Thirteenth Meeting
22 March 2002
Outcomes of meeting held on 22 March 2002 in the Australian Stock Exchange Boardroom, Level 3, 520 Collins Street, Melbourne.
Attendance
Members:
Mr Jeffrey Lucy, AM (Chairman)
Mr Michael Ullmer (Deputy Chairman)
Ms Elizabeth Alexander, AM
Mr Stephen Harrison (informal nominee of The Institute of Chartered
Accountants in Australia)
Mr Rob Heferen (informal nominee of the Commonwealth Treasury)
Mr David Jackson
Mr Charles Macek
Mr Graeme McGregor, AO (participating by phone)
Mr Ian Mackintosh
Mr Robert Nottle, CBE
Mr Phillip Prior (participating by phone)
AASB:
Mr Keith Alfredson (Chairman)
FRC secretariat:
Mr Michael Kooymans
Apologies:
Mr Don Challen
Mr Leigh Hall, AM
Agenda item 1: Introduction by FRC Chairman
The proposed agenda was adopted.
The minutes of the meeting held on 3 December 2001 were confirmed without change.
There were no declarations of interest by members present.
The FRC Chairman reported on liaison meetings he had held with senior management and Board representatives of a number of large corporates. These meetings had indicated strong support by the business community for the FRC structure and for the international convergence of accounting standards, and strong endorsement of the importance of good financial reporting. On funding for the standard setting arrangements, business noted the importance of appropriate accountability, in terms of performance by the AASB and International Accounting Standards Board (IASB) against their stated work programs, not the content of standards. The Chairman commented on the importance placed by business on the FRC being seen to be active in the marketplace.
The FRC Chairman also reported on meetings he had held with the Parliamentary Secretary to the Treasurer, Senator the Hon Ian Campbell, and the Deputy Chairman of the UK Financial Reporting Council, Mr Michael Groom, who had been visiting Australia.
Agenda item 2: Funding of AASB and IASB operations
Noting that it was a fundamental responsibility of the FRC to secure appropriate funding for standard setting, the meeting discussed a number of options to: (a) ensure that the AASB's funding base was secure beyond 2001-02; (b) enable Australia to make a financial contribution to the work of the IASB; and (c) meet the objective of a funding partnership between governments, business and the accounting profession.
The meeting supported the release of a document seeking voluntary contributions for standard setting from the top 100 listed companies, subject to confirmation that a particular, more predictable source of funding was not available. It was agreed that the draft document should be adjusted to clarify that the accountability mechanisms for voluntary contributions relate to broad outcomes in terms of performance against the stated AASB and IASB work programs, not the content of standards.
Agenda item 3: Report by Chairman of AASB
Adoption of particular IASB standards in Australia
The AASB Chairman reported on the status of the AASB's work program which had a heavy emphasis on IASB projects. He noted that the IASB would shortly be releasing exposure drafts for 12 improvements projects. The AASB will join the IASB's due process by inviting AASB constituents to provide the IASB comments on these exposure drafts and copy them to the AASB.
The meeting discussed the timing of introduction of, and importance of adequate due process for, more complex IASB standards (such as that on accounting for financial instruments), to ensure Australian users and preparers have time to prepare for substantial changes in accounting treatment. Likely approaches in the UK, US, Canada and Europe were also discussed in this context.
It was agreed that, subject to advice from the AASB Chairman as to the IASB's proposed exposure period for IAS39 "Financial Instruments: Recognition and Measurement", the FRC Chairman would write to the IASB seeking a longer exposure period. This would recognise the particular circumstance that Australia currently has no financial instruments standard, whereas for the IASB and a number of key national standard setters this is an improvements standard for which a shorter exposure period would normally apply.
It was further agreed that the AASB would prepare a paper setting out the framework for handling various categories of IASB standards in the period before full adoption of these standards in Australia, taking into account approaches of other key national standard setters.
The AASB Chairman noted that, in general, non-conformities between AASB and IASB standards would be removed in the period leading up to adoption of IASB standards in Australia. Where these were regarded by the AASB as non-conformities of substance, the Board would ask the IASB to conduct a comprehensive review.
Risks of future corporate failures
The meeting noted advice by the AASB Chairman on an issue previously raised with him at a hearing of the Senate Economics Legislation Committee: whether an Enron-type collapse could happen in Australia. The AASB Chairman noted that corporate collapses could always occur as a result of corporate governance or management failures. Australian accounting standards had their strengths and weaknesses - for example, the business combinations standard had stronger ownership tests than appeared to be the case in the United States, while Australia currently lacked a standard on derivatives (pending adoption of the IASB standard on financial instruments, to be issued in Australia shortly as an exposure draft).
The meeting agreed that it was important that the AASB and other national standard setters ensure that the IASB agenda reflects the highest standard setting priorities, and that the FRC and Australian constituents are kept fully informed of these priorities.
AASB budget for 2001-02
The meeting noted advice from the AASB Chairman that the AASB budget for 2001-02 was likely to record a small surplus.
Publications policy
The meeting also noted a report by the AASB Chairman on the interaction of AASB and IASB publications policies as they relate to IASB documents.
Agenda item 4: FRC Workshop - follow-up
It was agreed at the FRC Workshop held on 3 December 2001 that outcomes of Workshop discussions would be formalised where appropriate at the next FRC meeting. After further discussion, the FRC agreed that:
- the present AASB voting majority requiring seven out of ten votes for the making of an accounting standard should be retained, as recommended by the AASB Chairman;
- the Charter of the Urgent Issues Group (UIG) should be amended to incorporate procedures relating to the consideration and adoption of interpretations by the International Financial Reporting Interpretations Committee;
- alternate members of the UIG attending UIG meetings in place of the primary member should continue to be able to vote on issues coming before the UIG. This decision will be reviewed by the FRC in June 2003;
- as a matter of practice, names proposed for appointment to the UIG should be put to the FRC Chairman at the "vetting" stage. (The FRC agreed in September 2000 that appointments to the UIG would be made by the AASB with the approval of the FRC Chairman or his delegate.);
- the provision of the UIG Charter granting observer status at UIG meetings to the Chief Accountant of the Australian Securities and Investments Commission should be extended to include his or her Deputy.
Agenda item 5: International issues
The FRC approved the principles and strategy underlying the AASB's exposure draft ED 102, "International Convergence and Harmonisation Policy". The AASB Chairman noted that, following final consideration by the Board, the document would be formally issued as a AASB policy statement.
The FRC noted a paper prepared by the secretariat reporting on recent developments in international accounting standard setting.
Agenda item 6: Representations by Adsteam Marine
The FRC considered a letter dated 15 March 2002 to the FRC Chairman from the Managing Director of Adsteam Marine Pty Ltd concerning competitive disadvantage suffered by the company due to the present Australian accounting treatment of the amortisation of goodwill.
Noting that it was inappropriate for the FRC to discuss the content of particular accounting standards, the meeting agreed to refer the matter to the AASB for its consideration in the normal course.
Agenda item 7: FRC meeting expenses
The meeting agreed that, where stakeholder bodies are unwilling to provide reimbursement of costs incurred by FRC members in attending FRC meetings, members should be reimbursed from AASB funds to ensure they are not out of pocket.
Agenda item 8: Other business
The Chairman formally advised the meeting of the decision of the Deputy Chairman, Mr Michael Ullmer, to resign from the FRC due to new responsibilities he has accepted at the Commonwealth Bank of Australia. The meeting thanked Mr Ullmer for his first-rate contribution to the work of the FRC since its inception, including as its Deputy Chairman and, for a period in 2001, Acting Chairman, and wished him well for the future.