Seventeenth Meeting
7 April 2003
Outcomes of meeting held on 7 April 2003 at the Australian Accounting Standards Board Offices, Australian Stock Exchange Boardroom, Level 3, 530 Collins Street, Melbourne.
Attendance
Members:
Mr Charles Macek (Acting Chairman)
Ms Elizabeth Alexander, AM
Mr Don Challen
Ms Karen Hamilton
Mr Stephen Harrison, AO (Alternate to Mr Lewis Ting)
Mr David Jackson
Mr John Langoulant
Mr Greg Larsen (Alternate to Mr Graeme McGregor, AO)
Mr Greg Pound
Mr Phillip Prior
Mr Michael Rawstron (Alternate to Mr Jim Murphy)
Mr Ken Spencer
Ms Catherine Walter, AM
Ms Jenifer Wells (informal nominee of IFSA), participating by phone
Mr Klaus Zimmermann
AASB:
Mr Keith Alfredson (Chairman)
Invitees:
Mr Ian Macintosh (Chairman, International Federation of Accountants-Public
Sector Committee)
Mr Warren McGregor (International Accounting Standards Board Liaison
member for Australia and New Zealand)
Mr Geoff Connor (New Zealand Ministry of Economic Development)
FRC secretariat:
Mr Michael Kooymans
Ms Gala Poole
Apologies:
FRC Members:
Mr Graeme McGregor, AO
Mr Jim Murphy
Mr Tom Pockett
Mr Lewis Ting
Invitees:
Mr Ian Ball (Chief Executive Officer, International Federation of Accountants).
Agenda Item 1: Introduction by FRC Chairman
The proposed agenda was adopted with minor adjustments to the order in which some items were considered.
The Chairman welcomed members and alternate members who were newly appointed to the FRC.
The Chairman acknowledged the excellent work of three members who had recently left the FRC, having served since its inception: Mr Leigh Hall, AM, Mr Jeffrey Lucy, AM and Mr Robert Nottle, CBE. In particular, the meeting recorded its appreciation for the outstanding contribution Mr Lucy had made as FRC Chairman from July 2001 until February 2003. His considerable energy and time commitment had done much to lift the FRC's public profile.
The minutes of the meeting held on 12 December 2002 were confirmed with one change, proposed by the AASB Chairman: deletion of the words "and the AASB Chairman" from the first paragraph under agenda item 3.
Mr Ken Spencer asked the meeting to note that, due to his position as a Trustee of the International Accounting Standards Committee Foundation, he had a possible conflict of interest in relation to Agenda item 4 - Funding of AASB and IASB operations. There were no other declarations of interest by members present.
It was agreed that members would provide the secretariat with a list of their current affiliations for compilation and circulation to all FRC members. It was also agreed that the FRC conflict of interest guidelines would be amended to reflect the meeting's agreement that an up to date record of affiliations be maintained.
Agenda item 2: Question of opening FRC meetings to the public
The FRC considered a secretariat paper on whether future FRC meetings should be held in public (except where sensitive issues such as appointments to the AASB are discussed). It was agreed to return to the issue at the next FRC meeting on 26 June 2003 to enable the views of a newly appointed FRC Chair, and further information about the practices of other public interest bodies, including counterpart agencies overseas, to be taken into account.
In the meantime, it was agreed that other ways to enhance the FRC's transparency - such as providing more detail in Bulletins following meetings - be considered.
Agenda item 3: FRC/AASB strategy for adoption of International Financial Reporting Standards (IFRSs)
The FRC noted that substantial preparations are under way for the adoption by Australia from 2005 of standards issued by the International Accounting Standards Board (IASB) and that the AASB's work program is on track to ensure a smooth transition. The meeting agreed that, to facilitate this process, a detailed FRC/AASB strategy for the adoption of IFRSs be developed by the secretariat, in consultation with the AASB staff, on the basis of an outline proposed in the secretariat paper on this issue, and that the strategy be considered by the FRC out of session with a view to communicating relevant parts of it to the market as soon as possible. The strategy would include monitoring and reporting to the Government on progress towards the 2005 goal by all parties concerned, detailed implementation issues, and additional market communication and awareness raising.
Agenda item 4: Funding of AASB and IASB operations
The meeting noted a report by the Chairman 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. As noted at the December 2002 FRC meeting, the rate of contributions had been slower than expected. Follow-up with companies in the meantime had not resulted in significant additional contributions.
It was confirmed that the Chairman would now 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 view of the need to secure the funding base for accounting standard setting and support a substantial financial contribution, through the FRC, to the IASB.
The FRC reaffirmed the decision taken at its December 2002 meeting that any funding shortfall would be offset by a reduction in Australia's contribution to the IASB. It was agreed that the amount of the proposed financial contribution to the IASB for 2002-03 would be discussed under agenda item 5 in light of the expected AASB budget outcome for 2002-03.
It was also agreed that the AASB would provide the FRC as soon as possible, for approval out of session, with an updated draft of the component of the AASB Business Plan for 2003-04 dealing with the adoption of IASB standards. The FRC would then provide this to the Australian Stock Exchange in support of a request for draw-down of the $1 million available for accounting standard setting in 2002-03 from the Financial Industry Development Account.
