Fourteenth Meeting
28 June 2002
Outcomes of meeting held on 28 June 2002 in the Australian Stock Exchange Boardroom, Level 3, 530 Collins Street, Melbourne.
Attendance
Members:
Mr Jeffrey Lucy, AM (Chairman)
Ms Elizabeth Alexander, AM
Mr Don Challen
Mr Leigh Hall, AM
Mr Stephen Harrison, AO (informal nominee of The Institute of Chartered
Accountants in Australia)
Mr David Jackson
Mr Charles Macek
Mr Doug Niven (informal nominee of the Australian Securities and
Investments Commission)
Mr Des Pearson (informal alternate to Mr Graeme McGregor, AO)
Mr Tom Pockett (informal nominee of the Business Council of Australia)
Mr Phillip Prior (participating by phone)
AASB:
Mr Keith Alfredson (Chairman)
IASB:
Mr Warren McGregor
FRC secretariat:
Mr Michael Kooymans
Apologies:
Mr Graeme McGregor, AO
Mr Robert Nottle, CBE
Mr Nigel Ray (informal nominee of the Commonwealth Treasury)
Mr Rob Wylie (informal nominee of The Institute of Chartered Accountants
in Australia)
Agenda item 1: Introduction by FRC Chairman
The proposed agenda was adopted.
The minutes of the meeting held on 22 March 2002 were confirmed without change.
There were no declarations of interest by members present.
The FRC Chairman reported on a visit he undertook to North America and Europe in April 2002 to gauge policies and attitudes relating to the international convergence of accounting standards, including:
- prospects for the convergence of standards issued by the International Accounting Standards Board (IASB) with US GAAP, and for United States acceptance of IASB standards for cross-border purposes (as recommended by the International Organisation of Securities Commissions (IOSCO));
- the decision by the United States to review its accounting standards with a view to making them more principles-based;
- a decision by the Canadian Securities Administrators to allow Canadian companies which are SEC issuers to file financial statements in Canada in accordance with US GAAP (with reconciliation back to Canadian GAAP for a two year period);
- the commitment of the European Union to require all EU listed companies to prepare their consolidated financial statements in accordance with IASB standards for reporting periods starting on or after 1 January 2005 (with certain companies currently using US GAAP not being required to comply until 2007); and
- approaches in the UK for the handling of IASB exposure drafts and the adoption of IASB standards in the period leading up to 2005.
Attached is a list of the people the FRC Chairman met with during his visit.
The FRC Chairman also reported on liaison meetings he had held with stakeholder organisations and others since the 22 March 2002 FRC meeting. These included;
- senior management and Board representatives of a number of large corporates (ANZ, NAB, BHP Billiton, LendLease);
- the Parliamentary Secretary to the Treasurer;
- the Shadow Minister for Finance, Small Business and Financial Services;
- the Secretary of the Department of Finance and Administration;
- the Executive Director, Markets Group, Department of the Treasury;
- senior officers of the NSW Treasury;
- the Chairman and Chief Accountant of the Australian Securities and Investments Commission;
- the National Presidents of the three professional accounting bodies;
- the National President of the Group of 100;
- the CEO of the Australian Stock Exchange; and
- the Australian member of the IASC Trustees Foundation.
He had also met formally with the AASB (in addition to regular meetings with the AASB Chairman) and had appeared before the Senate Economics Legislation Committee.
It was noted that the AASB was examining transitional issues that may arise for Australian corporates in the move to adoption by Australia of IASB standards.
Agenda item 2: Funding of AASB and IASB operations
The FRC Chairman welcomed the Managing Director and CEO of the Australian Stock Exchange, Mr Richard Humphry, AO, who had agreed to address the meeting under this item.
Mr Humphry emphasised the importance for the Australian economy of an early move to international accounting standards and the need for appropriate IASB accountability for Australian contributions to its funding, incorporating a proper business case around the IASB work program.
