Sixteenth Meeting
12 December 2002
Outcomes of meeting held on 12 December 2002 at the offices of the Australian Securities and Investments Commission, 1 Martin Place, Sydney.
Attendance
Members:
Mr Jeffrey Lucy, AM (Chairman)
Mr Charles Macek (Deputy Chairman)
Ms Elizabeth Alexander, AM
Mr Don Challen
Mr Leigh Hall
Mr Stephen Harrison, AO (informal nominee of The Institute of Chartered
Accountants in Australia)
Mr David Jackson
Mr Greg Larsen (informal alternate to Mr Graeme McGregor, AO)
Mr Jim Murphy (informal nominee of the Commonwealth)
Mr Robert Nottle, CBE
Mr Greg Pound (informal nominee of the Australian Securities and
Investments Commission)
Mr Tom Pockett (informal nominee of the Business Council of Australia)
Mr Phillip Prior
AASB:
Mr Keith Alfredson (Chairman)
FRC secretariat:
Mr Michael Kooymans
Apologies:
Members:
Mr Graeme McGregor, AO
Invitees:
Mr Ken Spencer, IASC Trustee
Mr Warren McGregor, IASB Liaison member for Australia
Mr Geoff Connor, Ministry of Economic Development, New Zealand
Agenda item 1: Introduction by FRC Chairman
The proposed agenda was adopted.
The minutes of the meeting held on 5 September 2002 were confirmed without change.
The Chairman welcomed Mr Jim Murphy and Mr Greg Pound to their first meeting of the FRC. The Chairman noted that a representative of the New Zealand Ministry of Economic Development had been invited to attend the meeting as part of increased cooperation between Australia and New Zealand at the accounting standard setting oversight level. Unfortunately, the representative was a last minute apology because of flight difficulties.
There were no declarations of interest by members present.
Agenda item 2: FRC Chairman's report
Funding of the accounting standard setting process
The Chairman reported on the status of responses to the FRC's approach to the top 100 listed companies for voluntary contributions to the costs of accounting standard setting. The rate of contributions was slower than expected and follow-up letters had been sent. It was agreed that:
- the secretariat would send invoices to companies that had made funding commitments;
- the Chairman would ring companies that had not yet responded to ascertain their response and reasons for any negative response;
- the Chairman would write to the Parliamentary Secretary to the Treasurer
advising him of the likely outcome of the funding approach and a summary of
the reasons given by companies that had declined to make voluntary contributions.
The letter would seek the Government's advice in light of the implications
of this likely outcome for:
- the amount of Australia's proposed financial contribution to the International Accounting Standards Board (IASB); and
- continued funding of the accounting standard setting process by other stakeholders when their present three year commitments expire in June 2003.
In this regard, the FRC noted that the present three year funding commitments of the States and Territories and the accounting bodies would expire on 30 June 2003 and that the rental agreement between the Australian Stock Exchange and the AASB, through which the Exchange provides an in kind contribution to the accounting standard setting process, would expire in early 2004. It was agreed that action would be initiated in the New Year to seek roll overs of these commitments.
Overseas visits and consultation with stakeholders
The FRC Chairman noted that he had previously circulated a report on his visit to Europe and North America in October 2002. He also reported on a visit to New Zealand in November 2002 during which he met with the Minister for Commerce, the Hon Lianne Dalziel, senior officials from the Ministry of Economic Development, Treasury, Reserve Bank and Securities Commission, and members of the Accounting Standards Review Board and Institute of Chartered Accountants of New Zealand. The visit had been very useful in developing closer cooperation between Australia and New Zealand in accounting standard setting oversight.
The FRC Chairman also reported on liaison meetings he had held with stakeholder organisations and others since the 5 September 2002 FRC meeting. These included the Parliamentary Secretary to the Treasurer, Senator the Hon Ian Campbell, and senior representatives of:
- Coles-Myer;
- Western Mining Corporation;
- Fosters;
- Australian Foundation Investment Company;
- Australian Securities and Investments Commission;
- Australian Stock Exchange; and
- The Finance and Treasury Association.
Agenda item 3: AASB broad strategic direction on public sector issues
The FRC continued its discussion of this issue on the basis of further advice from public sector stakeholders.
The FRC agreed to issue the following broad strategic direction to the AASB under paragraph 225(2)(d) of the Australian Securities and Investments Commission Act 2001:
"The Board should pursue as an urgent priority the harmonisation of Government Finance Statistics (GFS) and Generally Accepted Accounting Principles (GAAP) reporting. The objective should be to achieve an Australian accounting standard for a single set of Government reports which are auditable, comparable between jurisdictions, and in which the outcome statements are directly comparable with the relevant budget statements.
The strategic direction agreed by the FRC involves including within Australian GAAP applicable to the public sector, the key features of the GFS framework. This will enable comparability across the public sector within Australia, without sacrificing the high level of international comparability which currently exists through GFS reporting."
The meeting agreed that, following minor revisions, the paper that was prepared for the meeting would be made publicly available.
