Bulletin
2007 / 01 – 8 March 2007
The 39th meeting of the Financial Reporting Council (FRC) was held in Melbourne on 19 February 2007. A list of the current FRC membership is attached.
The main issues considered at the meeting were:
- sector neutral accounting standards;
- small and medium-sized entities (SMEs) and differential reporting; and
- the recognition of International Financial Reporting Standards (IFRS) adoption in Australia.
Sector neutral accounting standards
The FRC had a wide-ranging discussion about the public comments on the Simpkins’ report A review of the policy of sector-neutral accounting standard setting in Australia. The public consultation, which was structured around 10 matters related to standard setting, attracted a total of 19 submissions from stakeholders.
The Council identified the key issues arising from the submissions as:
- the desire for a conceptual framework that adequately reflects the needs of the three sectors (for profit, public sector and not‑for‑profit);
- the need for a statement of user needs; and
- the provision of sector specific guidance.
The meeting observed that the issue of greatest concern to stakeholders was the need for a conceptual framework covering the needs of all three sectors which, in itself, should address the need for a statement of user needs. Australia’s current conceptual framework focuses on the need of the ‘for profit’ sector, an approach that is consistent with that adopted in comparable jurisdictions. While conscious of the difficulties in dealing with all three sectors in the same conceptual framework, the FRC noted a number of recent developments which are either currently providing or will in the future provide guidance for the public sector:
- the issuing of accounting standard AASB 1049 Financial Reporting of General Government Sectors by Governments, which assists the public sector by providing it with a workable set of accounting standards for its financial reporting needs; and
- the current project of the International Public Sector Accounting Standards Board to develop a conceptual framework for public sector.
The meeting considered whether the Australian Accounting Standards Board (AASB) should press on with its own project for the development of its own conceptual framework for the public and non-for-profit sectors noting that, in the case of these sectors, the need for international comparability was not compelling or a priority. Professor David Boymal, Chairman of the AASB, argued that, in his view, Australia should contribute to the IPSASB project as an international solution is better than a local solution.
Specific issues associated with the not-for-profit sector were also considered by the FRC. In particular, concerns were noted about the relevance of using IFRS accounting standards for most not-for-profit entities which have particular accountability and stewardship financial reporting needs. Professor Boymal informed the meeting that the AASB is meeting with representative groups in the not-for-profit sector to discuss issues associated with their financial reporting needs and that some of these issues will be addressed through the current project on differential reporting.
On the need for a statement of user needs, the Council concluded that as the conceptual framework should be based on the needs of users, there is no need for a separate statement.
Council also considered the issue of sector specific guidance and noted, in particular, the positive experience in New Zealand with the use of non-authoritative guidance in addressing the financial reporting needs of public benefit entities.
In wrapping up its consideration of this matter, FRC:
- noted that the needs of users for a single conceptual framework are not currently being met;
- took comfort from the level of progress, both in Australia and internationally, over the last 12 months on public sector issues;
- noted that the AASB’s priorities for 2007 are progressing issues in respect of public and not-for-profit sector accounting; and
- agreed to review progress in dealing with those issues that are of relevance to the not-for-profit sector in mid 2008.
SMEs
Professor Boymal briefed Council on the exposure draft of the SME (small medium entity) accounting standard issued during February 2007 by the International Accounting Standards Board (IASB).
The FRC noted Professor Boymal’s advice that the current thinking of the AASB was that the definition of entities that would be required to apply the IFRS for SMEs standard would cover all Australian entities that prepare general purpose financial statements except listed public entities and deposit takers which, in line with the definition of public accountability discussed by the IASB, would be required to apply full IFRS.
Following Professor Boymal’s comments questions were raised as to the appropriateness of the IFRS for SMEs as a means of significantly reducing their compliance burden. It was suggested that some local solutions may need to be adopted if the current onerous burden is to be lifted as the proposed SME standards are still very extensive and, therefore, do not appear to be designed to reduce the compliance burden for the majority of those entities.
The Council noted that the number of tiers of accounting standards that Australia should have is an issue that is still under consideration by the AASB. The FRC noted that in connection with the extent to which full IFRS should apply in Australia to entities that are not publicly accountable (as defined by the IASB), the determination should be based upon considerations of public interest.
