Australian Government, Financial Reporting Council

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Bulletin
2003/1 - 11 April 2003

The Financial Reporting Council (FRC) met on 7 April 2003. The Acting Chairman, Charles Macek, welcomed members and alternate members attending their first FRC meeting. A list of the current FRC membership is attached.

The meeting also acknowledged the excellent work of three members who had recently left the FRC, having served on the group since its inception: Mr Leigh Hall, AM, Mr Jeff Lucy, AM and Mr Robert Nottle, CBE. The meeting recorded its appreciation for the outstanding contribution Jeff Lucy made as FRC Chairman from July 2001 until February 2003.

Mr Nottle had served on both the Audit Committee and Nominations Committee of the FRC. It was agreed that the vacancy on the Audit Committee would be filled by David Jackson and on the Nominations Committee by Klaus Zimmermann.

This was probably the last FRC meeting to be attended by the Chairman of the Australian Accounting Standards Board (AASB), Keith Alfredson, who is due to retire as AASB Chairman in early May. The FRC recorded its gratitude to Mr Alfredson for performing a very difficult task with distinction and great professionalism.

The meeting considered the following main issues.

Question of opening FRC meetings to the public

The FRC discussed whether it should hold future meetings in public (except where sensitive issues such as appointments to the AASB are discussed). Discussion focused on the desirability of the FRC increasing its transparency and openness wherever possible, and the meeting arrangements most likely to produce effective policy discussion and decision-making. It was agreed to return to this issue at the next FRC meeting on 26 June to enable the views of a newly appointed FRC Chair - and further information about the practices of other public interest bodies, including counterpart agencies overseas - to be taken into account.

FRC/AASB strategy for adoption of international accounting standards

The meeting further discussed progress towards Australia's adoption from 2005 of standards issued by the International Accounting Standards Board (IASB). The FRC agreed to the further development of a strategy for monitoring and reporting to the Government on progress towards this goal by all parties concerned, and for additional market communication and awareness raising.

Funding of AASB and IASB operations

The Acting Chairman reported on the status of responses to the FRC's approach to the top 100 listed companies for voluntary contributions to the costs of accounting standard setting. As noted at the December meeting, the rate of contributions had been slower than expected. Follow-up with companies in the meantime had not resulted in significant additional contributions. It was confirmed that the Acting Chairman would now write to the Parliamentary Secretary to the Treasurer advising him of the likely outcome of the funding approach and a summary of the reasons given by companies that had declined to make voluntary contributions. The letter would seek the Government's advice in view of the need to secure the funding base for accounting standard setting and support a substantial financial contribution, through the FRC, to the IASB.

Roll-overs are being sought of the present three year funding commitments of the accounting bodies and the States and Territories (which expire on 30 June 2003) and the rental agreement (which expires in early 2004) between the Australian Stock Exchange and the AASB, through which the Exchange provides an in kind contribution to the accounting standard setting process.

Update of AASB Budget for 2002-03 and preliminary Business Plan and Budget for 2003-04

The AASB's Budget for 2002-03 is estimated to produce a smaller surplus than estimated in the Budget approved by the FRC at the start of the financial year. This is due mainly to the lower than expected level of voluntary financial contributions from the business sector and a provision for an anticipated deficiency in the AASB superannuation fund due to an expected negative earning rate for the year. This issue is discussed further below.

The FRC decided that a contribution to the IASB for 2002-03 would be determined at the end of the financial year in the light of the budget outcome which it was agreed should not result in a deficit. In view of the current funding position and the FRC's decision to give priority to domestic standard setting needs, this contribution will be less than the FRC would have liked. It is hoped that the amount of the contribution can be improved upon in 2003-04. To enable the IASB contribution for 2002-03 to be made (and to help meet AASB costs in 2002-03 related to 2005), the FRC will request a draw-down of the $1 million available from the Financial Industry Development Account administered by the Australian Stock Exchange.

The meeting had a preliminary discussion of the AASB's draft Business Plan and Budget for 2003-04. This included a discussion of the AASB's plans for IASB adoption by 2005 and the likely mechanism to be used by the Government for formally adopting international standards into Australian law. A revised AASB Business Plan and Budget for 2003-04 will be considered by the FRC at its next meeting in the light of progress on the funding side.

Report of FRC Audit Committee

The FRC Audit Committee met on 1 April 2003 to consider the accounting policy for contributions to the AASB Superannuation Plan in respect of members with guaranteed minimum balances. The current negative earning rate for the Plan has given rise to a deficient asset position (the difference between vested benefits of the relevant members and the net market value of fund assets attributable to those members). A provision for this deficient asset position was recognised in the AASB's accounts at 30 June 2002 and a further provision is in prospect at 30 June 2003. The FRC endorsed the Audit Committee's view that the treatment was appropriate. It also agreed that the Audit Committee should clarify governance responsibilities for the AASB Superannuation Plan and, if necessary, determine an appropriate governance framework.

On the recommendation of the Audit Committee, the FRC also approved, for signature by the AASB, the audit engagement letter for the 2002-03 AASB Financial Statement Audit.

