Twentyfirst Meeting
5 December 2003
Outcomes of the meeting held on 5 December 2003 at the Australian Securities and Investments Commission Building, Level 18 Boardroom, 1 Martin Place, Sydney.
Attendance
FRC Members:
Mr Charles Macek (Chairman)
Ms Elizabeth Alexander, AM (Deputy Chairman – by phone hook-up)
Mr Don Challen
Mr Roger Cotton (Alternate to Mr Klaus Zimmermann)
Ms Karen Hamilton
Mr David Jackson
Mr John Langoulant
Mr Graeme McGregor, AO
Mr Jim Murphy
Mr Tom Pockett
Mr Greg Pound
Mr Phillip Prior
Mr Brian Scullin
Mr Ken Spencer
Mr Lewis Ting
Ms Catherine Walter, AM
AASB:
Mr David Boymal (AASB Chairman).
FRC secretariat:
Ms Gala Poole (Acting Secretary)
Invitees:
Ms Kerstin Wijeyewardene (Treasury)
Mr Geoff Conner (NZ MED)
Apologies:
FRC Members:
Mr Klaus Zimmermann
Secretariat:
Mr Jorge del Busto (FRC Secretary)
Agenda item 1: Introduction by FRC Chairman
The FRC Chairman welcomed attendees to the 21st meeting of the FRC.
The minutes of the meeting held on 5 November 2003 were approved without alteration.
No conflicts of interest were declared. Mr Roger Cotton advised the meeting of a new affiliation - he was appointed as Chairman of Southern Rocklobster Ltd on 1 December 2003.
Stakeholder issues
The FRC Chairman updated the FRC on his meetings with the IAS consultative group; the Parliamentary Secretary to the Treasurer; the Australian Institute of Company Directors (AICD) Finance Committee; International Financial Reporting Interpretations Committee (IFRIC) member, Mr Wayne Lonergan; and the AuASB consultative committee.
The FRC Chairman advised that the AICD questioned whether any analysis was being carried out on the tax implications of IAS adoption in Australia. The AASB Chairman advised the FRC that the AASB had received enquires from the ATO and Treasury. Mr Jim Murphy advised that the relevant divisions of Treasury were considering tax implications. It was agreed that the Secretariat would request the relevant section of Treasury to prepare a paper on this issue for the 31 March 2004 FRC meeting.
The FRC Chairman explained that the AuASB placed priority in its work program on harmonisation with international auditing standards and that they would continue with this work. Consultation regarding the reconstitution of the AuASB as an independent statutory board will begin early in the new year. The Chairman also drew the FRC’s attention to the fact that the AuASB currently focuses its most of its work on listed companies and going forward greater focus will need to be given to small and medium sized companies and the public sector.
Ms Elizabeth Alexander advised the meeting that the AICD had expressed their interest in the issue of options in standards.
Mr Tom Pocket advised the FRC that the G100 considered it important that Australia be in a position to have as much influence in the IASB as possible. The G100 were also concerned about the issue of options in standards and the question of what the FRC will do if the IASB falls behind schedule and the standards are not ready in time.
Mr Lewis Ting advised the meeting that The Institute of Chartered Accountants in Australia were concerned about the PCAOB’s extraterritorial oversight regime.
After a discussion, the meeting agreed that there were two main goals with regard to audit quality review programs and the oversight of audit standard setting. The first was the need for a robust system to minimise audit failure in Australia and the second was to ensure that Australia meets PCAOB criteria so as to minimise the level of involvement that the PCAOB would have in the oversight of Australian audit firms.
Agenda item 2: Report by Chairman of the AASB
On behalf of the FRC, the FRC Chairman congratulated Mr Boymal on his appointment as AASB Chairman and welcomed him to his first FRC meeting in that role.
The meeting also expressed its gratitude to Ms Ruth Picker for her outstanding job as acting AASB Chairman in the period between Mr Keith Alfredson’s resignation and Mr Boymal’s appointment. It was agreed that the FRC Chairman would write a letter of thanks to Ms Picker on behalf of the FRC.
Report on recent AASB activities
Mr Boymal updated the FRC on the AASB’s position on options in standards, the IASB standard regarding intangible assets, the copyright issue, the branding issue, the insurance standard, the presentation currency issue and IFRS 1 including transitional arrangements and comparative requirements.
