Bulletin
2002/5 - 18 December 2002
The Financial Reporting Council (FRC) met on 12 December 2002, its sixteenth meeting since it first convened in October 1999. It made two key decisions - the first determining a broad strategic direction for public sector accounting standard setting in Australia and the second making four appointments to the Australian Accounting Standards Board (AASB). The appointments are the subject of a separate announcement.
Broad strategic direction for public sector accounting standard setting
One of the FRC's key functions under the Australian Securities and Investments Commission Act 2001 is to determine the broad strategic direction of the AASB. At its meeting on 12 December, the FRC agreed to include the following in its broad strategic direction to the AASB for 2002-03:
"The Board should pursue as an urgent priority the harmonisation of Government Finance Statistics (GFS) and Generally Accepted Accounting Principles (GAAP) reporting. The objective should be to achieve an Australian accounting standard for a single set of Government reports which are auditable, comparable between jurisdictions, and in which the outcome statements are directly comparable with the relevant budget statements.
The strategic direction agreed by the FRC involves including within Australian GAAP applicable to the public sector, the key features of the GFS framework. This will enable comparability across the public sector within Australia, without sacrificing the high level of international comparability which currently exists through GFS reporting."
Australia has been well served by the body of public sector accounting standards developed over time by the AASB and its predecessor Boards. With Australia at the cutting edge of government financial reporting world-wide, the use of accrual accounting has led to two sets of financial statements appearing in the budget and outcome documents of the Commonwealth, States and Territories - one based on the GFS framework and the other based on Australian GAAP. The differences between them have caused confusion among users of government financial statements.
Accordingly, following submissions made by governments in Australia and other stakeholders with an interest in public sector financial reporting, the FRC has agreed that the AASB should work to harmonise the two existing frameworks to achieve an Australian accounting standard for a single set of government reports. These reports will be comparable between jurisdictions and outcome statements will be directly comparable with the relevant budget statements.
The result will be an improvement in the clarity and transparency of government financial statements.
GFS is the financial reporting framework developed and promulgated by the International Monetary Fund (IMF) as the basis for the production and presentation of government finances with the objective of achieving greater accountability and transparency. The GFS concepts and principles are harmonised with the IMF's System of National Accounts (1993).
The AASB will now draw on the best of GFS principles and existing Australian GAAP - including detailed recognition and measurement rules which are not part of the GFS framework - to develop a new, single reporting framework for government. In doing so, it will issue exposure drafts and consult with constituents in accordance with its normal due process. Subject to consideration by the AASB, the expectation is that the accounts of government entities not within the general government sector will continue to be prepared on an Australian GAAP basis (and, from 2005, in accordance with standards issued by the International Accounting Standards Board (IASB)).
The FRC recognises that the new framework will not have an immediate international counterpart either in GFS itself or the standards being developed by the International Federation of Accountants-Public Sector Committee (IFAC-PSC). However, while there has been a degree of broad convergence between the private sector standards issued by the IASB, IFAC-PSC standards and GFS, the international convergence of public sector accounting standards is still some way off. The eventual harmonisation target has yet to fully emerge, with IFAC-PSC and the IMF currently considering the scope for greater harmonisation of their respective standards.
The accounting standards to be developed by the AASB within the strategic framework set by the FRC are expected to contribute to leadership thinking at the international level on the harmonisation and eventual convergence of accounting standards for the public sector, to which Australia remains committed.
The full strategic direction provided to the AASB for 2002-03 is attached.
Other issues
Also discussed at the FRC meeting were preparations for the adoption of IASB standards for Corporations Act reporting entities for accounting periods beginning on or after 1 January 2005. Ms Jan McCahey, a Partner with PricewaterhouseCoopers, addressed the meeting on implications and issues arising from the 2005 decision from the perspective of one of the Big 4 accounting firms.
The meeting also discussed the status of responses by the top 100 listed companies to the FRC's approach seeking voluntary financial contributions to the accounting standard setting process.
FRC members also discussed the Government's proposals for an expansion of the activities of the FRC as set out in the CLERP 9 policy paper Corporate disclosure: Strengthening the financial reporting framework.
The FRC is the peak body responsible for the broad oversight of the accounting standard setting process for the private and public sectors. It comprises key stakeholders from the business and investing communities, the professional accounting bodies, governments and regulatory agencies.
- Key functions of the FRC are to advise the Government on the accounting standard setting process and the development of international accounting standards, and to determine the broad strategic direction of the standard setter, the Australian Accounting Standards Board.
For further information, please contact the secretariat of the Financial Reporting Council, c/- The Treasury, Langton Crescent, Parkes ACT 2600.
Mr Michael Kooymans
Ph: (02) 6263 3984
Fax: (02) 6263 2770
E-mail: mkooymans@frc.gov.au
ATTACHMENT
Broad Strategic Direction Provided by the Financial Reporting Council to the Australian Accounting Standards Board for 2002-03
In accordance with paragraph 225(2)(d) of the Australian Securities and Investments Commission Act 2001, the FRC sets the following broad strategic direction for the AASB for 2002-03:
- The Board's strategy and activities should be consistent with the objectives of accounting standard setting set out in section 224 of the Act, in relation to the characteristics of the financial information to be required by accounting standards, facilitation of the Australian economy and maintenance of investor confidence.
- The AASB should strike an appropriate balance in allocating resources to
the development of accounting standards for the private, public and not-for-profit
sectors.
- The AASB should advise the FRC promptly of any resource constraints on the Board's ability to fulfil its responsibilities.
- The AASB should follow its stated objective of pursuing, through participation
in the activities of the IASB, the development of an internationally accepted
single set of accounting standards. In working towards this objective, the
AASB should:
- work towards the adoption in Australia of accounting standards that are the same as those issued by the IASB - and interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) - to ensure their applicability to Corporations Act entities for accounting periods beginning on or after 1 January 2005;
- continue to work closely with the IASB and align its work program with that of the IASB;
- continue its present harmonisation program, working towards the adoption of accounting standards in Australia that harmonise with standards issued by the IASB, unless such standards are considered not to be in the best interests of the Australian public and private sectors;
- promptly issue IASB exposure drafts in Australia for comment by constituents, and limit the need for subsequent issue of an AASB exposure draft to cases justified by the newness and complexity of a standard;
- continue to remove non-conformities between existing Australian and IASB standards on a planned basis;
- address, on a transparent basis, any transitional issues falling within the Board's mandate that may arise for Australian reporting entities, having regard to the cost of capital objective of the Act;
- ensure, as far as possible, that the work of the Urgent Issues Group has close regard to IFRIC pronouncements;
- in consultation with the FRC, communicate to constituents an overall strategy for adoption of IASB standards from 1 January 2005 to facilitate constituents' knowledge of and preparedness for the change.
- With regard to public sector reporting, the Board should pursue as an urgent
priority the harmonisation of Government Finance Statistics (GFS) and Generally
Accepted Accounting Principles (GAAP) reporting. The objective should be to
achieve an Australian accounting standard for a single set of Government reports
which are auditable, comparable between jurisdictions, and in which the outcome
statements are directly comparable with the relevant budget statements.
- The strategic direction agreed by the FRC involves including within Australian GAAP applicable to the public sector, the key features of the GFS framework. This will enable comparability across the public sector within Australia, without sacrificing the high level of international comparability which currently exists through GFS reporting.