Eighteenth Meeting
26 June 2003
Outcomes of meeting held on 26 June 2003 at the Australian Accounting Standards Board Offices, Australian Stock Exchange Boardroom, Level 3, 530 Collins Street, Melbourne.
Attendance
Members:
Mr Charles Macek (Chairman)
Ms Elizabeth Alexander, AM
Mr Don Challen
Ms Karen Hamilton
Mr David Jackson
Mr John Langoulant
Mr Graeme McGregor, AO
Mr Jim Murphy
Mr Tom Pocket, participating by phone
Mr Greg Pound
Mr Phillip Prior
Mr Brian Scullin
Mr Ken Spencer
Mr Lewis Ting
Ms Catherine Walter, AM
Mr Klaus Zimmermann
AASB:
Ms Ruth Picker (A/g Chairman)
Invitees:
Mr Peter Day, Member, (IASB Standards Advisory Council)
Mr Geoff Connor (New Zealand Ministry of Economic Development)
FRC secretariat:
Ms Karen Gilmour
Ms Gala Poole
Treasury:
Ms Kerstin Wijeyewardene
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 those attending their first FRC meeting: Brian Scullin (newly appointed member); Lewis Ting (appointed to the FRC in February); Ruth Picker (Acting AASB Chair); and Karen Gilmour (the new FRC Secretary).
The minutes of the meeting held on 7 April 2003 were confirmed with no changes.
As agreed at the previous meeting, a list of current affiliations had been compiled and circulated to all members. Some members had provided details of their professional roles, while others had not. To ensure consistency, the Chair asked all members to provide details of their professional roles to the Secretariat. The meeting agreed that it is the responsibility of individual members to keep the secretariat informed of any changes to their affiliations.
There were no declarations of interest by members present.
Report on overseas visit
The Chairman provided an overview of his recent trip, accompanied by Mr Mike Rawstron (Treasury), to the United States and the United Kingdom. He relayed the key findings arising from his discussions which included key officials at the US Securities Exchange Commission (SEC); Ian Ball (Chief Executive of IFAC); Paul Volcker (Chairman of the Trustees, IASC Foundation); Sir Bryan Nicholson (Chairman of the UK Financial Reporting Council); and Sir David Tweedie (Chairman of the International Accounting Standards Board).
Key points to arise from these discussions were:
- High-quality standards were only as good as the infrastructure
that underpinned them. In assessing a country's standards, the
SEC would be looking at issues such as funding, resources and enforcement.
- This emphasises the importance of ensuring that Australia has a strong supporting framework in addition to high quality standards.
- Most assessed that while collaboration between US and EU authorities would lead to increased consistency and convergence, a gap would remain. There would be no universal accounting standards by 2005.
- Corporate failures in the Unites States has resulted in a lessening
of confidence in its rules-based approach
- This increased the level of collaboration between FASB and IASB
- A convergence of accounting standards would be a likely outcome. However, in circumstances of litigation, a rules-based approach provided entities with greater defence. This would limit the scope for the US to move to a more principles based approach.
- The bulk of international standards should be finalised by October 2003. The international standards should be ready by March 2004.
CLERP 9 Taskforce
The Chairman advised that a taskforce would be established to examine the implications for the FRC of the CLERP 9 legislation. The aim of the Taskforce would be to help the FRC formulate its views on the best approach for implementing its increased responsibilities. The review process will include consultation with relevant stakeholders. Advice, based on this review, would be provided to the Government.
The Chair advised that the following six FRC members had accepted his invitation to join him on the Taskforce: Ms Elizabeth Alexander; Ms Karen Hamilton; Mr Graeme McGregor; Mr Gregory Pound; Mr Ken Spencer and Mr Lewis Ting.
- In preparation for the inaugural meeting (scheduled for 25 August)
it was agreed that the Secretariat would:
- prepare and send out a pack of all relevant CLERP 9 submissions;
- provide a detailed background paper of CLERP 9 and FRC matters; and
- coordinate meeting arrangements and advise the Taskforce members.
Agenda item 2: Question of opening FRC meetings to the public
The FRC considered a Secretariat paper on whether future FRC meetings should be open to allow the public to attend as observers (except where sensitive issues such as appointments to the AASB are discussed). Discussion focused on the benefits and disadvantages of holding the meetings in public. While the FRC expressed its strong commitment to increasing transparency, it also noted the possible costs in terms of hindering policy debate.
It was decided that the Council could better consider the costs and benefits of opening meetings to the public and the mechanics of doing so once the full scope of the FRC's expanded role under CLERP 9 is known. This decision not to open the FRC meetings to the public would be reviewed at that time. In the interim, the Council agreed to take additional steps - such as providing detailed bulletins on the FRC website - to increase transparency.
