Home > > Bulletin of the FRC 2010/02 - 7 June 2010

Bulletin
2010 / 02 – 7 June 2010

The Financial Reporting Council (FRC) held its second meeting for 2010 in Melbourne on 18 May 2010.

The focus of the meeting was a planning discussion about the activities to be undertaken by the Council in 2010‑11. Other matters dealt with at the meeting included consideration of reports from stakeholder bodies and a status report on progress with the differential reporting reform proposals.

Strategic planning

The FRC held a strategic planning session as part of its May Meeting. The purpose of the session was to: look to the future of the FRC; and determine what the Council may seek to deliver in the next 12 months.

The planning session was divided into the following segments:

• Setting the scene and scanning the current environment.
• What will be the FRC's key priorities in 2010‑11?
• What does the FRC want to achieve in 2010‑11? What major activities and projects will it undertake to achieve its priorities? How will the FRC deliver its priorities?
• How could the FRC better conduct its business? How could it be more effective?

Matters identified for further consideration by the FRC during 2010‑11 included:

• a review of Australia's regulatory financial reporting environment;
• the increasing complexity of corporate reporting;
• financial reporting issues arising out of the global financial crisis; and
• risk reporting.

These matters will be considered at future meetings of the Council. Actions taken in respect of the matters will be reported in future editions of the FRC's Bulletin.

Reports by Chairman and Stakeholders

The FRC Chairman briefed the meeting on the IFRS Regional Policy Forum in Singapore, recent developments in Europe and Professor Schilder's visit to Australia. Comments made by the Chairman included:

• The Fourth IFRS Regional Policy Forum, which was held in Singapore on 13 May 2010, was attended by more than 100 participants from 11 countries in the region, the United Kingdom and the United States. Participants included four trustees of the IASC Foundation (including the FRC Chairman), the Chairman of the AASB (who presented a paper on differential financial reporting), the Chairman and one other member of the IASB and the IASB's director of international activities. In recognition of the rising importance of financial reporting in a post-financial crisis world, the Forum was themed 'Beyond the Global Crisis – Making Financial Reporting More Relevant to Stakeholders' Needs'.
• In Europe, the European Commission has announced that it will publish a Green Paper in the northern autumn on the role of auditors. The stated objective of the paper is to initiate a debate on the role and governance of auditors. The paper is also expected to cover issues such as the concentration in the audit market and its implications on financial stability, the emergence of small and medium sized practitioners, the audit of SMEs and international standards on auditing.
• Professor Arnold Schilder, Chairman of the International Auditing and Assurance Standards Board, visited Australia in early May 2010 and attended a number of meetings, lectures and other functions arranged by the Chairman of the AUASB. The FRC Chairman met with Professor Schilder on 11 May, while other representatives of the FRC met with him for a working lunch and a discussion about the challenge of defining and recognising audit quality, and its relevance to the user community. In the evening Professor Schilder presented a public lecture on 'Future of Auditing: Audit Quality, Implementation and Innovation'.

Council members were briefed on the current activities and issues of interest to stakeholder bodies. These matters included:

• ASIC's audit inspection program public report for 2008‑09 was issued recently.
• The Australian Shareholders' Association is conducting a survey to gauge members' opinions about auditing.
• APRA had released a discussion paper describing its proposals to update the capital standards for general insurers and life insurers. The proposed changes for general insurers ensure that all material types of risks, including asset/liability mismatch, asset concentration and operational risks, are adequately catered for within the capital standards. For life insurers, APRA proposes to simplify the current dual reporting requirements for solvency and capital adequacy and align their capital structure more closely with that of Australia's authorised deposit-taking institutions and general insurers.
• It is expected that responsibility for the supervision of the market conducted by ASX will transfer to ASIC in August 2010.
• The end of May was the deadline for submissions about proposed changes to Corporate Governance Principles and Recommendations on dealing policies, diversity and remuneration. The ASX's Corporate Governance Council is expected to consider the submissions during June with the objective of approving and releasing the changes by the end of June.
• New Zealand developments included two recent announcements by the Hon Simon Power, New Zealand's Commerce Minister. On 22 March Mr Power announced that all accounting and auditing standards-setting responsibilities will be consolidated within the External Reporting Board, which will replace the Accounting Standards Review Board next year. Subsequently, on 28 April, Mr Power announced that the Government would create a new regulator for New Zealand's financial markets. The new regulator, to be known as the Financial Markets Authority, would have responsibility for auditor oversight as it relates to issuer audits.
• A number of ongoing matters of interest were also raised by Council members, including: the Cooper review on superannuation; the AASB's differential reporting proposals; and risk reporting and the business judgment rule.

The regular reports by the Chairs of the AASB and AUASB on the work of their respective Boards during the period since the last FRC meeting were noted by Council members.

Reports by Ms Ruth Picker on the meetings of the International Financial Reporting Interpretations Committee held on 4‑5 March 2010 and 6‑7 May 2010 and Mr Ken Warren on the meeting of the International Public Sector Accounting Standards Board held on 6‑9 April 2010 were also noted.

Differential reporting

The Chairman of the AASB briefed Council members on recent progress with the differential financial reporting reform proposals. He said that the AASB had considered the issue at its meeting on 17 May and that the Board had tentatively decided that the revised differential reporting regime should be established in two stages.

• In the first, the Reduced Disclosure Regime should be introduced as a second Tier of reporting requirements for preparing general purpose financial statements. The aim of Stage 1 is to attend to the immediate reporting needs of entities that currently apply full IFRSs but which find the disclosures required by them burdensome.

Under this stage, the reporting entity concept will continue to be used for differential reporting purposes and a separate application standard will clarify the application of the two Tiers.

• In the second stage, the AASB agreed further research should be carried out on the potential impact on those entities currently preparing special purpose financial statements, if they were to be required to produce general purpose financial statements.

The AASB is expected to give further consideration to the differential financial reporting reform proposal at its next meeting on 9‑10 June.

Other matters

The FRC has appointed the Chairs of the AASB and AUASB as full members of the Nominations Committee (on the basis that they are now full FRC members). A number of minor amendments were also made to the Nominations Committee's Charter. The FRC was also informed that the Nominations Committee is redesigning the format and ratings system for the FRC, AASB and AUASB 2010 Peer Reviews and that, when completed, the Committee will submit its proposals to Council for approval.

Council members noted that the term of appointment of Mr John Trowbridge would end on 30 June 2010, coinciding with the end of his appointment to APRA. The Chairman thanked Mr Trowbridge for the contribution he had made to the work of the FRC during his time as a Council member.

The next regular meeting of the FRC is scheduled be held in Melbourne on 27 July 2010.

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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.