A Forensic Analysis of Failed Continuous Disclosure in Action

Abstract

The ASX Listing rules and various provisions of the Corporations Act require that listed corporations keep capital markets informed (subject to carve out provisions) of any information that a reasonable person would expect to have a material impact on the price or value of its securities. An effective continuous disclosure regime represents a key element of a framework for facilitating informed markets. As such, evidence on the extent to which the continuous disclosure regime is functioning is of significance to the regulatory and investment communities alike. This paper questions whether the Australian continuous disclosure regime is working and being enforced at an appropriate level, by forensically reviewing the affairs of listed wine producer Evans & Tate limited during that firm's ill fated 2005 financial year. It is argued that while the firm did indeed continuously disclose financial and non financial information as required, much of the content of that disclosure was misleading. Despite this, no regulatory action has been taken against the firm or its directors. It is therefore concluded that there may be serious deficiencies in the operation of Australia's continuous disclosure framework, particularly in relation to the nature of regulatory responses to apparent breaches of the system.

Keywords: Corporate Governance, Continuous Disclosure, Informed Markets, Financial Statement Analysis, Regulation