Agenda item 3: FRC/AASB strategy for adoption of International Accounting Standards Board (IASB) Standards
The FRC received a Secretariat paper proposing an FRC/AASB strategy for 2005 adoption of IASB standards.
The FRC approved the following recommendations:
- Member comments on the draft strategy would be provided to the Secretariat by Friday, 18 July. Approval of the document would then to be sought by circular resolution. (With a view to finalising it for early publication on the FRC website and in a special FRC Bulletin).
- Where relevant, FRC members would seek comments on the draft from their nominating stakeholder bodies, inviting any additional information they would like to see included.
The FRC noted the suggestion that the document may benefit from input from a communications expert before being finalised.
Agenda item 4: Funding of AASB and IASB operations
The FRC considered a Secretariat paper on the actions taken to secure the funding base for the accounting standards setting process. Members noted the following funding developments:
- The ASX has advised that it did not anticipate being able to provide accommodation to the AASB beyond February 2004. However, in that event it would make a direct contribution in lieu of providing rent-free accommodation.
- In response to the Chair's request to the accounting bodies for them to roll-over their three-year funding commitment, advice had been received that they were not prepared, at this time, to make a three-year funding commitment. Instead, the professional bodies would extend the existing funding arrangements for a further six months. The accounting bodies indicated that they would reassess their contributions, beyond December 2003, when the CLERP 9 process had become clearer.
The Chairman was authorised by the Council to write to the Treasurer and the Parliamentary Secretary to the Treasurer. In his letter he would advise that the FRC had been put on notice by the professional bodies and that there was no resolution to the funding shortfall caused by the lower than expected level of voluntary financial contributions from the business sector. His letter would emphasise the need to resolve the funding shortfall and would canvass some funding options.
It was decided that the Secretariat would develop a proposal regarding funding to be presented at the next FRC meeting.
A decision was also sought on the amount of the Australian contribution to the International Accounting Standards Board (IASB) for 2002-03 in light of the AASB's expected 2002-03 budget outcome and the end-of-year cash position.
The Council discussed Australia's funding commitment to IASB and the importance of demonstrated support for international harmonisation. The Council also noted its priority of ensuring that the AASB had the financial capacity to fulfil its standard setting role. A contribution of $700,000 to the IASB was discussed as an appropriate payment subject to the Council being satisfied that this would not result in a budget deficit for 2002-03. It was also agreed that this figure of 700,000 could be reviewed later in the year with a view to perhaps increasing the size of the contribution.
However, in view of the uncertainty surrounding the final deficiency in the AASB superannuation fund, it was agreed that the payment be delayed. Subsequent to the meeting, the Council agreed by circular resolution to make a contribution of $700,000 to the IASB in keeping with the funding commitment previously given and to ensure that the year-end accounts presented a true and fair view of the FRC's financial position. This was on the basis that the Council was satisfied that the superannuation adjustment was unlikely to be materially different from previous estimates and would not jeopardise the budget. The circular resolution was carried and the Chair authorised the transfer of $700,000 to the IASB.
Agenda item 5: Report by the Acting Chair of the AASB
AASB membership
The Acting Chair of the AASB, Ms Ruth Picker, expressed concern about the heavy workload the Board faced ahead of the 2005 deadline to comply with international accounting standards. Ms Picker noted that a recent meeting of the AASB had been hampered by difficulties in obtaining the necessary quorum and that it would not be viable to increase the number of AASB meetings given the work commitments of AASB members. In concluding, Ms Picker advised that consideration should therefore be given to increasing the size of the Board
It was agreed that the Secretariat would provide a paper on the issue - of increasing the size of the Board - to the Nominations Committee for their consideration and subsequent deliberation by the Council.
Copyright of IASB material
The Acting Chair indicated that the copyright issue continued to be a difficult issue. Presently, the Board is exploring ways - such as the release of International Accounting Standards as exposure drafts - to "educate" firms about the new IASs and as a way of overcoming copyright and other legal concerns. The Board will continue to negotiate with the IASB and will seek to clarify as soon as possible the legal issues surrounding the AASB's use of International Accounting Standards.
It agreed that the copyright issue would be raised, by the Acting Chair of the AASB with Sir David Tweedie when he visits Australia in early August 2003.
AASB 2003-04 Business Plan
The FRC approved the AASB's proposed 2003-04 business plan and agreed that they would consider a revised budget in September 2003 when more information was known about funding proposals.
It was agreed that the longer term role of the AASB and the UIG (particularly post the adoption of international accounting standards in 2005) would be discussed at the next FRC meeting.
Thanks to Acting Chair of the AASB
The Chairman, on behalf of the FRC, thanked Ruth Picker for taking on the important role of Acting AASB Chair while a replacement for Keith Alfredson was being sought. He also expressed the gratitude of the FRC for the Acting AASB Chair's efforts to communicate the progress, hard work and concerns of the AASB to the Council through her explanation of the current busy work program of the Board.
