Nick Sherry, acting shadow minister for corporate governance, said last month that both the market and the community expect more from the exchange. “The [guidelines] now form an important part of the disclosure regime for companies and improving the quality of disclosure is an essential next step for their successful implementation,” Sherry said last month.

“The ASX could play a more active role in monitoring application of the guidelines and providing guidance to companies on the quality of their reporting.”

The ASX rules do not mandate compliance with the guidelines. Rather, they operate on an ‘if not why not’ principle. If a listed firm chooses not to comply with the guidelines, it must make disclosures explaining why. The share market is then left to pass judgment.

Observers said the acting shadow minister’s comments were misguided. “The whole ethos of the ASX guidelines is that they are intended to help investors,” said one senior compliance figure. “Suggesting that the ASX should be actively helping companies comply or assuming a policeman role goes against the whole ideology.”

Various reports have indicated that while progress is being made by listed companies on disclosures, it is still very much a work in progress. KPMG reported recently that most listed Australian companies have not used the advent of the ASX’s corporate governance guidelines to increase disclosure on risk management issues.

The accounting firm studied the annual reports of the top 130 ASX-listed companies and found many firms chose to provide only “limited, generic” information regarding their compliance with the requirements of principle 7 (recognise and manage risk), particularly recommendation 7.2, the CEO and CFO sign-off to the board on financial statements and risk management.

However, experts said responsibility for increasing disclosures rests firmly with listed companies themselves.

“By choosing to access public capital, companies take on an obligation to consider governance issues seriously and to make proper disclosure to the market,” said Dr Ian Pollard, a member of the ASX’s implementation review group for the principles. “That is not an onerous expectation given the fundamental nature of the issue.”

When the guidelines were originally released in late 2003, there were concerns that the principles did not provide sufficient guidelines on principle 7 — recognise and manage risk. However, those concerns were allayed by the release of the Group of 100’s (a body representing chief financial officers of the top 100 ASX-listed firms) guidance on the principles, developed with Deloitte. The G100 guide is now the accepted handbook on the ASX rules.

Meanwhile, the Australian Securities and Investments Commission (ASIC) has praised the guidelines in its annual assessment of the ASX. ASIC said the guidelines will have a positive impact on disclosure practices and the behaviour of market participants.

ASIC added that the ASX has also shored up its compliance and risk practices. The exchange has established an internal compliance function, while risk management and internal audit functions have been expanded. Additionally, reporting lines for the newly created independent group compliance function have direct reports through to the CEO and board audit and risk committee, which has also been expanded.

The exchange has also promised to beef up resourcing for the new group compliance function.

Stuart Fagg is the Editor of Risk Management magazine,Lawyers Weekly’s sister publication.