Bulletin
2003/3 - 12 September 2003
The Financial Reporting Council (FRC) met on 12 September 2003. A list of the current FRC membership is attached.
The meeting considered the following main issues.
Introduction by FRC Chairman
The FRC agreed to include a new standing agenda item on stakeholder issues. A number of FRC members provided information on the major issues of current concern to their stakeholder groups.
The Chair noted the report prepared by the Secretariat on Sir David Tweedie's visit to Australia and its recommendation for the FRC to consider any follow-up action in relation to his visit. The Chairman mentioned that Sir David was very complimentary of Australia's role in the standard setting process and provided encouragement for continuing involvement in the work of the IASB.
FRC/AASB draft annual report for 2002-03
The FRC/AASB draft annual report for 2002-03 was approved, subject to the introduction of minor drafting amendments.
AASB/FRC strategy for influencing the international accounting standard setting process
The meeting discussed the need for Australia to keep abreast of developments and to communicate more effectively with Australians who are members of relevant international organisations.
A number of suggestions to influence the IASB were made, including working with other countries, such as New Zealand, as agreed by Ministers in a joint statement on 28 August 2003. Members also noted the need to identify potential risks, such as Australia losing influence to other regional countries with more resources.
The FRC agreed that the key to Australia maintaining its influence was through the high-quality of its intellectual contribution. There was a need also for Australia to show its tangible support, with funding to IASB needing to move to a firm footing rather than being a more variable item in the AASB budget.
FRC/AASB strategy for adoption of International Accounting Standards
The Chair noted that there was a role for the FRC in raising early awareness on the adoption of international accounting standards by Australia and invited comments from FRC members on the draft information paper prepared by the Secretariat for publication on the FRC website.
A number of related comments were provided, including on the need to raise awareness of the impact of international accounting standards among board directors and middle sized companies, not just among finance officers and large companies. It was also noted that the Australian Stock Exchange and the AASB are running seminars in the lead up to the 2005 adoption target date and that the Australian Institute of Company Directors is raising awareness through their journal. It was proposed that stakeholders provide the Secretariat with a list of all their related educational activities, as this could assist the knowledge base to inform the Government.
FRC's role in providing advice to Government on the policy implications of adoption of IAS
The FRC considered a Secretariat paper on the FRC's role in providing advice to Government on the policy implications of adopting the IAS and its expected impact on Australian companies.
Copyright in international accounting standards - update
The FRC noted the paper prepared by the Secretariat, which provided an update on developments of issues surrounding copyright in international standards since the FRC meeting in June 2003.
Treasury informed of its participation with the AASB at a recent meeting with representatives of the IASB and IASC foundation. At that meeting it was agreed that (1) the AASB could release the bare standards free of charge in their website, subject to a waiver agreement; and (2) the basis for conclusions and the implementation guidelines would be available at a cost and with royalty payments.
This issue is still at the stage of work in progress and the FRC Secretariat and the AASB will continue negotiations and keep informed the FRC.
First CLERP 9 Taskforce meeting and CLERP 9 update
The Chair reported on the first meeting of the taskforce. Three issues were identified by the taskforce for further discussion: (a) making operational CLERP 9; (b) the force of law for auditing standards; and (c) the structure of the FRC.
- The Chair made two observations. Firstly, that the majority of stakeholders opposed auditing standards having the force of law. Secondly, as the Government had already taken this decision, it would be more productive for the FRC to focus on how to implement it. The two principal issues of concern raised by stakeholders are prescription and international harmonisation.
- With respect to operational matters, there was a need for the FRC to clearly define its functions and responsibility with respect to the monitoring and oversight of auditing standards, ensuring proper accountability and avoiding duplication of functions with other bodies.
- The taskforce had also questioned whether in the light of the increased responsibility and changed role of the FRC, consideration should be given to restructuring the FRC.
The meeting agreed that the taskforce would meet in the week starting on 13 October to undertake a review of the CLERP 9 draft legislation - expected to be released in early October, and will report to the next FRC meeting on 5 November. At that meeting, the FRC would formulate its views and provide its comments to the Government.
The FRC is seeking feedback from stakeholders on the matters being considered by the taskforce. This feedback should include detailed information on relevant operational issues from stakeholders, such as on their audit quality assurance plans and programs in place and on their established processes for assessment of auditor independence. The requested feedback is to be provided to the FRC Secretariat in the lead-up to the next task force meeting, so that the Secretariat could prepare a condensed information paper for that meeting.