Agenda item 6: Report of FRC Audit Committee
The FRC noted the minutes of the 11 June 2003 Audit Committee and attached papers as well as the information paper provided by Ruth Picker.
Timetable and responsibilities for preparation of the 2002-03 financial report of the AASB
Members noted the agreed timeframe and break down of responsibilities for the FRC/AASB 2002-03 Annual Report.
The Chairman of the FRC Audit Committee, Ms Elizabeth Alexander, AM, agreed to facilitate discussions between ANAO, the FRC, Treasury and AASB about the preparation and format of the 2002-03 ASSB financial annual report.
Revaluation of Non-Current Assets
The FRC approved the Audit Committee's recommendations that:
- That the staff of the AASB be requested to:
- Review the physical existence of major items of plant and equipment recorded in the supporting plant and equipment register.
- Review the carrying values to ensure any obsolete items are fully written-off or, if still in use, adequately depreciated.
- Review depreciation rates to ensure the adequacy of depreciation.
- Make adjustments (if any) to reflect the results of the above reviews.
- The resultant net book values be used as the fair value of plant and equipment, given the majority of items are less than three years old.
- The FRC resolve the resultant net book values as being "directors" valuations.
Agenda item 7: Report by Chairman of Nominations Committee - AASB appointment
The Chair advised that the Nominations Committee had recommended the appointment of Mr Garth Campbell-Cowan to the board. The Council approved the appointment of Mr Campbell-Cowan as a part-time member of the board for a three-year period. The Chair advised that the selection process had identified a further two suitable candidates that had been placed on the reserve list.
Agenda item 8: International Issues
International Issues and Presentations
The FRC noted a Secretariat paper providing an update on international developments as well as hearing about international accounting standard setting developments from Mr Peter Day (IASB Standards Advisory Council) and Mr Geoff Connor (New Zealand Ministry of Economic Development).
Presentation by Mr Peter Day (IASB Standards Advisory Council)
Mr Day's presentation included an update on the current agenda of the Standards Advisory Council (SAC) and the level of interaction of Australian accounting standard bodies with their international counterparts.
The Acting Chair of the AASB invited Mr Day to address the AASB on the work of IASB SAC.
It was agreed that the Secretariat produce a paper on the links between Australian accounting standards bodies and their international counterparts and possible strategies for strengthening those links, with a view to enhancing the influence of the AASB. The paper will be considered at the next FRC meeting.
Presentation by Mr Geoff Connor (New Zealand Ministry of Economic Development)
Mr Connor briefed the Council on a meeting between the Treasurer and NZ Finance Minister Cullen and a subsequent meeting between Senator Campbell and the NZ Commerce Minister (the Hon. Lianne Dalziel). Agreement was reached in these meetings to support efforts to strengthen cooperation between Australia and New Zealand in relation to the oversight and setting of accounting and auditing standards.
Mr Connor presented two papers, developed through the meetings between representatives from the Treasury and the New Zealand Ministry of Economic Development, for the FRC to consider. One of the papers included possible short-term, medium-term and long-term options to increase cooperation between the two countries.
- The two papers were titled "Approaches to Trans-Tasman Cooperation in Connection with Accounting and Auditing Standards and Oversight" and "Options for Further Cooperation Between Australia and New Zealand in Relation to the Oversight and Setting of Accounting and Auditing Standards".
Mr Connor noted that NZ was able to proceed immediately with the one of the suggested options - cross-appointments between the respective accounting standard setting bodies - as NZ has a current vacancy on its Accounting Standards Review Board. He also noted that the next key officials' meeting to progress closer cooperation would take place in the first week in August. Subsequent to that, the Annual CER Ministers meeting would take place in Sydney in the third week in August. He expected that the cooperation on accounting standards and the move towards international accounting standards would be discussed briefly at that meeting.
It was agreed that FRC members would provide written comments on the options contained in the paper "Options for Further Cooperation Between Australia and New Zealand in Relation to the Oversight and Setting of Accounting and Auditing Standards" through the Secretariat by 18 July 2003.
The Secretariat will prepare a paper to advise the Government on the view of the FRC on possible options for strengthening cooperation between Australia and New Zealand. The Secretariat will also update members on any progress on this issue.
Agenda item 9: Other business
Deputy Chair of FRC
The Chair advised the Council that there was a provision for the FRC to have a Deputy Chair. He said that if there were no volunteers forthcoming he would communicate with those members able to contribute time and value to the position.
Visit to Australia by Sir David Tweedie
The Chair advised the FRC that Sir David Tweedie would be visiting Australia in early August and that the Secretariat would be seeking to ensure a meeting between Sir Tweedie and the FRC members.
Correspondence for noting
The FRC noted the copies of recent FRC related correspondence.