Bulletin
2010 / 05 – 16 December 2010
The Financial Reporting Council (FRC) held its final meeting for 2010 in Melbourne on 2 December.
The principal matters dealt with at the meeting were:
- Potential use in the future of International Public Sector Accounting Standards (IPSASs) in Australia;
- Follow-up from May strategy meeting;
- Other strategic matters (including the future strategy of the International Financial Reporting Standards (IFRS) Foundation and the European Commission (EC) Green Paper on auditing);
- Reports on activities of international bodies;
- Stakeholder reports; and
- Appointments to the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB).
Use of IPSASs in Australia
The meeting discussed whether accounting standards made by the International Public Sector Accounting Standards Board (IPSASB) should have a role in public sector accounting in Australia. Two information papers, one prepared by the Department of Finance and Deregulation (Finance), the other by the AASB, were used to facilitate the discussion.
Dr Stein Helgeby spoke to the Finance paper, which: canvassed current issues about IPSASs; is intended to put the FRC in a position where it can decide its position about IPSASB; proposes the undertaking of ‘light but sustained’ work to get an understanding of stakeholder views about IPSASB. Mr Helgeby said it was proposed that more work be undertaken over a period of time; and envisages that the work would be undertaken in conjunction with stakeholders.
Mr Kevin Stevenson, in speaking to the AASB paper, indicated that the AASB has long held an aspiration to adopt IPSASs in Australia, and is working hard to realise that aspiration. However, the current state of standards and standard-setting means that it would be premature for Australia to adopt IPSASs now or in the short term. Accordingly, he agreed with the Finance paper’s conclusion that further research and considerable input from stakeholders would be required before recommendations regarding IPSAS adoption could be presented. Mr Stevenson concluded by expressing the view that a co-ordinated approach to work on this topic is needed and that the AASB would wish to contribute to that work.
The meeting agreed that Finance and the AASB should monitor developments over the next year and that it would be desirable to have a state representative involved in the work. Dr Helgeby also informed the meeting that any implementation of IPSASs is unlikely to be realistic before 2015.
Follow-up from May strategy meeting
Members were in general supportive of the idea of conducting a review of the regulatory environment for financial reporting in Australia. A number of views were expressed about the areas on which the review should focus. It was agreed that the review should consist of a stock take of the current regulatory environment, and should include an analysis of the role of the FRC. Particular attention should be paid to the place and role of the FRC within the overall framework of the financial markets, and how it could best add value for the Government in this context. It was also thought that another useful piece of work would be to identify sources of requirements to produce financial and assurance reports outside the Corporations Act and the accounting/auditing standards, similar to the work done by Treasury in identifying the various sources of requirements imposing personal liabilities on directors outside the Corporations Act. This should include a review of obligations imposed both on the Commonwealth, as well as State and Territory levels of government.
Similar issues were discussed in relation to financial reporting and auditing requirements imposed on not-for-profit (NFP) organisations. It was noted that Treasury is currently developing a scoping study on a single national regulator for NFPs, in line with an election commitment made by the Government. Other entities such as the AASB and AUASB are also doing work in this area. It was noted that the FRC with its broad range of members would be well suited to conducting a review of issues arising in relation to financial reporting and auditing requirements imposed on NFP organisations.
Finally, a discussion was held on the strategic issue identified in relation to risk disclosure in financial reports. It was generally agreed that there are increasing demands from investors and other stakeholders for more relevant information to be provided in addition to purely financial information. It was noted that there are a range of initiatives in this area in the market, including those supported by well-known players such as the GRI. In response, domestic and international standard-setters are increasingly considering the boundaries of their responsibilities both in financial reporting and auditing. It was generally felt that this was an area the FRC should be considering, but that some care should be taken in working out the proper scope of its responsibilities.
The Secretariat will report on further work done in these areas to the next meeting in March.
Other strategic matters
The FRC Chairman briefed members on a decision by the Trustees of the IFRS Foundation to seek public comments on the future strategy of the IFRS Foundation. The key areas on which the Trustees sought comments were the IFRS Foundation’s mission; the governance arrangements of the organisation; the standard-setting process; and the financing of the IFRS Foundation. The meeting decided that the Council should make a submission to the Foundation, with the text of the document being settled out of session in consultation with the FRC Chairman.