Appointment to AASB

The meeting had a preliminary discussion of candidates for appointment to the remaining vacancy on the AASB (for someone from a business preparer background). Interviews of the candidates will be scheduled shortly, with the decision being made by the FRC out of session and announced as soon as possible.

It was also agreed that AASB members should receive sitting fees, at the rate applicable for Board meetings, where they participate in external working groups or Board committee meetings as official Board representatives.

Clarification of FRC broad strategic direction to the AASB on public sector financial reporting

The AASB has sought clarification of certain aspects of the broad strategic direction the FRC gave the AASB in December 2002 (discussed in Bulletin 2002/5 of 18 December). These were: the scope of the strategy (whether it impacts on all public sector entities - including government departments, local governments, universities and government business enterprises - and whether it applies to the whole of government or only to the general government sector); and whether the strategy implies adoption of GFS rules into accounting standards or whether `harmonisation' implies converging on the highest quality standards.

The FRC agreed to advise the AASB that:

  • it considers it appropriate for the scope issues to be dealt with by the AASB and its processes; and
  • in relation to the second issue, it had decided to modify the strategic direction by deleting the second paragraph of the direction which read:

    • "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."

    • It was felt that this deletion would help ensure that the strategic direction was seen to be fully consistent with the respective roles of the FRC and AASB as specified in the Australian Securities and Investments Commission Act 2001.

Mr Ian Mackintosh, Chairman of the International Federation of Accountants-Public Sector Committee (IFAC-PSC), addressed the meeting on the work being undertaken by IFAC-PSC and the International Monetary Fund on GFS/GAAP harmonisation. A meeting is scheduled for 12-13 May in Washington DC to take this work forward. Mr Mackintosh noted that harmonisation at the international level could be closer than many had envisaged.

International issues

The FRC noted a secretariat paper providing an update on international developments as well as hearing from Ian Mackintosh on international public sector standard setting issues.

CLERP 9 update

FRC members had a further discussion of 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.

Future FRC meeting dates

The FRC agreed to fix meeting dates for the remainder of 2003. Meetings will be held on:

    Thursday, 26 June (afternoon);
    Friday, 12 September (morning); and
    Friday, 5 December (morning).

In addition, the following dates will be reserved in case a further meeting is required to consider operational aspects of the FRC's proposed expanded role under CLERP 9:

    Wednesday, 8 October (afternoon); and
    Wednesday, 5 November (morning).

These dates will be posted on the FRC's website (address below).

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

or visit the FRC's website at www.frc.gov.au.

ATTACHMENT

Members of the Financial Reporting Council

Members:

  • Mr Charles Macek, Company Director - Acting Chairman (nominated as an FRC member by the Securities Institute of Australia);
  • Ms Elizabeth Alexander, AM, Retired Partner, PricewaterhouseCoopers; now Adviser to Blake Dawson Waldron - nominated by the Australian Institute of Company Directors;
  • Mr Don Challen, Secretary, Tasmanian Department of Treasury and Finance - nominated by Heads of State and Territory Treasuries;
  • Ms Karen Hamilton, Executive General Manager, Issuers & Market Integrity, Australian Stock Exchange - nominated by the Stock Exchange;
  • Mr David Jackson, Director, Australian Shareholders' Association - nominated by the ASA;
  • Mr John Langoulant, Under Treasurer, WA Department of Treasury and Finance;
  • Mr Graeme McGregor, AO, Company Director - nominated by CPA Australia;
  • Mr Jim Murphy, Executive Director, Markets Group, Department of the Treasury - nominated by the Commonwealth;
  • Mr Tom Pockett, Chief Financial Officer, Woolworths Limited - nominated by the Business Council of Australia;
  • Mr Greg Pound, Chief Accountant, Australian Securities and Investments Commission - nominated by ASIC;
  • Mr Phillip Prior, First Assistant Secretary, Budget Group, Department of Finance and Administration - nominated by the Commonwealth;
  • Mr Ken Spencer, Company Director and Member, Board of Trustees, International Accounting Standards Committee Foundation;
  • Mr Lewis Ting, Retired Ernst & Young Partner, Company Director - nominated by The Institute of Chartered Accountants in Australia;
  • Ms Catherine Walter, AM, Company Director and Solicitor; Chair of the Business Regulation Advisory Group;
  • Mr Klaus Zimmermann, Chief Executive Officer, Eldercare Incorporated and National President, National Institute of Accountants - nominated by the NIA.

Alternate members:

  • Mr Roger Cotton, Chief Executive Officer, National Institute of Accountants; alternate member to Mr Klaus Zimmerman - nominated by the NIA;
  • Mr Stephen Harrison, AO, Chief Executive Officer, The Institute of Chartered Accountants in Australia; alternate member to Mr Lewis Ting - nominated by ICAA;
  • Mr Jim Kerwin, First Assistant Secretary, Commonwealth Financial Reporting Unit, Department of Finance and Administration; alternate member to Mr Phillip Prior - nominated by the Commonwealth;
  • Mr Greg Larsen, Chief Executive Officer, CPA Australia; alternate member to Mr Graeme McGregor, AO - nominated by CPA Australia;
  • Mr Michael Rawstron, General Manager, Corporate Governance Division, Department of the Treasury; alternate member to Mr Jim Murphy - nominated by the Commonwealth.

Miscellaneous