It was agreed that the FRC Chairman would have further discussions with the Chairman of the IASC Foundation on appropriate accountability arrangements for Australia's proposed financial contribution, which is to be provided through the FRC. The matter would then be considered again by the FRC. The meeting considered that the IASB should be asked to report on performance against its stated work program (in terms of the achievement of outcomes, not the content of particular standards).
The meeting noted a secretariat paper reporting on additional sources of funding for the accounting standard setting arrangements: the $2m over two years to be sourced from the Financial Industry Development Account (FIDA) administered by the Australian Stock Exchange, as announced by the Parliamentary Secretary to the Treasurer on 12 June 2002; and the FRC's planned approach to the top 100 listed companies for voluntary contributions.
It was agreed that the latter approach would seek a three year funding commitment to provide a breathing space when FIDA funding ended after two years. It was further agreed that, having regard to the FIDA funding, around $750,000 a year would be sought from this source.
Agenda item 3: International issues
Mr Warren McGregor addressed the meeting under this item, outlining the IASB's strategy and work program. He also advised the meeting that the European Financial Reporting Advisory Group had recently recommended to the EU Commission the endorsement en bloc of all IASB standards and interpretations extant as at 1 March 2002.
The meeting emphasised the need for international cooperation on the regulation of IASB standards if full convergence is to be achieved, noting that this issue is on the IOSCO agenda.
The FRC Chairman drew attention to an April 2002 announcement by the IASC Foundation of its commitment to develop a world-wide assessment and certification program aimed at meeting the anticipated EU and world-wide demand for training in International Accounting Standards and International Financial Reporting Standards. The FRC Chairman noted that he had asked the accounting bodies to provide advice on their plans for professional development and accounting education in Australia in the period prior to adoption of IASB standards.
The meeting noted a secretariat paper reporting on recent developments in international accounting standard setting.
Agenda item 4: AASB broad strategic direction for 2002-03, including plan for adoption of IASB standards and IFRIC interpretations
The meeting agreed to formalise its support for the adoption by Australia of accounting standards issued by the IASB from 1 January 2005. Subject to the Government's support at the appropriate time for any necessary amendments of the Corporations Act, reporting entities under the Act would be required to prepare their financial statements in accordance with IASB standards for accounting periods beginning on or after 1 January 2005.
It was agreed that the secretariat would prepare for FRC consideration a draft broad strategic direction for the AASB incorporating this decision.
Mr Warren McGregor agreed to raise with the IASB the need for the AASB to have better information on the IASB's forward work program to assist Australia's planning of the transition to 2005.
Agenda item 5: Report by Chairman of AASB
The meeting approved, without change, the AASB's proposed business plan for 2002-03 including its proposed standard setting priorities, budget and staffing arrangements.
Mr Phillip Prior addressed the meeting on a Commonwealth proposal to bring Australian Accounting Standards and Government Finance Statistics together into a single reporting regime for the public sector. It was agreed that a small working group of FRC members, with the participation of the AASB Chairman, would meet to further consider this issue and report back to the full FRC.
In addition, the AASB Chairman was asked to report back to the FRC on whether the AASB can meet the 2005 convergence objective and its public sector responsibilities within the resource trend suggested by the 2002-03 budget. The AASB was invited to submit any proposals for additional Board or staff resources it considered necessary in view of its prospective heavy workload.
The FRC's approval of the AASB's 2002-03 budget, which currently projects an operating surplus, was subject to these further processes.
It was further agreed that the FRC and AASB Chairmen would seek outside expertise to assist the AASB/FRC with external communications, focused on a plan for communicating an overall strategy for adoption of IASB standards by 2005 and ensuring that constituents are kept fully informed. Specific staffing or consultancy proposals would then be put to the FRC for consideration. It was noted that allowance for this assistance had already been made in the AASB budget for 2002-03.
