Australian Government, Financial Reporting Council

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Bulletin
2009 / 03 – 21 May 2009

The Financial Reporting Council (FRC) held its 51st meeting in Sydney on 5 May 2009.  The principal issues considered by the meeting were:

  • Chairman’s report on recent overseas meetings;
  • reports on issues of concern to stakeholder bodies;
  • the endorsement of the Clarity auditing standards;
  • presentation by Department of Climate Change;
  • guidance about going concern; andissues arising from the Public Sector Accounting Workshop.

Chairman’s report on recent overseas meetings

During March and April the FRC Chairman, Mr Jeffrey Lucy AM, met with some of the FRC’s international stakeholders in North America and Western Europe.  Organisations with which meetings were held included:

  • New York:  International Federation of Accountants (IFAC) and American Institute of Certified Public Accountants (AICPA);
  • Washington DC:  International Monetary Fund (IMF), Public Company Accounting Oversight Board (PCAOB) and US Securities and Exchange Commission (SEC);
  • London:  UK Financial Reporting Council, Financial Services Authority, HM Treasury and UK Accounting Standards Board; and
  • Brussels:  European Commission and European Financial Reporting Advisory Group.

Key messages arising from these meetings included that:

  • IFAC, the peak international accounting body whose activities include setting international public sector accounting standards and international auditing and assurance standards, is seeking to develop closer ties with IASB;
  • AICPA, the major professional accounting body in the US, has indicated its support for International Financial Reporting Standards (IFRS) and is now issuing IFRS guidance;
  • the IMF encourages Australia to take a regional lead in relation to public sector accounting and auditing development;
  • in the US, the PCAOB, whose responsibilities include setting or adopting auditing standards for audits of issuers registered with the SEC, is having greater regard to the International Auditing and Assurance Standards Board’s (IAASB’s) standard setting activities and has made reference to some IAASB standards in PCAOB documents;
  • the UK Treasury indicated that it has a high respect for the Australian approach to public sector accounting and expressed the view that there should be greater interaction between Australian and UK agencies on public sector accounting issues; and
  • the European Parliament has put forward a funding mechanism for the IASC Foundation and EFRAG.

In mid April, Mr Lucy attended a number of meetings in Beijing including: Chinese Institute of Certified Public Accountants, the Ministry of Finance, IFRS Regional Policy Forum, Global Accounting Alliance Roundtable Forum and the Asia Oceania Standard Setters Group (AOSSG). 

The IFRS Regional Policy Forum decided that the Forums should be continued and that the next one would be in Singapore.  Consideration is being given to whether the Forum should be expanded to cover auditing issues.  The next meeting of AOSSG will be held in Malaysia during November 2009.

At the start of May, Mr Lucy presented a paper International trends in accounting and audit regulation and what it means for Asia/Oceania to a session of the Asian Development Bank’s annual meeting in Bali.  In reporting on the meeting, Mr Lucy noted that Indonesia was poised to adopt IFRS in three years time and International Auditing Standards the year after. 

Reports on issues of concern to Stakeholder bodies

For the purpose of obtaining feedback on financial reporting-related issues that are currently of concern to the FRC’s stakeholder bodies, Mr Lucy invited FRC members to brief the meeting on issues of concern to the stakeholder bodies that had nominated them for appointment to the Council.

While a wide range of issues were raised by members, the core matters included:

  • need for up-to-date valuation and impairment recognition for unlisted assets of superannuation funds to maintain members’ equity in such assets;
  • large increases in the superannuation liability of many entities, especially in the public sector, because of a significant departure from the long-term average level of the Commonwealth 10 year bond rate, which is used as a discount rate for calculating the present value of the liability;
  • executive remuneration, especially in terms of capping, disclosure requirements and the need to exclude superannuation payments and statutory entitlements (e.g. annual and long service leave) from exit payments;
  • concerns that the global financial crisis may lead to a new round of regulation; and
  • with financial reporting, a need to ensure entities continue to focus on their obligations as to ‘going concern’ during the current financial crisis.

