Twenty-Second Meeting
27 February 2004
Outcomes of the meeting held on 27 February 2004 at the Australian Accounting Standards Board Offices, Australian Stock Exchange Boardroom, Level 3, 530 Collins Street, Melbourne.
Attendance
FRC Members:
Mr Charles Macek (Chairman)
Ms Elizabeth Alexander, AM (Deputy Chairman)
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 Jim Murphy
Mr Tom Pockett
Mr Greg Pound
Mr Phillip Prior
Mr Brian Scullin
Ms Catherine Walter, AM
Mr Klaus Zimmermann
AASB:
Mr David Boymal (AASB Chairman).
FRC secretariat:
Mr Jorge del Busto (FRC Secretary)
Ms Gala Poole
Invitees:
Mr Bill Edge (Chairman of the AuASB – present for discussion of
agenda item 2)
Mr Richard Mifsud (Executive Director of the AARF – present for
discussion of agenda item 2)
Apologies:
FRC Members:
Mr Graeme McGregor, AO
Mr Ken Spencer
Mr Lewis Ting
Agenda item 1: Introduction by FRC Chairman
The Chairman of the Financial Reporting Council (FRC), Mr Charles Macek, welcomed members to the 22nd meeting of the FRC.
The minutes of the 21st FRC meeting, held on 5 December 2003, were approved as a correct record of the meeting.
The Chairman provided an update on the overseas meetings he attended in December 2003 including with representatives of the US Public Company Accounting Oversight Board (PCAOB), the International Accounting Standards Board (IASB), the European Union and the US Financial Accounting Standards Board (FASB)
The Chairman’s explained that the PCAOB is proposing to move to a sliding scale approach to its inspection of foreign audit firms, with the level of PCAOB involvement dependent on their assessment of the adequacy of the domestic system of oversight and regulation. The Council was also advised that both the IASB and the FASB remain dedicated to the convergence project between international standards and US GAAP. The Chairman also updated the council on the issues being addressed by the EU and the IASB on the adoption of IFRSs.
Agenda item 2: AuASB
The current Chairman of the Auditing and Assurance Standards Board (AuASB), Mr Bill Edge, and the Executive Director of the Australian Accounting Research Foundation, Mr Richard Mifsud, joined the meeting for this agenda item. Mr Edge and Mr Mifsud informed the FRC on what they see to be the major issues in relation to the transfer of the AuASB from the professional self-regulatory structure under the AARF to a statutory body under the FRC and provided the council with an update of progress to date.
While arrangements for the transfer are being made, the AuASB is maintaining a ‘business as usual’ approach to their work program. The AuASB is, and will remain, committed to a policy of convergence with international standards and are keeping up-to-date with PCAOB developments. The Chair explained that the AuASB currently works on both assurance and auditing standards and expressed the Board members and staff’s desire to continue with this work post CLERP 9.
The two guest speakers commented about the appropriate level of resources for the AUASB going forward - including desired board and staff numbers and required skill sets. Mr Edge noted that, while the two bodies have different functions, the possible co-location of the AUASB with the AASB would not cause any problems and would save on the infrastructure and administration costs.
The subsequent discussion raised the importance of the work involved in determining the nature and extent of any re-writing of auditing standards to ensure they are appropriately worded to be given legal backing. (CLERP 9 proposes that the standards will be given legal backing in their current state, with a sunset clause of two years in which they are to be re-visited before being submitted to become disallowable instruments.) This task will require the provision of additional resources to the AUASB for the prescribed review period. The council acknowledged that in this respect the transfer of the AuASB would involve more technical work than experienced during the transfer of the AASB, as at that time accounting standards were already disallowable instruments.
The AuASB Chairman explained that unlike the copyright of international accounting standards the copyright of international auditing standards would not be a complex issue.
The FRC Chairman expressed an expectation that the professional accounting bodies will maintain their current level of support for AuASB after it is transferred to become a statutory body under the FRC’s oversight if it maintains its current range of responsibilities. Those FRC members nominated by ICAA, NIA and CPAA acknowledged that such an assumption was reasonable. However, they also articulated that any final decisions in this regard will be provided in the context of the overall funding model.
Agenda Item 3: Report by Chair of the AASB
The AASB Chairman, Mr Boymal, updated the FRC on the AASB’s recent activities and work program.
