Bulletin
2006 / 8 – 31 October 2006
AUSTRALIA IN LINE WITH INTERNATIONAL ACCOUNTING STANDARDS, FINANCIAL REPORTING COUNCIL SAYS
- Adoption of IFRS in Australia has gone relatively smoothly
- Challenges posed by the adoption of IFRS are being acted on by the FRC
- The FRC continues to engage with stakeholders
- Australia’s auditor independence framework is operating effectively
In the year under review in its annual report tabled in parliament today, the Financial Reporting Council (FRC) reports that, for the first time, Australian accounting standards are now in line with those set by the International Accounting Standards Board (IASB).
The implementation of these standards has undergone three phases. The first was in 2002 when the FRC decided to follow Europe’s lead by directing the Australian Accounting Standards Board (AASB) to introduce International Financial Reporting Standards (IFRS) for periods commencing 1 January 2005. Then in 2004, the AASB drafted a new set of Australian accounting standards to fully reflect those contained in the IFRS. Finally, the year under review, 2005/06 was the year IFRS was first implemented in Australia.
Reflecting on the first year of implementation of IFRS in Australia, the FRC, along with the Boards that it oversees, the AASB and the Auditing and Assurance Standards Board (AUASB), reports that it has made significant progress during 2005-06 in several key areas. These include:
- Bringing Australian accounting standards in line with those used internationally through the adoption of IFRS;
- The rapid assimilation by the accounting profession of the new standards and the provision of quality advice to its clients in line with these;
- AASB issuing a standard harmonising Governmental Finance Statistics (GFS) and Generally Accepted Accounting Principles (GAAP);
- AUASB rewriting existing standards to become legally enforceable auditing standards;
- The AASB signing a cooperation protocol with the Financial Reporting Standards Board of New Zealand; and
- Successfully monitoring the effectiveness of auditor independence requirements in Australia.
The FRC believes the overall system is working effectively, though it also identified some areas that are worthy of further consideration for potential improvement. These include:
- The appropriateness of applying IFRS to non-listed entities such as small and medium-sized enterprises (SMEs), non-corporate entities and superannuation funds and ensuring that they have accounting rules that meet the needs of the users of their financial reports; and
- Reducing the regulatory burden on Australian business. This is a universal issue. The FRC will continue to observe and where applicable introduce best practice in this regard.
The FRC during 2005-06 commissioned a report around the appropriateness of using a sector neutral accounting framework. The FRC is seeking views regarding whether these standards are meeting the needs of users, and as such, has sought public comment and will review the responses in the coming year.
According to the FRC Chairman, Charles Macek, one of the key areas of ongoing examination is the issues facing SMEs in relation to the new accounting standards, such as their complexity and the costs of adoption.
“SMEs play an important role in Australia’s economy and the AASB is monitoring work being undertaken by the IASB, which is developing a form of ‘IFRS-lite’ for SMEs. Moving forward, the AASB would evaluate the appropriateness of the IASB recommendations for the Australian SME sector,” said Mr Macek.
The FRC Report on Auditor Independence for 2005-06, which was also tabled in Parliament today, found that the auditor independence framework in Australia is operating effectively and that investors can have a high level of assurance in the audit process.
“Stakeholders can have a high degree of comfort that CLERP 9 is operating as envisaged, and that accounting firms have generally responded positively to the new Australian legislative requirement for auditor independence and audit quality,” added Mr Macek.
“Whilst the FRC has found the system to be working effectively, it has also found some areas worthy of consideration for potential improvements. For example, the licensing and disciplinary framework that applies to auditors in Australia.
“The commitment of the accounting bodies and accounting firms in accepting and incorporating the new ethical framework has been very encouraging. Over the next financial year, the FRC will be looking at the extent to which these have been included into their operational modus operandi,” said Mr Macek.
-----------------------
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