Seeking stakeholder feedback on financial reporting issues will be a regular agenda item for future Council meetings.  Reports about stakeholder issues are expected to promote more detailed consideration of financial reporting issues within Council and could ultimately result in policy issues being raised with the Minister for Superannuation and Corporate Law and other stakeholders.

Endorsement of the Clarity auditing standards

In 2004, the IAASB initiated a project to improve the consistent application of International Auditing Standards (ISAs) throughout the world.  The project, which has involved redrafting, in a ‘clarity’ format, the entire suite of ISAs, including revisions to a number of the standards, was completed in early 2009.  The IAASB has announced that the redrafted ISAs will be effective for audits of financial statements for periods beginning on or after 15 December 2009.

In Australia, the Auditing and Assurance Standards Board (AUASB) has revised Australian Auditing Standards (ASAs) in parallel with the work of the IAASB.  The Australian Board had previously announced that the revised and redrafted ASAs are expected to be operative for audits of financial reports with periods commencing on or after 1 January 2010.

The meeting reviewed the clarity project, having particular regard to briefings given to the Council by Ms Merran Kelsall, Chair of the AUASB, the recent decision of the UK Auditing Practices Board to update UK and Irish auditing standards for the new, clarified, ISAs and the likelihood that other jurisdictions in the European Community will adopt the new standards from 2011.  The FRC also noted the publication of several reports (cost benefit analysis of ISAs and a comparison of ISAs and PCAOB standards) which were supportive of the clarity standards.

Following consideration of these matters, the meeting resolved to endorse Australia’s adoption of the clarity standards in accordance with the 1 January 2010 timeline previously proposed by the AUASB.

Presentation by Department of Climate Change

Ms Bridget Brill, Assistant Secretary, Emissions Reporting and Policy at the Australian Department of Climate Change, made a presentation to FRC members about the Government’s proposals for auditing under the National Greenhouse and Energy Reporting Act 2007 and the Carbon Pollution Reduction Scheme.

Detailed information about these matters can be obtained from the Department of Climate Change’s website http://www.climatechange.gov.au/ .

The FRC invited the Department of Climate Change to provide further reports to the Council about its proposals for auditing the scheme as those proposals are developed.

Guidance about going concern

The going concern assumption is a fundamental principle in the preparation of financial statements.  The assessment of an entity’s ability to continue as a going concern is the responsibility of the entity’s management while the appropriateness of the use of the going concern assumption is a matter for the auditor to consider on every audit engagement.

With the uncertainties arising out of the global financial crisis, and their consequent impact on financial reporting, the FRC had concluded that there is a need for updated guidance on the use of the going concern assumption and has encouraged relevant stakeholder bodies to fill that need.

The meeting was briefed on recent developments concerning the provision of such guidance, including:

  • the AUASB issued a Bulletin on Auditing Considerations in an Uncertain Economic Environment on 30 April 2009 (http://www.auasb.gov.au/admin/file/content102/c3/Auditing_Considerations_Booklet.pdf ); and
  • the AUASB and AICD are close to issuing a publication focusing on the responsibility of directors to perform a going concern assessment, and for auditors to review and consider that assessment when forming their opinion on the financial statements.

Public Sector Accounting Workshop

As previously reported in the FRC Bulletin (see http://www.frc.gov.au/bulletins/2008/06.asp ), a workshop on Public Sector Accounting was held in Canberra on 5 November 2008.

The FRC approved the write-up of issues from the workshop, including a number of measures designed to respond to Public Sector concerns:

  • the role of the AASB’s consultative committees should be increased and used to discuss issues with standards as they arise;
  • the FRC to write to the IASB emphasising the need to include accounting for not‑for‑profit and public sector entities in the IASB’s mandate (the FRC Secretary has now written to the Chairman of the IASB on this topic); and
  • foreshadowed a possible FRC Issues Paper to generate further discussion about these issues.

Other matters

The FRC Chairman informed the meeting that the Minister for Superannuation and Corporate Law (Senator the Hon. Nick Sherry) had reappointed Messrs Bruce Brook, Eric Mayne, Jim Murphy, John Stanhope and Klaus Zimmermann as part-time members of the FRC for a period of three months commencing on 6 April 2009.

The FRC will next meet on 10 June 2009 in Canberra.

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.

Miscellaneous