It was noted that roll-overs are being sought of the present three year funding commitments of the accounting bodies and the States and Territories (which expire on 30 June 2003) and the rental agreement (which expires in early 2004) between the Australian Stock Exchange and the AASB, through which the Exchange provides an in kind contribution to the costs of the accounting standard setting process.
Agenda item 5: Report by Chairman of AASB
Update of AASB Budget for 2002-03
It was noted that the AASB's Budget for 2002-03 is estimated to produce a smaller surplus than estimated in the Budget approved by the FRC at the start of the financial year. This is due mainly to the lower than expected level of voluntary financial contributions from the business sector and a provision for an anticipated deficiency in the AASB superannuation fund due to an expected negative earning rate for the year.
The FRC decided that a contribution to the IASB for 2002-03 would be determined at the end of the financial year in the light of the budget outcome which it was agreed should not result in a deficit. It was noted that, in view of the current funding position and the FRC's decision to give priority to domestic standard setting needs, this contribution would be less than the FRC would have liked. The meeting expressed the hope that the amount of the contribution could be improved upon in 2003-04.
It was agreed that the FRC secretariat would convey this preliminary outcome to the International Accounting Standards Committee secretariat as soon as possible.
Proposed AASB Business plan / resource needs for 2003-04
The FRC had a preliminary discussion of the AASB's draft Business Plan and Budget for 2003-04, agreeing to return to the issue at its next meeting when a more complete draft of the Business Plan would be available and the ongoing funding position was expected to be clearer.
As agreed under agenda item 4, an updated draft of that component of the Business Plan dealing with the adoption of IASB standards will be provided to the FRC as soon as possible for approval out of session. In discussing that component of the Plan, the meeting agreed that references to "convergence" should be replaced with "adoption", consistent with the FRC's broad strategic direction to the AASB. The AASB Chairman undertook to consult the Board on any changes that this might imply for the AASB's exposure draft processes.
Agenda item 6: Report of FRC Audit Committee - superannuation issue
The Chairman of the FRC Audit Committee, Ms Elizabeth Alexander, AM, reported on a meeting of the Committee held on 1 April 2003 to consider the accounting policy for contributions to the AASB Superannuation Plan in respect of members with guaranteed minimum balances.
It was noted that the current negative earning rate for the Plan has given rise to a deficient asset position (the difference between vested benefits of the relevant members and the net market value of fund assets attributable to those members). A provision for this deficient asset position was recognised in the AASB's accounts at 30 June 2002 and a further provision was in prospect at 30 June 2003.
The FRC approved the Audit Committee's recommendation that the policy of providing for the differences between vested benefits and fund assets was appropriate and should continue.
The FRC also agreed that the Audit Committee should clarify governance responsibilities for the AASB Superannuation Plan and, if necessary, recommend an appropriate framework for the discharge of these responsibilities through the Audit Committee.
On the recommendation of the Audit Committee, the FRC also approved, for signature by the AASB, the audit engagement letter for the 2002-03 AASB Financial Statement Audit and the accompanying Audit Plan.
Agenda item 7: Report by Chairman of Nominations Committee - AASB appointment
The meeting had a preliminary discussion of candidates for appointment to the remaining part-time vacancy on the AASB - for someone from a business preparer background. It was agreed that early interviews of the candidates would be scheduled by the Nominations Committee and that the FRC would decide the appointment out of session and announce it as soon as possible.
It was also agreed that part-time AASB members attending Board Committee meetings and external working groups as official Board representatives be remunerated at the same rate as for attending Board meetings where the length of the meeting is at least three hours.
Agenda item 8: Clarification of AASB broad strategic direction on public sector issues
The FRC considered a draft response to a letter dated 27 March 2003 from the AASB Chairman to the FRC Acting Chairman seeking clarification of the broad strategic direction for the public sector agreed by the FRC on 12 December 2002. The AASB sought clarification of: the scope of the strategy (whether it impacts on all public sector entities - including government departments, local governments, universities and government business enterprises - and whether it applies to the whole of government or only to the general government sector); and whether the strategy implies adoption of GFS rules into accounting standards or whether `harmonisation' implies converging on the highest quality standards.
The FRC agreed to advise the AASB that:
- it considers it appropriate for the scope issues to be dealt with by the AASB and its processes; and
- in relation to the second issue, it had decided to modify the strategic
direction by deleting the second paragraph of the direction which
read:
"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."
- It was felt that this deletion would help ensure that the strategic direction was seen to be fully consistent with the respective roles of the FRC and AASB as specified in the Australian Securities and Investments Commission Act 2001.
Following this deletion, the strategic direction reads as follows:
"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."
Subject to deletion of a sentence referring to the views of one constituent with regard to timing, the FRC approved the draft response to the AASB Chairman incorporating the above points and noting that the broad strategic direction calls for the Board to pursue GFS/GAAP harmonisation as an urgent priority.