Mr Boymal advised the meeting that he intended to begin to formulate a more strategic long-term plan for the AASB’s future, including methods to develop a regional voice and to ensure that Australia is a major player in the international debate.
Options in Standards
Mr Boymal advised the FRC that the he had written to the IASB asking for clarification on whether the choice of options contained in some IAS’s and IFRS’s were intended to be left to the individual company or whether it was intended that this decision be made for all companies in any one country by the national standard setter. Mr Boymal also advised that New Zealand standard setters had been told explicitly that narrowing the options included in the international accounting standards is acceptable and companies will still be considered compliant with IAS.
Intangible Assets
Mr Boymal explained that the AASB was still in the process of articulating Australia’s concerns to the IASB with regard to the treatment of intangible assets. He advised that a new submission had been sent to the IASB.
Copyright
The meeting was informed of the progress with regard to the copyright issue. Although deliberations are still being carried out, the current agreement allows the standards themselves to be distributed in the same way as other legislative instruments – via the internet or in hardcopy form – without the payment of royalties to the IASB. The implementation guidance - including any guidance added by the AASB - is likely to be made available to interested parties via the AASB’s website after the payment of a small (around three Australian dollars per user) annual fee. The AASB has decided that it will not pursue an agreement with regard to the ‘Reasons for Decision’, as any individual wishing to have access to this information can purchase it directly from the IASB.
IFRS 1
Mr Boymal explained that companies could not declare that their accounts are compliant with IAS if the comparatives are not completed in the manner specified by IFRS 1. Therefore the AASB can not allow any exceptions other than those specified within IFRS 1 if it is to stay within the bounds of the strategic direction given to it by the FRC. The FRC agreed that it would retain the strategic direction given to the AASB.
Mr Boymal advised the meeting that IFRS 1 gives the interpretations of international standards issued by IFRIC and its predecessor the same status as the standards themselves. The AASB is therefore considering options to give UIG guidance the same legal status as accounting standards in Australia. It is likely this will be achieved by making the UIG guidance disallowable instruments through incorporation by reference in the accounting standards. Members agreed that this issue should be brought to the FRC for consideration.
The FRC acknowledged that such a development would necessitate changes in the current processes for approving UIG guidance. The FRC will consider possible alterations to the UIG’s charter at its first meeting in 2004.
Branding
The AASB Chairman noted that the AASB had been denied their request to retain the AASB logo and that the Board had to comply with Government direction on branding. Further representations on this issue are being made to the Government.
Insurance Standards
The AASB Chairman noted concerns regarding the IASB insurance standard and explained that the AASB had written to the IASB proposing ways to alleviate industry concerns.
Presentation Currency
The AASB Chairman advised of provisions in international standards which allow accounts to be prepared in any currency. The AASB is proposing to retain the provision of the international standards but require Australian corporations to justify their choice of currency adopted.
Agenda item 3: CLERP 9 Update by Treasury
Ms Kerstin Wijeyewardene, manager of the Financial Reporting Unit in Treasury, informed the meeting that the Treasurer introduced the CLERP (Audit Reform and Corporate Disclosure) Bill into Parliament on 4 December 2003. The Bill is scheduled for debate early in 2004 with commencement on 1 July 2004.
Ms Wijeyewardene advised that the FRC oversight role will be effectively focused on auditor independence. Some members reiterated their support for the position, expressed in the FRC’s CLERP 9 submission, that it would be appropriate for the FRC‘s role to be broadened to incorporate the oversight of Audit Quality given the interrelationship between Auditor Independence and Audit Quality.
The FRC agreed that the already established CLERP 9 taskforce should continue to meet in the new year for discussion of CLERP 9 implementation issues and that their recommendations would be reported to full FRC meetings. All current members of the CLERP 9 taskforce agreed to continue with this work.
Agenda item 4: AASB/FRC strategy for influencing the IASB
The meeting discussed issues in relation to maintaining an influence in international accounting standard setting. It was agreed that the emphasis should be placed on ensuring that the quality of Australian people involved in accounting standard setting both nationally and internationally remains high and that the AASB retain its links with the IFAC and the IASB – both through financial contributions and the appointment of Australians to these boards and their technical committees and taskforces.
