Bulletin
2008 / 03 - 11 June 2008
The Financial Reporting Council (FRC) held its third meeting for 2008 in Canberra on 11 June 2008. The principal matters dealt with at the meeting included:
- Emissions trading;
- Public sector accounting;
- Credit crisis;
- Financial Improvements Project;
- G100-FRC IFRS Post-implementation review workshop;
- AASB, AUASB and FRC Business Plans and Future Direction; and
- reports from the standards setters and committees.
Emissions trading
With the Australian Government’s implementation of an emissions trading scheme scheduled for 2010, the FRC discussed the critical need for the development of a compatible accounting standard. It was observed that an IFRS standard would, most likely, not be ready in time to coincide with the commencement of Australia’s emissions trading scheme.
The FRC however, recognised the necessity for Australia to press ahead with the development of a standard that corresponded with the timeframe set by the Department of Climate Change.
The AASB, in consultation with Treasury, will develop a paper canvassing alternative options for developing a standard in the Australian context.
Public sector accounting
The Department of Finance and Deregulation and the Treasury have written to the Council regarding their experience in preparing the Australian Government’s 2008-09 Budget based on the recently released accounting standard AASB 1049 Whole of Government and General Government Sector Financial Reporting. This standard is the first part of the response by the AASB to the FRC’s broad strategic direction to harmonise GAAP and the Australian Bureau of Statistics’ Government Finance Statistics. The letter advises of areas that might require further attention and requests that the FRC consider providing further guidance to the AASB to address these matters.
The Council agreed to convene a public sector accounting workshop in August to discuss these issues.
Credit crisis roundtable
The Council noted recent discussions that took place in New York between the six largest global audit networks regarding financial reporting and auditing experiences arising from recent audits.
The key themes discussed included valuation and impairment, liquidity and going concern, consolidation and derecognition, market confidence and off-balance sheet issues (identified while auditing financial statements of entities reporting under both US GAAP and IFRS).
Upon considering the outcomes of this roundtable, the Council proposed the formation of an Australian expert panel on valuations. It was noted that Australia would be unique in having practitioners with the expertise to provide advice both domestically and internationally in relation to valuations, including in an illiquid market. The FRC agreed to prepare a letter, requesting the professional accounting bodies consider establishing this expert group. The discussions of the panel will potentially provide the FRC with insight into the type and extent of additional guidance that might be necessary in this area and the form of any such guidance.
The FRC also recognised the need to refresh guidance for management in assessing going concern - particularly in a market that is lacking confidence. The FRC agreed to write to ASIC and the ASX Governance Committee to reflect on the advantage of Australia taking this approach.
Financial Improvements Project
Earlier this year, the Government asked Treasury to examine possible reforms to further improve Australia’s financial reporting framework – more specifically, to improve the relevance of financial reports to investors and the broader community. The announcement of this review was in the context that Australia’s financial reporting framework is robust and generally consistent with international best practice.
Mr Bede Fraser, from the Treasury, advised that the department is currently examining a number of proposals for consideration by the Government to further improve corporate reporting and accountability. The proposals are grouped into three broad areas: cutting red-tape; enhancing accountability; and refining the framework. Some of the key proposals being examined as part of this review include financial reporting requirements for unlisted public companies, parent entities and wholly-owned subsidiaries and ensuring that the disclosures in the directors’ and remuneration reports provide useful and meaningful information to users.
The Government intends to consult widely with stakeholders in developing the proposed reforms. Treasury is currently developing a consultation paper which, subject to approval by the Government, is expected to be publicly released in the second half of the year.
G100-FRC IFRS Post-implementation review workshop
The Council discussed the topics to be raised at, and anticipated outcomes of, the G100-FRC post‑implementation review workshop of Australia’s experience in implementing IFRS. It was noted that the pre-workshop meeting taking place on 12 June 2008 would significantly contribute to the finalisation of an agenda for the August workshop.
Ken Spencer lecture
The Council noted that the recent Ken Spencer Memorial lecture presented by Professor Zeff had been well received. Councillors commented on the relevance of themes raised in Professor Zeff’s lecture.
The Council is now considering nominations for a guest lecturer for 2009.
Stakeholder meetings
Reports were provided on a number of recent meetings with stakeholders and other bodies, including:
- Report on national stakeholder meetings with ASIC, APRA, ASX, ICAA, CPA, NIA, Deloitte, Ernst & Young, Grant Thornton, KPMG, Pitcher Partners, PWC, WHK, AQRB, IFSA, CALDB, AICD, FINSIA, G100, Standard Business Reporting Group, ABA, and ASA;
- Ms Judith Downes’ report on the recent work of the Standards Advisory Council; and
- Ms Ruth Picker’s report on the May 2008 IFRIC meeting.
Reports from standards setters and committees
The FRC received reports from the respective Chairs of the AASB, AUASB, FRC Finance Committee, FRC Nominations Committee and FRC Audit Independence Committee. A report was also received from the Chairman of the Trans-Tasman Accounting and Auditing Standards Advisory Group (TTAASAG).
AUASB Report
The report from the Chairman of the AUASB, Ms Merran Kelsall, covered strategic and financial matters; major AUASB activities and projects; and an update on IAASB activities. Other issues that were considered by the Council more specifically included: the IAASB v AUASB Gap Analysis; timelines for adopting IAASB Clarity Standards in Australia; and a research proposal – Reforms to Auditing Standards: The Costs and Benefits.
The Chairman advised that the Board was of the strong view that Australia should proceed on the assumption that the adoption date for the introduction of the IAASB Clarity standards will be 1 January 2010. It was highlighted that observing this timeline was best in order to maintain Australian standing in the international arena.
AASB Report
The Chairman of the AASB, Professor David Boymal, updated the Council on matters relating to international standards, Australian international projects, emissions trading, accounting for SME’s, superannuation funds, interpretations, and public sector accounting.
The AASB continues to do research work on Extractive Industries Reserves for IASB, a Public Conceptual Framework for IPSASB, and two active IASB projects on Insurance and Revenue Recognition. In the area of emissions trading, the AASB is planning to contact the Department for Climate Change. Other issues that the Chairman reported on include accounting for SMEs, superannuation funds, interpretations, and public sector accounting.
The Chair of the AASB agreed to prepare a matrix in which IFRS and GAAP would be comprehensively compared. The document will capture observations of significance and highlight any serious deficiencies in, and/or disparities, between standards.
Audit independence
The Chairman of the Audit Independence Committee, Ms Catherine Walter, presented a paper on the recommendations from consultancies engaged by the FRC in 2006-07. The paper discussed the incorporation of these recommendations into the FRC’s work program going forward. The Chairman advised that the information in this paper would be integrated into the 2007-08 Audit Independence report.
The Chairman also updated the Council on issues that continue to be monitored by the Committee, including: non-audit services / audit services, auditor involvement in the preparation of a prospectus for an audit client, and auditor rotation.
Business plans and Future directions
The Council approved the 2008-09 business plans for the AASB, AUASB and FRC and the future directions paper proposed by the FRC.
Other matters
- The FRC will convene for a special meeting with Sir David Tweedie on 12 August 2008 in Sydney.
- The FRC will convene for its next formal meeting on 3 September 2008 in Sydney.
About the FRC
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. A list of the current FRC membership is on the FRC’s website.
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.