Subject to a minor amendment to include Mr Rob Wylie's name on the list of participants, the meeting accepted as a reasonable record a secretariat note recording the main outcomes of an informal tele-conference held on 18 June 2002 involving available FRC members and the AASB Chairman to enable a preliminary discussion of the AASB's proposed business plan and budget for 2002-03.
The FRC Chairman advised the meeting of the possible need for him (and the FRC Secretary) to travel to Brussels in October 2002 to take up an invitation to attend a major conference on the European single capital market, and to progress consultation with counterpart bodies. The Chairman further advised that travel to New Zealand may be necessary in the second half of 2002 to discuss the coordination of approaches to the international convergence of accounting standards. The FRC supported this travel if the need eventuated.
Agenda item 6: Report of FRC Audit Committee
The meeting noted a report by the Chair of the FRC Audit Committee, Ms Elizabeth Alexander, on a meeting of the Committee held on 3 June 2002. That meeting:
- noted a report by the AASB against its Risk Management Program;
- approved a proposed AASB Fraud Control Plan, prepared in accordance with the Commonwealth's fraud control policy;
- approved a proposed AASB Security Risk Management Policy Statement, prepared in accordance with Commonwealth security policy;
- approved the AASB Chairman signing the audit engagement letter for the Australian National Audit Office's audit of the AASB's 2001-02 financial statements; and
- approved a timetable for the preparation of the FRC/AASB annual report for 2001-02.
The AASB Chairman advised that material in the Risk Management Program relating to FRC members in their capacity as directors of the AASB would be revised and put to the next meeting of the FRC Audit Committee for consideration.
It was noted that the next meeting of the Audit Committee was scheduled for 21 August 2002.
Agenda item 7: Stock-take of FRC activities
In accordance with its April 2000 decision to conduct a six-monthly stock-take of its work in providing broad oversight of the accounting standard setting arrangements, the FRC noted a paper covering FRC activities over the preceding six months.
It was agreed that the paper would be referred to the FRC Audit Committee to enable the Committee to satisfy itself that it fully addresses this six-monthly responsibility.
Agenda item 8: Cost/benefit analysis of accounting standards
It was agreed to defer consideration of this issue until the FRC meeting proposed for September 2002.
Agenda item 9: FRC Deputy Chair and Chair of Nominations Committee
The meeting agreed to appoint Mr Phillip Prior as Chairman of the FRC Nominations Committee, replacing Mr Michael Ullmer who resigned as a member of the FRC in March 2002. It was noted that the Committee would need to begin work shortly on a number of appointments or re-appointments to the AASB that were due to be made in February 2003. The Committee was also asked to consider people who might be supported to apply for a vacant part-time position on the IASB, which had advertised seeking a member with a recent background in the audit profession.
The FRC Chairman again invited nominations from members for the position of FRC Deputy Chair which became vacant in March 2002 with Mr Ullmer's resignation.
Agenda item 10: Other business
It was agreed that the FRC would meet on 5 September 2002 and 12 December 2002 and that the Treasurer be invited to meet with the FRC at the time of the September meeting. It was also agreed that a special meeting would be convened in early August to further consider the question of AASB resourcing.
The AASB Chairman advised the FRC that the Board had been invited to make a submission to the HIH Royal Commission and that the matter was likely to be considered at the AASB's August 2002 meeting.
