Home > Bulletins > Archive > Bulletin of the FRC 2003/2 26 June 2003

Bulletin
2003/2 - 26 June 2003

The Financial Reporting Council (FRC) met on 26 June 2003. The Chairman, Charles Macek, welcomed members attending their first FRC meeting. A list of the current FRC membership is attached.

The meeting considered the following main issues.

Question of opening FRC meetings to the public

The FRC considered a Secretariat paper on whether future FRC meetings should be open to allow the public to attend as observers (except where sensitive issues such as appointments to the AASB are discussed). Discussion focused on the benefits and disadvantages of holding the meetings in public. While the FRC expressed its strong commitment to increasing transparency, it also noted the possible costs in terms of hindering policy debate. It was decided that the Council could better consider the costs and benefits of opening meetings to the public and the mechanics of doing so once the full scope of the FRC's expanded role under CLERP 9 is known. This decision not to open the FRC meetings to the public would be reviewed at that time. In the interim, the Council agreed to take additional steps - such as providing detailed bulletins on the FRC website - to increase transparency.

FRC/AASB strategy for adoption of international accounting standards

The FRC received a Secretariat paper on an FRC/AASB strategy for the 2005 adoption of IASB standards. The FRC approved the following recommendations:

• Comments on the draft strategy to be provided, by members, to the Secretariat by Friday, 18 July. Approval of the document would then to be sought by circular resolution.
• Where relevant, FRC members would seek comments on the draft from their nominating stakeholder bodies, inviting any additional information they would like to see included.

CLERP 9 Taskforce

The Chairman advised that a taskforce would be established to examine the implications for the FRC of the CLERP 9 legislation. The aim of the Taskforce would be to help the FRC formulate its views on the best approach for implementing its increased responsibilities. The review process will include consultation with relevant stakeholders. Advice, based on this review, would be provided to the Government.

The Chair advised that the following six FRC members had accepted his invitation to join him on the Taskforce: Ms Elizabeth Alexander; Ms Karen Hamilton; Mr Graeme McGregor; Mr Gregory Pound; Mr Ken Spencer and Mr Lewis Ting.

Funding of AASB operations

The FRC considered a Secretariat paper on the actions taken to secure the funding base for the accounting standards setting process. Members noted the following funding developments:

• The ASX has advised that it did not anticipate being able to provide accommodation to the AASB beyond February 2004. However, in that event it would make a direct contribution in lieu of providing rent-free accommodation.
• In response to the Chair's request to the accounting bodies for them to roll-over their three-year funding commitment, advice had been received that they were not prepared, at this time, to make a three-year funding commitment. Instead, the professional bodies would extend the existing funding arrangements for a further six months. The accounting bodies indicated that they would reassess their contributions, beyond December 2003, when the CLERP 9 process had become clearer.

The Chairman was authorised by the Council to write to the Treasurer and the Parliamentary Secretary to the Treasurer. In his letter he would advise that the FRC had been put on notice by the professional bodies and that there was no resolution to the funding shortfall caused by the lower than expected level of voluntary financial contributions from the business sector. His letter would emphasise the need to resolve the funding shortfall and would canvass some funding options.

It was decided that the Secretariat would develop a proposal regarding funding to be presented at the next FRC meeting.

Funding of IASB operations

The Council discussed Australia's funding commitment to IASB and the importance of demonstrated support for international harmonisation. The Council also noted its priority of ensuring that the AASB had the financial capacity to fulfil its standard setting role. A contribution of $700,000 to the IASB was discussed as an appropriate payment subject to the Council being satisfied that this would not result in a budget deficit for 2002-03. It was also agreed that this figure of 700,000 could be reviewed later in the year with a view to perhaps increasing the size of the contribution.

However, in view of the uncertainty surrounding the final deficiency in the AASB superannuation fund, it was agreed that the payment be delayed. Subsequent to the meeting, the Council agreed by circular resolution to make a contribution of $700,000 to the IASB in keeping with the funding commitment previously given and to ensure that the year-end accounts presented a true and fair view of the FRC's financial position. This was on the basis that the Council was satisfied that the superannuation adjustment was unlikely to be materially different from previous estimates and would not jeopardise the budget. The circular resolution was carried and the Chair authorised the transfer of $700,000 to the IASB.

AASB membership

The Chair advised that the Nominations Committee had recommended the appointment of Mr Garth Campbell-Cowan to the board. The Council approved the appointment of Mr Campbell-Cowan as a part-time member of the board for a three-year period. The Chair advised that the selection process had identified a further two suitable candidates that had been placed on the reserve list.

The Acting Chair of the AASB, Ms Ruth Picker, advised that consideration should be given to increasing the size of the Board given the heavy workload it faced ahead of the 2005 deadline to comply with international accounting standards.

It was agreed that the Secretariat would provide a paper on the issue - of increasing the size of the Board - to the Nominations Committee for their consideration and subsequent deliberation by the Council.

Copyright of IASB material

The Acting Chair indicated that the copyright issue continued to be a difficult issue. Presently, the Board is exploring ways - such as the release of International Accounting Standards as exposure drafts - to "educate" firms about the new IASs and as a way of overcoming copyright and other legal concerns. The Board will continue to negotiate with the IASB and will seek to clarify as soon as possible the legal issues surrounding the AASB's use of International Accounting Standards.