It was agreed that the International Federation of Accountants-Public Sector Committee, the International Monetary Fund and the New Zealand accounting standard setting authorities would be given early advice of the decision. It was also agreed that the Chief Executive Officer of the International Federation of Accountants, Mr Ian Ball, would be invited to address the next FRC meeting.
The FRC renewed its earlier request that the AASB Chairman advise it of any additional resource needs arising from the 2005 broad strategic direction and the Board's public sector responsibilities. It was noted that governments in Australia, as stakeholders in the process, would offer the AASB assistance in implementing the public sector decision.
Agenda item 4: Report by Chairman of Nominations Committee
The FRC considered a report by the Chairman of the FRC Nominations Committee on AASB member evaluations and appointments to two current and three prospective vacancies on the Board.
The framework for FRC appointments (which was released publicly by the FRC on 18 June 2001) includes an annual self-evaluation and peer evaluation of the performance of AASB members. The FRC noted the results of AASB member evaluations for the period October 2001-August 2002.
The FRC also noted that advice was being sought from the Remuneration Tribunal on the question of remuneration of AASB members. It was agreed that any increase in remuneration arising from the review would be backdated to September 2002.
The FRC agreed to appoint Mr Glenn Appleyard, Mr Brett Kaufmann, Mr Steve McClintock and Ms Alice Williams as members of the AASB. The Chairman of the Nominations Committee was asked to consider the appropriate terms of these appointments to avoid a significant number of appointments expiring at the same time.
The FRC noted a letter to the FRC Chairman from a stakeholder body proposing an ex officio appointment from that body to the AASB. It was agreed that ex officio appointments to the AASB would not be appropriate and that the FRC Chairman would respond to the letter on that basis.
Subject to the results of interviews to ensure the suitability of the candidates concerned, the FRC also agreed that the following names be placed on the `reserve list' for future consideration for appointment to the Board in the categories indicated [names omitted from published minutes]:
- government group: ________, __________, _________and __________;
- profession group: _________, _________ and ___________;
- user group: ________ and _________;
- academic group: _________ and __________.
The meeting also agreed that the FRC Chairman would write before Christmas to the Business Council of Australia and the Group of 100 to invite them to bring forward nominations in the preparer (business) category for the remaining Board vacancy.
Agenda item 5: Report by Chairman of AASB
Revised AASB Budget for 2002-03
The AASB Chairman reported that, on certain assumptions about the amount of an Australian contribution to the IASB, the AASB's estimated operating surplus for 2002-03 was down by $90,000 over the projected surplus of $174,000 approved by the FRC at its meeting on 28 June 2002. The main reason for this deterioration was an estimated provision of $110,000 for the AASB Superannuation Plan. This provision was based on actuarial advice and reflected the expected rate of return for 2002-03 on fund assets.
The AASB Chairman agreed to bring forward a paper for the FRC Audit Committee on the operation of the Superannuation Plan and how the impact of such provisions on the AASB's budget could be better forecast or managed.
The FRC noted the revised Budget and the likelihood, discussed under agenda item 2, of a significant shortfall in voluntary contributions sought from the top 100 listed companies. It was decided that, subject to the planned further processes with companies that had not yet responded to the FRC's approach, and subject to the Government's response to the proposed letter from the FRC Chairman on the funding position, any funding shortfall would be offset by a reduction in Australia's contribution to the IASB. This decision would be included in a note to the revised budget with a cross-reference to the minutes of the FRC meeting.
Board quorum and voting majority for making accounting standards
The FRC considered a AASB proposal that the Board's current quorum requirement (6 out of 10 members) and required majority for setting accounting standards (7 out of 10 members) be adjusted according to the number of members appointed at a particular time.
It was agreed that the FRC had a responsibility to ensure that its appointments to the AASB were made on a timely basis to maximise the Board's effectiveness and avoid the need for such adjustments.
The meeting considered that current appointment processes should ensure that the number of AASB members should not fall below 9 at any one time and that a quorum requirement of 6 was manageable for the likely period of any such vacancy. It also considered that the standard setting majority should remain at 7. This view had regard to the option available to the AASB, should a Board vacancy combined with absences of members result in fewer than 7 members being able to attend a meeting where a standard is to be made, of formally making the standard out of session.
In light of the discussion, the AASB Chairman decided to withdraw the proposal on the basis that the issue could be revisited in future if problems arose.
Face-to face contacts with constituents by AASB staff
The FRC noted an information paper provided by the AASB Chairman summarising face-to-face contacts between AASB staff and constituents for the period 1 July-2 December 2002 on a broad range of issues.
Preparations for 2005
The FRC emphasised the need for the AASB to publish a work program covering the period to 2005, recognising that this was dependent on the IASB's work program for the same period being finalised and made publicly available. The meeting also asked the AASB to communicate to the FRC any concerns it may have about the IASB's preparedness for 2005.
The AASB Chairman noted that accounting firms and larger companies were undertaking substantial work on the key IASB exposure drafts issued in 2002. He encouraged the broader business community to consider and comment on exposure drafts issued by the IASB.
The AASB Chairman advised that he and his staff would meet with an officer of the Office of Legal Drafting in the Attorney-General's Department to discuss issues relating to the drafting style and mechanisms for issuing IASB standards in Australia. It was requested that he report back to the FRC on this meeting.