Funding of AASB and IASB operations - update
The Chairman referred to the need to find a robust funding mechanism, possibly through an automatic levy, to address the shortfall in contributions from business to fund the work of the accounting standard setting. He mentioned that a number of options are being considered, all being work in progress, and that the Government had just announced a $2 million injection of funds into the FRC as an interim measure to ensure adequate funding in 2003-04 and to contribute to the establishment of the Audit and Assurance Standard Board in 2004-05. This additional funding should be seen as a strong demonstration of the Government's commitment to ensure that the FRC is appropriately funded.
The representative from the States and Territories reaffirmed their commitment to continue to provide funding for the FRC under the agreed tripartite funding arrangement. The representatives from the accounting bodies also reaffirmed their commitment to continue to provide funding for the FRC under the agreed tripartite funding arrangement. Clarification on the impact of the expanded FRC functions under CLERP 9 legislation would be needed to allow an assessment of the magnitude of the appropriate level of financial support.
Report by the Acting Chairman of the AASB
The AASB Technical Director, Mr Angus Thompson, referred to two recent papers that had been posted in the AASB website, related to strategic directions given by the FRC to the AASB: a paper dealing with the AASB plans for adopting IASB standards by 2005 and another one dealing with issues associated with the convergence of GFS and GAAP. He summarised the main projects that AABS was currently working on in the lead up to the 2005 target and noted three main projects that would continue beyond 2005, with potential to assist work by the IASB. These were in the areas of extractive industries, intangibles and joint ventures. He estimated that at least 20 per cent of the AASB time will be dedicated to GFS issues over the next two months. In responding to a question from the Chair, Mr Thomson noted that the AASB was not having problems in recruiting and retaining staff of high calibre.
The meeting discussed the AASB's approach to the adoption of IASB standards, including its intention to restrict the number of options made available in IASB standards in certain cases. The meeting discussed whether that approach would be consistent with the strategic direction given by the FRC to the AASB regarding the adoption of IASB standards. The meeting agreed that as part of its role, the FRC needed to understand the ramifications of restricting the availability of options available in IASB standards and welcomed the proposal by the representative from ASIC to prepare a paper on this topic for consideration by the FRC.
Report by the Chairman of the Nominations Committee
Mr Phillip Prior, Chair of the Nominations Committee, reported that the Acting Chair of the AASB had confirmed that the appointment of an additional member to the Board was still sought due to the heavy workload faced by the AASB in the lead up to 2005. In considering this topic, there were two issues: (a) the need to ensure a quorum at the AASB and (b) the need to have members with technical expertise on the Board. The meeting concurred that the need for technical expertise was the key requirement and supported the recommendation that the Nominations Committee should make a recommendation to FRC members for appointment of an additional member to the AASB by circular resolution.
International issues
The Chairman noted the briefing paper prepared by the Secretariat and its recommendation for the meeting to agree to FRC members participating in a small joint working group with New Zealand and Australian officials to prepare a paper for discussion next year.
The Chairman invited Mr Geoff Connor, of the New Zealand Ministry of Economic Development (MED), to provide further background on the working group. Mr Connor referred that discussions had already started with Treasury officials. MED was planning to prepare a draft issues paper to be sent at the end of September / early October to Treasury for its comments.
The meeting agreed that it would be desirable for a couple of FRC members to participate in the working group and to advise the Secretariat of their interest.
On other issues, FRC members commented that a letter to listed companies had been sent recently by the FSA in the UK, reminding them of the implications of the move to IFRSs in 2005 and the need to ensure compliance.
Other business
FRC Deputy Chair
The meeting agreed unanimously to the appointment of Ms Elizabeth Alexander to the position of Deputy Chair of the FRC.
Tabling of policy documents relating to the FRC functions
The meeting agreed that the Audit and Nominations Committees should review their charters and report to the FRC, including a listing of member affiliations. The FRC's Rules of Procedure would also be reviewed and updated.
Next FRC meetings
The meeting agreed for the FRC to meet in Melbourne on 5 November to consider its response to the Government on the draft CLERP 9 legislation, and the 2003-04 Budget. Further, it was agreed that the FRC would hold its last regular meeting for the current year in Sydney on 5 December. The meeting also agreed to a proposal by the AASB to go ahead with a capital expenditure of $30,000 for the replacement of computers, which would be in line with the 2003-04 Budget which is expected to be ratified by the FRC at its next meeting.
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 Jorge del Busto
Ph: (02) 6263 3144
Fax: (02) 6263 2770
E-mail:
jdelbusto@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 - 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); alternate member to Mr Brian Scullin - nominated by IFSA.