The AASB Chairman drew attention to the fact that Australia has a high profile in the international accounting standard setting arena particularly considering the small size of Australia’s capital market relative to that of the EU and US. This was largely attributed to the strength of personal relationships developed during the previous framework for standard setting.
The FRC Chairman advised the meeting that he would be meeting with a number of relevant persons overseas in late December, including the Chairman of the IASC Foundation Trustees and the Chairman of the IASB and that he would raise Australia’s concerns at this time.
Agenda item 5: FRC role in providing advice to Government on the Policy Implications of IAS adoption
Timing issues related to the transition to the adoption of IASB standards
The FRC noted a secretariat paper on the issues of requests for relief in transition to 2005 and agreed that there was no need to change current arrangements unless the IASB fell behind schedule.
The FRC agreed that this issue would be reviewed early in 2004 when the time of the IASB’s work program is clear.
The AASB chairman offered that, in the meantime, the AASB should enquire about how the UK and EU are planning to proceed with their transitional arrangements particularly with regard to comparative accounts.
Availability of options in IASB standards
The meeting noted a draft paper on the AASB policy on optional treatments and scope exclusions in relation to the adoption of IASB standards for 2005.
The AASB Chairman advised the meeting that due to the AASB’s policy of - where appropriate, narrowing the options in the older IAS standards while keeping any options that remain in the new IFRS standards - it was likely that only a very small number, if any, standards, as applied in Australia, would include options. Greg Pound expressed ASIC’s concern that including options in standards was inappropriate.
Agenda item 6: Report by Audit Committee Chairman
Ms Elizabeth Alexander, AM, Chairman of the Audit Committee, reported upon the activities of the Committee.
Stocktake against FRC functions
The meeting approved the annual stock-take against FRC functions, with minor changes.
Audit Committee Charter
The FRC approved the Audit Committee Charter (see Attachment A).
Other issues
The FRC approved the Audit Committee’s recommendation that it hold off contributing the outstanding $300, 000 to the IASB pending satisfactory resolution of the copyright issue. This amount would complete the $1 million the FRC originally agreed to contribute to the IASB in 2002-03.
Agenda item 7: Report by Nominations Committee Chairman
Mr Phillip Prior, Chairman of the Nominations Committee, reported on the activities of the Nominations Committee. Mr Prior advised the meeting that the appointment of Mr Bryce Denison to the AASB had been formalised on 10 November 2003 following the FRC’s approval of this appointment at the 5 November FRC meeting.
Review of Nominations Committee Charter
The FRC approved the proposed changes to the Nominations Committee Charter (see Attachment B).
Agenda Item 8: Change to FRC Rules of Procedure
The meeting agreed on changes to be made to the FRC Rules of Procedure (see Attachment C).
The FRC also agreed that in light of information from the Australian Government Solicitor, advising that alternate FRC members have the same legal status as other members of the FRC that it should be recommended to the Treasurer that the practice of appointing alternate members should be phased out as current appointments expire.
Agenda Item 9: International Issues
The FRC noted a Secretariat paper providing an update on international developments since the last full FRC meeting.
Agenda Item 10: Future FRC meeting Dates
The FRC agreed to fix (and publish on the FRC’s website) the following meeting dates for 2004:
Wednesday 31 March (Melbourne)
Friday 18 June (Melbourne)
Monday 20 September (Melbourne)
Monday 6 December (Sydney)
It was also agreed that three dates would be reserved in case a further meeting is required to consider operational aspects of the FRC expanded role under CLERP 9. These dates are yet to be determined.
Other Business
The FRC noted copies of relevant correspondence since the last FRC meeting.
The meeting agreed that while the secretariat should continue to include the list of correspondence items with the FRC meeting agenda papers, where possible correspondence would be made available in electronic form rather then being sent out in hard copy as part of the agenda papers.
ATTACHMENT A
FRC Audit Committee Charter
1. Objective
To assist the Financial Reporting Council (FRC) in fulfilling its responsibilities by reviewing:
- the AASB/FRC financial statements, budget and business plan;
- Including any items relevant to these documents such as staffing expenses and contributions to international bodies;
- the risk management processes of the FRC and AASB; and
- the FRC annual stock-take against its functions.
