the Centro verdict. "You are expected to have financial literacy and basic accounting knowledge," ASIC chairman Greg Medcraft told company directors in a speech late last year. "If not, retrain."

The survey's stated aim is to "gain an insight" into the financial literacy of Australian company directors and to understand "how any perceived gaps in their understanding of financial issues might be addressed".

It will look at directors of ASX200 companies, other listed entities, superannuation funds and not-for-profits, and it will include questions about their qualifications, training, ability to understand accounting concepts and "the personal responsibility of all directors to review financial statements".