Recognition of IFRS adoption in Australia
At its last meeting, in December 2006, the FRC considered issues associated with the possible inclusion in the auditor’s report of a statement of compliance of the financial reports with IFRS. The issue was raised because of concerns in some overseas jurisdictions about the extent to which Australian financial reports are IFRS-compliant.
This meeting gave further consideration to this issue and, following consideration of advice from Treasury and the Auditing and Assurance Standards Board (AUASB), agreed to the clarification of the AUASB’s strategic direction, which, among other things, requires the development of auditing standards that have a clear public interest focus. The FRC is of the view that promoting the international recognition of Australia’s IFRS adoption is in the public interest and that the inclusion of a statement of IFRS compliance in the auditor’s report would further the recognition of Australia’s IFRS adoption by helping to address the current lack of prominence given to IFRS compliance in the financial reports of Australian companies.
The FRC is very appreciative of the way and speed with which the AUASB addressed this issue and endorses the AUASB’s proposed approach for making appropriate amendments to the auditing standards. The Council also noted that, in time, it would be desirable to consider amendments to the legislation in relation to the directors’ declaration, so that it also includes a reference to IFRS compliance.
Other matters
Mr Macek reported on his attendance at the IASC Foundation Trustees’ meeting, which was held in Tokyo during January.
At the conclusion of the formal agenda, the FRC met with members of the AUASB to discuss a range of issues of mutual interest to the FRC and the Board.----------------------
The FRC is the peak body responsible for the broad oversight of the accounting and auditing standard setting process for the private and public sectors, as well as monitoring the effectiveness of auditor independence requirements in Australia. It comprises key stakeholders from the business and investing communities, the professional accounting bodies, governments and regulatory agencies. The FRC advises the Government on the accounting and auditing standard setting process and on the development of international accounting and auditing standards. It determines the broad strategic direction of the standard setters, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board.
For further information, please contact the Secretary of the Financial Reporting Council
c/- The Treasury, Langton Crescent, Parkes ACT 2600.
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.
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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 — nominated by the Commonwealth);
- Mr Bruce Brook, Company Director, Melbourne, Victoria — nominated by the Business Council of Australia;
- Ms Kathryn Campbell, Deputy Secretary, Financial Management Group, Department of Finance and Administration — nominated by the Commonwealth;
- Mr Don Challen, Secretary, Tasmanian Department of Treasury and Finance — nominated by Heads of State and Territory Treasuries;
- Mr Michael Coleman, Partner, KPMG — nominated by the Australian Institute of Company Directors;
- Mr Mark Coughlin, Development Manager, Origin Energy — nominated by CPA Australia;
- Mr John Gethin-Jones, General Manager, Queensland Investment Corporation — nominated by Investment & Financial Services Association;
- Mr Richard Humphry, AO, Trustee, International Accounting Standards Committee Foundation;
- Mr Warwick Hunt, Chairman, Accounting Standards Review Board of New Zealand — nominated by the New Zealand Minister of Finance;
- Mr David Jackson, Director, Australian Shareholders’ Association — nominated by the Australian Shareholders’ Association;
- Mr Eric Mayne, Group Executive, Market Supervision, Australian Stock Exchange — nominated by the Australian Stock Exchange;
- Mr Jim Murphy, Executive Director, Markets Group, Department of the Treasury — nominated by the Commonwealth;
- Mr John Stanhope, Chief Financial Officer and Group Managing Director, Finance and Administration, Telstra Corporation Limited — nominated by the Group of 100 Inc;
- Ms Catherine Walter, AM, Company Director and Solicitor; Chair of the Business Regulation Advisory Group — nominated by the Commonwealth;
- Ms Jan West, Partner, Deloitte Touche Tohmatsu — nominated by The Institute of Chartered Accountants in Australia;
- Mr Lee White, Chief Accountant, Australian Securities and Investments Commission — nominated by ASIC;
- Mr Klaus Zimmermann, Chief Executive Officer, Eldercare Incorporated and Director, National Institute of Accountants — nominated by the NIA.