Australian Government, Financial Reporting Council

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Bulletin
2004/1 – February 2004

The Financial Reporting Council (FRC) met on 27 February 2004. A list of the current FRC membership is attached.

The meeting considered the following main issues.

Introduction

The Chairman of the Financial Reporting Council (FRC), Mr Charles Macek, welcomed members to the 22nd meeting of the FRC.

The minutes of the 21st FRC meeting, held on 5 December 2003, were approved as a correct record of the meeting.

The Chairman provided an update on the overseas meetings he attended in December 2003 including with representatives of the US Public Company Accounting Oversight Board (PCAOB), the International Accounting Standards Board (IASB), the European Union and the US Financial Accounting Standards Board (FASB)

The Chairman’s explained that the PCAOB is proposing to move to a sliding scale approach to its inspection of foreign audit firms, with the level of PCAOB involvement dependent on their assessment of the adequacy of the domestic system of oversight and regulation. The Council was also advised that both the IASB and the FASB remain dedicated to the convergence project between international standards and US GAAP. The Chairman also updated the council on the issues being addressed by the EU and the IASB on the adoption of IFRSs.

The meeting was also provided with an update on progress in Trans-Tasman co-operation in the development of accounting standards. The meeting supported the initiative that an FRC member be invited to attend quarterly meeting of the New Zealand Accounting Standards Review Board (ASRB) and that an ASRB member be invited to attend quarterly meetings of the FRC.

AuASB

The current Chairman of the Auditing and Assurance Standards Board (AuASB), Mr Bill Edge, and the Executive Director of the Australian Accounting Research Foundation, Mr Richard Mifsud, joined the meeting for this agenda item. Mr Edge and Mr Mifsud informed the FRC on what they see to be the major issues in relation to the transfer of the AuASB from the professional self-regulatory structure under the AARF to a statutory body under the FRC and provided the council with an update of progress to date.

The subsequent discussion raised the importance of the work involved in determining the nature and extent of any re-writing of auditing standards to ensure they are appropriately worded to be given legal backing. (CLERP 9 proposes that the standards will be given legal backing in their current state, with a sunset clause of two years in which they are to be re-visited before being submitted to become disallowable instruments.) This task may require the provision of additional resources to the AUASB for the prescribed review period. The council acknowledged that in this respect the transfer of the AuASB would involve more technical work than experienced during the transfer of the AASB, as at that time accounting standards were already disallowable instruments.

Report on recent AASB activities

The AASB Chairman, Mr Boymal, updated the FRC on the AASB’s recent activities and work program.

Mr Boymal updated the council on a number of issues including the presence of options in standards, the copyright of IASB standards and IFRS 1 - including transitional arrangements and comparative requirements as well as the AASB’s progress on the GFS/GAAP convergence project, on which a separate paper was presented for the Council’s information.

Options in Standards

Mr Boymal advised that the AASB’s position on options in standards had been placed on the AASB website at www.aasb.gov.au and could be viewed by the public. Mr Boymal also advised that the IASB does not object to the narrowing of options included in the international accounting standards by individual jurisdictions.

Copyright

The meeting was informed that negotiations for access to the Implementation Guidance and Basis for Conclusions of the International Accounting Standards were proceeding.

IFRS 1

Mr Boymal explained that companies could not declare that their accounts are compliant with International Accounting Standards (IASs) if the comparatives are not completed in the manner specified by IFRS 1. Therefore the AASB can not allow any exceptions or exemptions other than those specified within IFRS 1 if full compliance is to be achieved.

Transition to 2005

The FRC agreed that the current AASB interpretation of the FRC’s directive is appropriate. IASB standards should therefore be adopted in their entirety for accounting periods beginning on or after 1 January 2005 to the extent that they do not conflict with Australian law including the Corporations Act and assessing that such adoption is in the best interests of the Australian economy even though it might adversely affect some individual companies.

The meeting agreed that any ‘cherry picking’ or partial adoption of the standards would substantially diminish the gains of IAS adoption. Companies will not be compliant with international standards unless all standards are adopted in their entirety.

The FRC resolved to continue to monitor developments of the IASB’s progress on its work program with respect to the 2005 target and relevant developments in Europe regarding the adoption of IASs.

CLERP 9 Update

The Chairman updated the meeting on the discussions of the FRC’s CLERP 9 taskforce at its meeting on 16 February 2004.

The Council agreed that as well as the quarterly FRC meeting dates scheduled for the 2004 year: 31 March, 18 June, 20 September and 6 December the FRC will need to utilise the dates set aside for discussion of other matters arising from the implementation of CLERP 9 and other policy issues. These additional meetings are scheduled to be held on 23 April 2004 and 19 May 2004.

The meeting discussed the issues surrounding the implementation of the FRC’s expanded functions under CLERP 9 and decided to approve all of the FRC CLERP 9 taskforce recommendations. The FRC agreed to:

  1. note the draft record of the third CLERP 9 taskforce meeting held on 16 February 2004;
  2. approve the proposed action list and associated timetable for actioning CLERP 9 implementation tasks;
  3. approve the draft framework for the memoranda of understanding to be entered into by the FRC;
  4. agree:
    • to engage the services of a consultant to help determine what will be required from the FRC to discharge its expanded functions with respect to auditor independence and how it might carry them out;
    • that the terms and conditions for the engagement of the proposed consultant will be determined by the FRC Chair;
    • that the terms of reference that will guide the services provided by the consultant will be those provided to the Council in the agenda papers; and
  5. consider the issue of appointments to the AUASB and agree, as a temporary measure, to appoint, on the date that CLERP 9 becomes effective, anticipated to be 1 July 2004, the current board for a period of 12 months.

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 — FRC Chairman (appointed as Chairman by the Treasurer and nominated as an FRC member by the Securities Institute of Australia);
  • Ms Elizabeth Alexander, AM, Adviser to Blake Dawson Waldron — FRC Deputy Chairman (appointed as Deputy Chairman by the FRC and nominated as an FRC member 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, Corporations and Financial Services Division, Department of the Treasury; alternate member to Mr Jim Murphy — nominated by the Commonwealth.

Miscellaneous