ATTACHMENT
Visit by Chairman of Financial Reporting Council to North America and Europe - Appointments
Washington
American Enterprise Institute
Mr Peter Wallison, Resident Fellow
Securities and Exchange Commission
Mr Isaac Hunt, Jr, Commissioner
Mr Samuel Burke, Assistant Chief Accountant
Mr Travis Gilmer, Professional Accounting Fellow
Department of the Treasury
Mr Richard Clarida, Assistant Secretary for
Economic Policy
Mr Brian Roseboro, Assistant Secretary for Financial Markets
Mr Mark Wiedman, Senior Adviser to the Assistant Secretary for Financial
Markets
Mr John Worth, Economist, Office of Policy Analysis
Financial Accounting Foundation
Mr Manuel Johnson, Chairman
US Congressional Committees
Mr Terry Haines, Chief Counsel and Staff
Director, US House of Representatives Committee
on Financial Services
Mr Steven Harris, Staff Director and Chief Counsel, Senate Committee on Banking, Housing and Urban Affairs
New York
Deloitte & Touche
Mr Robert Kueppers, National Managing Partner,
Professional Practice
Ms Jennifer Burns, Quality Assurance
Federal Reserve Bank of New York
Mr William Rutledge, Executive Vice President
Mr F Christopher Calabia, Bank Supervision Officer
American Institute of Certified Public Accountants
Mr Barry Melancon, President and Chief Executive Officer
PricewaterhouseCoopers
Mr Allen Weltmann, Partner, Government and
Professional Activities
Mr Robert Herz, Partner, Leader - Professional, Technical, Risk and Quality,
(also member,
International Accounting Standards Board and since named Chairman-elect, Financial
Accounting Standards Board)
Mr Michael Gagnon, Assurance/Business Advisory Services
Ms Erica Sulkowski, Internal Firm Services
International Accounting Standards Committee Foundation Trustees
Mr Paul Volcker, Chairman
Norwalk CT
Financial Accounting Standards Board
Mr Ed Jenkins, Chairman
Mr Michael Crooch, Member
Toronto
The Canadian Institute of Chartered Accountants
Mr Thomas Allen, QC, Chair, Accounting Standards
Oversight Council
Mr Paul Cherry, Chair, Accounting Standards Board
Mr Ron Salole, Director, Accounting Standards
Ontario Securities Commission
Mr David Brown, QC, Chair
Mr John Carchrae, Chief Accountant
London
HM Treasury
Mr David Loweth, Head of Central Accountancy Team, Financial Management, Reporting and Audit Directorate
KPMG
Mr John Kellas, Partner
Mr Mark Vassen, Partner, IAS Advisory Services
The Association of Chartered Certified Accountants
Ms Anthea Rose, Chief Executive
Mr Roger Adams, Executive Director Technical
Mr Richard Martin, Head of Financial Reporting
PricewaterhouseCoopers
Mr Rodger Hughes, Head of Assurance and Business Advisory Services
The Institute of Chartered Accountants in England and Wales
Mr Peter Wyman, Deputy President (President-elect and ex officio expected to shortly become a member of the UK Financial Reporting Council)
The Review Board Limited
Mr Colin Reeves, CBE, Director
Department of Trade and Industry
Mr John Grewe, Director, Company Law (Reporting
and Audit)
Ms Clare Harding, Assistant Director, Auditors & Accountancy Services
House of Commons Treasury Committee
Dr Christopher Ward, Clerk
Financial Services Authority
Mr Michael Foot, Managing Director
Mr Ken Rushton, Director, UK Listing Authority
Mr Richard Thorpe, Manager, Accounting, Auditing, Transparency & Valuation,
Prudential
Standards Division
International Accounting Standards Board
Sir David Tweedie, Chairman
Mr Tom Jones, Vice-Chairman, International Accounting Standards Board
Financial Reporting Council
Sir Bryan Nicholson, Chairman
Accounting Standards Board
Ms Mary Keegan, Chairman
Brussels
European Financial Reporting Advisory Group
Mr Paul Rutteman, Secretary-General
European Commission
Mr Karel van Hulle, Head of Unit, Financial
Reporting and Company Law, Financial
Markets Directorate, Internal Market Directorate-General
Mr David Littleford, National Expert, Internal Market Directorate-General
(Mr Michael Niehues, Deloitte & Touche, Dusseldorf, joined the group for lunch after the meeting)
European Federation of Accountants
Mr Henri Olivier, Secretary General
Ms Saskia Slomp, Technical Director