Presentation by Chairman of IFAC Public Sector Committee
Mr Ian Mackintosh, Chairman of the International Federation of Accountants-Public Sector Committee (IFAC-PSC), addressed the meeting on the work being undertaken by IFAC-PSC and the International Monetary Fund on GFS/GAAP harmonisation. A meeting is scheduled for 12-13 May in Washington DC to take this work forward. Mr Mackintosh noted that harmonisation at the international level could be closer than many envisage. The FRC thanked Mr Mackintosh for his report.
Agenda item 9: International issues
The meeting noted a secretariat background paper on this item.
Agenda item 10: CLERP 9 - update
FRC members had a further discussion of the Government's proposals for an expansion of the activities of the FRC as set out in the CLERP 9 policy paper Corporate disclosure: Strengthening the financial reporting framework.
Agenda item 11: Future FRC meeting dates
The FRC agreed to fix (and publish on the FRC's website) the following meeting dates for the remainder of 2003:
Thursday, 26 June (afternoon);
Friday, 12 September (morning); and
Friday, 5 December (morning),
It was also agreed that these meetings would be held in Melbourne and that the following dates would be reserved in case a further meeting is required to consider operational aspects of the FRC's proposed expanded role under CLERP 9:
Wednesday, 8 October (afternoon); and
Wednesday, 5 November (morning).
Agenda item 12: Other business
Retirement of AASB Chairman and processes for appointment of new AASB Chair
The Chairman noted that Keith Alfredson will have retired as AASB Chairman by the time of the next FRC meeting. On behalf of the FRC, Mr Stephen Harrison thanked Mr Alfredson for performing a very difficult task with distinction and great professionalism. The meeting recorded a vote of thanks to Mr Alfredson for his three years' service as Chairman.
The secretariat briefed FRC members on developments in the process for the appointment by the Treasurer of a new AASB Chairman. Some members indicated that their stakeholder bodies could be in a position to suggest names in addition to those who may have expressed interest in the position in response to the Government's press advertisement.
Vacancies on FRC Nominations Committee and Audit Committee
The FRC appointed Mr David Jackson as a member of the FRC's Audit Committee and Mr Klaus Zimmermann as a member of the FRC's Nominations Committee to replace members who had retired from the FRC.
Freedom of information requests
The secretariat advised the FRC of the status of two Freedom of Information requests involving documents in the possession of the FRC.
ATTACHMENT
Affliliations List
Members of the Financial Reporting Council
as at July 2003
Members
Name |
Affiliations |
Mr Charles Macek |
Boards: Committees: Professional Affiliations: |
Ms Elizabeth Alexander, AM |
Adviser, Blake Dawson Waldron President, Australian
Institute of Company Directors |
Mr Don Challen |
Secretary, Department of Treasury and Finance, Tasmania Member (ex officio), Heads of Treasury Professional Affiliations: |
Ms Karen Hamilton |
Member, Business Regulation Advisory Group Member, NSW Advisory Committee, Committee for Economic Development of Australia Professional Affiliations: |
Mr David Jackson |
Director, Australian Shareholders’ Association. |
Mr John Langoulant |
Chairman, Western Australian Treasury Corporation |
Mr Graeme McGregor, AO |
Directorships: Professional Affiliations: |
Mr Jim Murphy |
Executive Director, Markets Group, The Treasury |
Mr Tom Pockett |
Chief Financial Officer, Woolworths Limited Member, Australian Institute of Company Directors |
Mr Gregory Pound |
Chief Accountant, Australian Securities and Investment Commission Member, Standing Committee 1 of the International Organisation of Securities Commissions Professional Affiliations: |
Mr Phillip Prior |
First Assistant Secretary, Budget Group, Department of Finance and Administration Professional Affiliations: |
Mr Brian Scullin |
Special Adviser to Head of Deutsche Asset Management, Asia-Pacific Directorships Deputy Chairman, Investment & Financial Services Association |
Mr Ken Spencer |
Directorships Public Companies Subsidiary of Public Company Other Other appointments Professional Affiliations: |
Mr Lewis Ting |
Directorships Member, Advisory Board of the Centre for Asia Pacific Social Transformation Studies Professional Affiliations: |
Ms Catherine Walter, AM |
Chairman, Business Regulation Advisory Group Directorships Professional Affiliations: |
Mr Klaus Zimmermann |
Director and Chairman, National Institute
of Accountants |
Alternate Members
Name |
Affiliations |
Mr Greg Larsen, Alternate member to Mr McGregor. |
Chief Executive Officer, CPA Australia Director, HomeGround Services |
Mr Michael Rawstron, |
General Manager, Corporations and Financial Services Division, The Treasury |
Mr Jim Kerwin, |
First Assistant Secretary, Commonwealth Financial Reporting Unit, Department of Finance and Administration Professional Affiliations: |
Ms Jenifer Wells, |
Senior Policy Manager, Investment & Financial Services Association Member, ASX Corporate Governance Council |
Mr Stephen Harrison, AO, Alternate member to Mr Ting |
Chief Executive Officer, Institute of Chartered Accountants Australia Directorships Member, The Union Club (Sydney) Technical Adviser, Australian Representative on the board of the International Federation of Accountants Professional Affiliations: |
Mr Roger Cotton, |
Chief Executive Officer, National Institute of Accountants Member, Australian Institute of Company Directors |