The meeting also discussed the Green Paper ‘Audit Policy – Lessons from the Crisis’ that was released in October by the European Commission. Issues canvassed in the paper include: communications by auditors to stakeholders; governance and independence of audit firms; supervision of audit firms; concentration and market structure; and simplification of the audit environment for small and medium sized enterprises and practitioners. The meeting decided that the FRC should communicate with the European Commission to indicate the FRC’s interest in the Green Paper and any future work that the Commission undertakes on this matter following completion of the consultation process. It was further agreed that the attention of the Commission should be drawn to a consultation paper ‘Audit Quality in Australia: A Strategic Review’ that was released by the Australian Treasury in March 2010.
Reports on activities of international bodies
Reports on meetings of the IFRS Advisory Council held in November and the International Auditing and Assurance Standards Board (IAASB) held in September were presented by Ms Judith Downes and Ms Caithlin Mc Cabe respectively.
Issues covered in Ms Downes’ report included the International Accounting Standards Board’s (IASB’s) work program, criteria to guide the development of the IASB’s post June 2011 agenda, the governance review by the IFRS Foundation Monitoring Board, the IFRS Foundation’s own strategic review and overall standard setting processes such as translations of standards and the frequency of changes to standards.
Ms Mc Cabe reported that matters dealt with at the IAASB meeting included: approving for exposure a proposed International Auditing Practice Statement about Special Considerations in Auditing Complex Financial Statements; approving for exposure a proposed International Standard on Related Services on Compilation Engagements; and consideration of issues relating to, and a revised draft of, a proposed International Standard on Assurance Engagements dealing with Assurance on a Greenhouse Gas Statement.
Reports on the November meetings of the IPSASB (prepared by Mr Ken Warren) and the International Financial Reporting Interpretations Committee (prepared by Ms Ruth Picker) were also circulated for the information of Council members.
Stakeholder reports
The FRC Chairman informed the meeting about his involvement in domestic and international activities that have occurred since the FRC’s September meeting. Domestic activities included meeting individually with Council members to discuss the results of the 2010 peer reviews, a meeting with the Parliamentary Secretary to the Treasurer (the Hon David Bradbury MP) and attending a meeting of the AUASB. International activities included a meeting with Ian Mackintosh, Vice-Chairman (designate) of the IASB, a visit by an Indian delegation seeking information on a range of topics including Australia’s experience with IFRS implementation and an update on the IFRS Regional Policy Forum to be held in Bali, Indonesia, in May 2011.
The Council received reports from Mr Stevenson, Chairman of the AASB, and Ms Kelsall, Chairman of the AUASB, on the work of their respective Boards during the period since the September FRC meeting. Mr Simpkins, Chairman of the New Zealand Accounting Standards Review Board, also provided FRC members with an update on the legislative amendments for the establishment of the External Reporting Board and other changes to the financial reporting framework. In addition, other FRC members briefed the meeting on activities and issues of interest to their stakeholder bodies.
Appointments to AASB and AUASB
The FRC approved recommendations from its Nominations Committee concerning appointments and re-appointments to the AASB and AUASB for terms commencing on 1 January 2011.
Further information about the successful candidates is available in FRC Bulletin 2010/04, which was published on 15 December 2010.
Other matters
The meeting noted that on 18 November 2010, the Minister for Finance and Deregulation, Senator the Hon Penny Wong, wrote to the FRC Chairman concerning an issue in relation to the use of the words ‘audit’ and ‘assurance’ in government requirements that the Chairman had raised with Minister Wong’s predecessor. Minister Wong advised that she is supportive of the desire to ensure consistent use of terminology for the words ‘audit’ and ‘assurance’ and that she has asked her department to co‑ordinate communicating this to Commonwealth agencies.
The next regular meeting of the FRC is scheduled to be held in Sydney on 23 March 2011. Other meetings in 2011 are scheduled to be held on the following dates: 22 June (Melbourne), 7 September (Sydney) and 14 December (Melbourne).
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.