In carrying out its responsibilities the Committee has full authority to investigate all matters that fall within the terms of reference of this Charter. As needed, the Committee may request from the FRC Chairman the use of FRC/AASB funds to obtain independent professional advice in discharging its duties.
2. Composition
The Committee is chaired by a member of the FRC and includes at least two other FRC members. The Chairman and members of the Committee are appointed by majority agreement of the FRC.
The Chairman of the AASB is invited to attend all Audit Committee meetings.
A quorum will comprise of any two Audit Committee members.
The Committee may invite the auditor, AASB staff members and/or other relevant persons to attend meetings and to provide information as necessary.
A non-Audit Committee FRC member may attend Audit Committee meetings as an observer.
3. Meetings
The Committee shall meet not less than three times a year and more frequently as circumstances require.
Minutes of meetings of the Audit Committee will be confirmed at the following meeting of the Committee and should ordinarily be included in the papers for the next full FRC meeting.
4. Reporting
The key matters discussed at each committee meeting are to be reported by the Audit Committee Chairman to the FRC at the next FRC meeting. The report should include all matters relevant to the role and responsibilities of the Committee.
5. Other matters
The Committee shall also perform any other activities consistent with this Charter that the Committee or FRC deem appropriate.
ATTACHMENT B
FRC Nominations Committee Charter
1. Objective
To consider and make recommendations to the Financial Reporting Council (FRC) on the composition of, and criteria for appointment to, the Australian Accounting Standards Board (AASB).
2. Process
For AASB appointments other than the Chairman, the Committee will evaluate candidates, interview candidates and make recommendations to the FRC for decision.
3. Performance
At least annually, the Committee will consider the performance review undertaken of the AASB, and report to the FRC.
4. Succession Planning
The Committee is to periodically review the succession needs of the AASB in discussion with the AASB Chairman. The Committee is to maintain a schedule of eligible nominees who meet the eligibility criteria for the AASB established by the FRC on the recommendation of the Committee.
5. Composition
The Committee comprises a member of the Council as Chairman, at least two other Council members and the AASB Chairman. The FRC Chairman is a member ex-officio.
6. Reporting
The key matters discussed at each Committee meeting are to be reported by the Nominations Committee Chairman to the FRC at the next FRC meeting. The report should include all matters relevant to the role and responsibilities of the Committee.
7. Meetings
The Committee should meet at least semi-annually, and more frequently as required.
ATTACHMENT C
FRC Rules of Procedure
1. Notice of meetings
1.1 Notice of meetings of the Council will be provided, in writing by the secretariat on the Chairman's behalf, no later than 30 days before the date of the proposed meeting.
1.2 Meetings may be held by means of electronic conferencing facilities and business may be conducted without meeting at the Chairman's discretion.
2. Quorum
2.1 Half the number of members, calculated by subtracting from the total membership of the FRC the number of members designated as alternate members, constitutes a quorum for a meeting.
3. Chairman
3.1 The Chairman of the Council will preside at all meetings.
3.2 In the absence of the Chairman, the Deputy Chairman will preside.
3.3 In the absence of both the Chairman and the Deputy Chairman, the Council members present may choose another member to chair the meeting.
4. Voting
4.1 Every appointed member or alternate member present has one vote, whether on a show of hands or on a poll.
4.2 Where there is a show of hands, a resolution will not be taken to be carried unless there is an affirmative vote of more than 50 per cent of those entitled to vote. In the event of a tied result, the presiding chairman will have the casting vote, in addition to his or her vote.
4.3 Where there is a poll, a resolution will not be taken to be carried unless there is an affirmative vote of more than 50 per cent of those entitled to vote. In the event of a tied result, the presiding chairman will have the casting vote, in addition to his or her vote.
5. Taking of Poll
5.1 If a poll is required, it must be taken in such a manner and at such time and place as the presiding chairman directs.
5.2 The result of the poll will be deemed to be the resolution of the meeting at which the poll was sought.
5.3 In the case of a dispute as to the acceptance or rejection of a vote, the presiding chairman shall determine the dispute and the determination made in good faith will be final and conclusive.
6. Circular Resolutions
6.1 When the Council must reach a decision between meeting dates, this decision may be made by circular resolution.
6.2 In carrying out a vote by circular resolution an obligation exists to attempt to contact all FRC members. A circular resolution will be taken to be carried only when the majority of FRC members vote in the affirmative. For these purposes, an FRC member does not include an alternate member.