The AASB Chairman also noted that the issue of copyright over IASB standards and related documents needed to be addressed.
Agenda item 6: Preparations for adoption of international accounting standards by 2005
An invited guest, Ms Jan McCahey, a Partner of PricewaterhouseCoopers, gave a presentation on preparations in the profession and business community for the adoption of IASB standards in Australia from 2005. With proper planning, the 2005 date was in her view achievable. Ms McCahey's notes for the presentation are attached (with her permission).
Agenda item 7: International issues - secretariat background paper
The FRC noted the secretariat paper.
Agenda item 8: CLERP 9
FRC members discussed the Government's Corporate Law Economic Reform Program policy proposal paper, Corporate disclosure: Strengthening the financial reporting framework (CLERP 9), as it relates to possible expanded functions of the FRC. Discussion centred on the workload, FRC composition and support structures associated with the proposed new functions.
The FRC agreed to continue its discussion of these issues, including the scope of the proposed new functions and how they might be delivered, at its next meeting.
Agenda item 9: Other business
The secretariat reported on the timing of Ministers' consideration of appointments and re-appointments to the FRC.
The meeting recorded its thanks for Mr Rob Wylie's contribution to the FRC as informal nominee of The Institute of Chartered Accountants in Australia in view of his departure to take up a position with Deloittes in Chicago.
The secretariat briefed the meeting on a Freedom of Information request received by the FRC Secretary from Mr Tom Ravlic, a freelance journalist, mainly concerning the FRC's decision to support Australia's adoption of international accounting standards by 2005.
It was agreed that members would consult with the secretariat on their availability for `core' FRC meetings to be held in March, June, September and December 2003, with other dates to be considered later depending on the outcome of the Government's CLERP 9 processes.
The meeting agreed that the FRC Chairman would refer to the AASB Chairman for attention a letter he had received from Foster's Group concerning the accounting standard on Self-generating and Regenerating Assets.
ATTACHMENT
IAS in Australian from 1 January 2005 - implications and issues
1. PwC supports the 2005 date
- Date focuses energies
- Non-listed companies
- Timeframe can be met, but planning is vital
2. Implications of the date
- 30/6/06 accounts with 30/6/05 comparatives that also comply
- need a starting point from 1/7/04 - eg test for asset impairment at this date, hedge designations complete and recorded
- additional year of comparatives for SEC registrants
3. Key threat to achieving date
- Primarily lack of planning - need systems changes to collect info and training
4. PwC awareness raising activities
- IAS transition banking specialist visit
- Briefings to companies on individual basis
- Briefings to brokers/analysts
- Awareness sessions for ICAA and CPAA in Sydney
- AICD briefings in March 2003- Sydney, Melbourne, Brisbane
- Broader company briefings in April 2003
- Publications materials
5. PwC views on current awareness levels
- Mixed
- Many have perception that not much will change
- Some companies keen to be "free riders"
- Survey of European CFOs - transition taking longer than expected
6. Financial reports to state compliance with IASB or AASB standards?
- Medium term must be IASB
- Short term - intuitively prefer IASB and separately require AASB where IASB doesn't cover, but IASB would need to deliver complete exceptions where no current literature eg extractive industries - deferred exploration and development costs and impairment testing on these (but even so there is possibility of SEC issues)
- Worth pushing IASB on this (IASB needs credibility from Aust adoption)
- Alternative of stating compliance with AASB stds overcomes potential SEC issue, but carries perception of non-IAS
- Wording of standards must be the same if IASB rebadged as AASB to achieve global uniformity in application s(doesn't seem to be AASB position)
7. International standards as legislative instruments?
- Appropriate to consider present standards "making" arrangements
- What necessity of individual standards being written into the law
- A better way?
8. Transition or Big Bang?
- Lack of clarity on AASB's position
- Transition essential
- Need improvements prior to 30/6/02 reports - won't happen through early election provisions
- Need to stagger focus on issues for companies to ensure thorough take-up of new requirements (seems to be UK approach even though already have impairment rules, intangible rules, some pension accounting)
9. Possible transition approach
- 30/6/04 adopt as Aust standards: tax, impairment, investment properties, improved IASB standards issued in FY 03, IASB provisions std, pensions?
- 30/6/05 adopt as Aust standards: financial instruments, share based payments, business combinations and intangibles (need to collect 05 info anyway for comparatives)
- 30/6/06 transfer to adoption of all IAS (most of which are either already exactly the same as AASB or only minor differences)
- principle should be that only delay adoption of current IASB standards in these areas where potential for IASB amendment through US convergence project would affect fundamental principles in standard rather than the detail
- cover "cross references to other standards" issue through guidance notes on application
10. Companies wishing to adopt IAS completely earlier than 30/6/06
- Economies for dual listed companies
- Companies making significant acquisitions where acquiree already adopts IAS
- Newly established/carved out businesses
- Not appropriate to rely on ASIC relief orders (difficult to demonstrate unreasonable burden) - need to address in principle
- Prefer to allow complete adoption earlier despite lack of comparability between Australian companies
- UK also being pressured to allow early adoption
Jan McCahey
12 December 2002