It agreed that the copyright issue would be raised, by the Acting Chair of the AASB with Sir David Tweedie when he visits Australia in early August 2003.

AASB 2003-04 Business Plan

The FRC approved the AASB's proposed 2003-04 business plan and agreed that they would consider a revised budget in September 2003 when more information was known about funding proposals.

It was agreed that the longer term role of the AASB and the UIG (particularly post the adoption of international accounting standards in 2005) would be discussed at the next FRC meeting.

Report of FRC Audit Committee

The FRC noted the minutes of the 11 June 2003 Audit Committee and attached papers as well as the information paper provided by Ruth Picker.

Timetable and responsibilities for preparation of the 2002-03 financial report of the AASB

Members noted the agreed timeframe and break down of responsibilities for the FRC/AASB 2002-03 Annual Report.

The Chairman of the FRC Audit Committee, Ms Elizabeth Alexander, AM, agreed to facilitate discussions between ANAO, the FRC, Treasury and AASB about the preparation and format of the 2002-03 ASSB financial annual report.

International Issues and Presentations

The FRC noted a Secretariat paper providing an update on international developments as well as hearing about international accounting standard setting developments from Mr Charles Macek (Chairman, FRC), Mr Peter Day (IASB Standards Advisory Council), and Mr Geoff Connor (New Zealand Ministry of Economic Development).

Presentation by FRC Chairman - Mr Charles Macek

The Chairman provided an overview of his recent trip, accompanied by Mr Mike Rawstron (Treasury), to the United States and the United Kingdom. He relayed the key findings arising from his discussions which included key officials at the US Securities Exchange Commission (SEC); Ian Ball (Chief Executive of IFAC); Paul Volcker (Chairman of the Trustees, IASC Foundation); Sir Bryan Nicholson (Chairman of the UK Financial Reporting Council); and Sir David Tweedie (Chairman of the International Accounting Standards Board).

Key points to arise from these discussions were:

• High-quality standards were only as good as the infrastructure that underpinned them. In assessing a country's standards, the SEC would be looking at issues such as funding, resources and enforcement.
  • This emphasises the importance of ensuring that Australia has a strong supporting framework in addition to high quality standards.
• Most assessed that while collaboration between US and EU authorities would lead to increased consistency and convergence, a gap would remain. There would be no universal accounting standards by 2005.
• Corporate failures in the Unites Sates has resulted in a lessening of confidence in its rules-based approach
  • This increased the level of collaboration between FASB and IASB
    • A convergence of accounting standards would be a likely outcome. However, in circumstances of litigation, a rules-based approach provided entities with greater defence. This would limit the scope for the US to move to a more principles based approach.
• The bulk of international standards should be finalised by October 2003. The international standards should be ready by March 2004.

Presentation by Mr Peter Day (IASB Standards Advisory Council)

Mr Day's presentation included an update on the current agenda of the Standards Advisory Council (SAC) and the level of interaction of Australian accounting standard bodies with their international counterparts.

The Acting Chair of the AASB invited Mr Day to address the AASB on the work of IASB SAC.

It was agreed that the Secretariat produce a paper on the links between Australian accounting standards bodies and their international counterparts and possible strategies for strengthening those links, with a view to enhancing the influence of the AASB. The paper will be considered at the next FRC meeting.

Presentation by Geoff Connor (NZ Ministry of Economic Development)

Mr Connor briefed the Council on a meeting between the Treasurer and NZ Finance Minister Cullen and a subsequent meeting between Senator Campbell and the NZ Commerce Minister (the Hon. Lianne Dalziel). Agreement was reached in these meetings to support efforts to strengthen cooperation between Australia and New Zealand in relation to the oversight and setting of accounting and auditing standards.

Mr Connor presented two papers, developed through the meetings between representatives from the Treasury and the New Zealand Ministry of Economic Development, for the FRC to consider. One of the papers included possible short-term, medium-term and long-term options to increase cooperation between the two countries.

It was agreed that FRC members would provide written comments on the options contained in the paper "Options for Further Cooperation Between Australia and New Zealand in Relation to the Oversight and Setting of Accounting and Auditing Standards" through the Secretariat by 18 July 2003.

The Secretariat will prepare a paper to advise the Government on the view of the FRC on possible options for strengthening cooperation between Australia and New Zealand. The Secretariat will also update members on any progress on this issue.

Visit by Sir David Tweedie

The Chair advised the FRC that Sir David Tweedie would be visiting Australia in early August and that the Secretariat would be seeking to ensure a meeting between Sir Tweedie and the FRC members.

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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.

Ms Karen Gilmour
Ph: (02) 6263 3144
Fax: (02) 6263 2770
E-mail: kgilmour@frc.gov.au

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

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ATTACHMENT

Members of the Financial Reporting Council

Members:

• Mr Charles Macek, Company Director - Chairman (appointed as Chairman by the Treasurer and 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 Brian Scullin, Special Adviser to Head of Deutsche Asset Management, Asia-Pacific - nominated by Investment & Financial Services Association (IFSA)
• 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.
• Ms Jenifer Wells, Senior Policy Manager, Investment & Financial Services Association (IFSA) - nominated by IFSA.