7. Minutes as Evidence of Result
7.1 A declaration will be made by the presiding chairman that a resolution, on a show of hands or on a poll, has been carried or not.
7.2 Upon this declaration an entry by the Secretary to that effect in the minutes of the proceedings of the Council, signed by the Chairman, will be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against the resolution.
8. Confidentiality
8.1 The Council must take all reasonable measures to protect from unauthorised use or disclosure information given to it in confidence, in accordance with section 237 of the Australian Securities and Investments Commission Act 2001.
9. Conflicts of interest
9.1 The Australian Government Solicitor's Office has advised that, in its view, the members of the Council are the Directors of the Australian Accounting Standards Board (AASB) for purposes of the Commonwealth Authorities and Companies Act 1997 (CAC Act). Members of the Council will therefore need to meet the requirements of that Act in relation to any conflicts of interest that may arise relating to the affairs of the AASB.
9.2 Any member who has a material personal interest in a matter that relates to the affairs of the AASB must give the other members notice of the interest as required by Subdivision B of the CAC Act.
9.3 It is noted, however, that under the Australian Securities and Investments Commission Act 2001 (ASIC Act), the Council provides only broad oversight of the accounting standard setting arrangements, including approving and monitoring the AASB's priorities, business plan, budget and staffing arrangements, determining the AASB's broad strategic direction, and giving it directions, advice or feedback on matters of general policy and Board procedures. The Council is specifically precluded under the ASIC Act from directing the AASB in relation to the development or making of a particular accounting standard; nor does it have the power to veto a standard formulated and recommended by the AASB. In these circumstances, members of the Council will not always have information about the technical matters coming before the AASB.
9.4 The following rules apply to circumstances where a member of the Council is aware that he or she has a material personal interest in a matter that relates to the affairs of the AASB. It is noted that, where a member of the Council is aware of such an interest and the interest relates to the technical activities of the AASB, he or she is not in a position to influence the outcome of AASB deliberations on those technical activities.
9.5 For the purposes of these rules, a matter that relates to the affairs of the Council will be treated as if it were a matter covered by Subdivision B of the CAC Act.
9.6 The notice must give details of the nature and extent of the interest and the relation of the interest to the affairs of the Council or the AASB.
9.7 The notice must be given at a meeting of the Council as soon as practicable after the member becomes aware of his or her interest in the matter, and the details must be recorded in the minutes of the meeting.
9.8 A member may give the other members standing notice about an interest. The notice may be given at any time and whether or not the matter relates to the affairs of the Council or the AASB at the time the notice is given.
9.9 Standing notice must give details of the nature and extent of the interest and be given at a meeting of the Council (either orally or in writing) or to the other members individually in writing. A standing notice given to the other members individually in writing must be tabled at the next meeting of the Council after it is given. The member must ensure that the nature and extent of the interest disclosed in the standing notice is recorded in the minutes of the meeting where the standing notice is given or tabled.
9.10 The standing notice takes effect as soon as it is given and ceases to have effect in relation to a particular interest if the nature or extent of the interest materially increases above that disclosed in the notice.
9.11 Members who have a material personal interest in a matter that is being considered at a meeting of the Council must not be present while the matter is being considered at the meeting or vote on the matter unless the other members have passed a resolution that identifies the member, the nature and extent of the member's interest in the matter and its relation to the affairs of the Council or the AASB, and states that those members are satisfied that the interest should not disqualify the member from voting or being present.
9.12 Members will provide other members, through the secretariat, with a list of their current affiliations and update this list promptly as affiliations change.
10. Alternate FRC Members
10.1 Only where a member is unable to attend a meeting of the FRC, an alternate member – appointed by the Treasurer - may attend in their place.
10.2 When present at FRC meetings, alternate members are to have the same voting rights as the full FRC members in attendance.
10.3 It is the responsibility of FRC members to brief their alternate members before that alternate attends an FRC meeting in their place.
11. Observers
11.1 Persons may only be invited to attend FRC meetings as observers on the approval of the FRC Chairman.
11.2 Observers at FRC meetings do not have any voting rights.
11.3 All persons, other than FRC members and alternate members appointed by the Minister, present at FRC meetings have observer status only.