Mr Boymal updated the Council on a number of issues including the presence of options in standards, the copyright of IASB standards and IFRS 1 - including transitional arrangements and comparative requirements as well as the AASB’s progress on the GFS/GAAP convergence project, on which a separate paper was presented for the Council’s information.
Options in Standards
Mr Boymal advised that the AASB’s position on options in standards had been placed on the AASB website at www.aasb.com.au and could be viewed by the public. Mr Boymal also advised that the IASB does not object to the narrowing of options included in the international accounting standards by individual jurisdictions.
Intangible Assets
Mr Boymal explained that the AASB submission to the IASB, outlining Australia’s concerns with regard to the treatment of intangible assets, was ineffectual in altering the IASB’s position.
Copyright
The meeting was informed that negotiations for access to the Implementation Guidance and Basis for Conclusions of the International Accounting Standards were proceeding.
IFRS 1
Mr Boymal explained that companies could not declare that their accounts are compliant with International Accounting Standards (IASs) if the comparatives are not completed in the manner specified by IFRS 1. Therefore, if full compliance is to be achieved, the AASB can not allow any exceptions other than those specified within IFRS 1.
Branding
The AASB Chairman noted that, while waiting for a response to its request to retain the AASB logo, the Board had to comply with Government direction on branding. It was agreed that Treasury would follow up on this matter and keep the FRC and AASB informed of any developments.
Presentation Currency
The AASB is considering retaining the option included in the international standards, which allow accounts to be prepared in any currency, while requiring Australian corporations to justify their choice of currency adopted. A final decision is yet to be made by the AASB.
Agenda Item 4: Update on Trans-Tasman cooperation
The meeting was provided with an update on progress in Trans-Tasman co-operation in the development of accounting standards. The meeting supported the initiative that a FRC member be invited to attend quarterly meetings of the New Zealand Accounting Standards Review Board (ASRB) and that an ASRB member be invited to attend quarterly meetings of the FRC.
Agenda Item 5: Transition to 2005
The FRC agreed that the current AASB interpretation of the FRC’s directive is appropriate. IASB standards should therefore be adopted in their entirety for accounting periods beginning on or after 1 January 2005 to the extent that they do not conflict with Australian law including the Corporations Act and assessing that such adoption is in the best interests of the Australian economy even though it might adversely affect some individual companies.
The meeting agreed that any ‘cherry picking’ or partial adoption of the standards would substantially diminish the gains of IAS adoption. Companies will not be compliant with international standards unless all standards are adopted in their entirety.
The FRC resolved to continue to monitor developments of the IASB’s progress on its work program with respect to the 2005 target and relevant developments in Europe regarding the adoption of IASs.
Agenda Item 6: Implementation of FRC’s expanded responsibilities proposed in CLERP 9
The Chairman updated the meeting on the discussions of the FRC’s CLERP 9 taskforce at its meeting on 16 February 2004.
The Council agreed that as well as the quarterly FRC meeting dates scheduled for the 2004 year: 31 March, 18 June, 20 September and 6 December the FRC will need to utilise the dates set aside for discussion of other matters arising from the implementation of CLERP 9 and other policy issues. These additional meetings are scheduled to be held on 23 April 2004 and 19 May 2004.
The meeting discussed the issues surrounding the implementation of the FRC’s expanded functions under CLERP 9 and decided to approve all of the FRC CLERP 9 taskforce recommendations. The FRC agreed to:
- note the draft record of the third CLERP 9 taskforce meeting held on 16 February 2004;
- approve the proposed action list and associated timetable for actioning CLERP 9 implementation tasks;
- approve the draft framework for the memoranda of understanding to
be entered into by the FRC with:
- the Professional Accounting Bodies (CPAA, NIA and ICAA);
- the Australian Securities and Investment Commission (ASIC);
- the Companies Auditors and Liquidators Disciplinary Board (CALDB);
- the Australian Stack Exchange (ASX); and
- the Australian Prudential Regulation Authority (APRA)
- agree:
- to engage the services of a consultant to help determine what will be required from the FRC to discharge its expanded functions with respect to auditor independence and how it might carry them out;
- that the consultant to be engaged, subject to his concurrence, should be Mr Robert Lynn, former Chairman of the Auditing and Assurance Standards Board from 1993 to 1996 and also a member of the Audit Standards Oversight Board that reported to the PwC Board of Partners on 28 August 2003;
- that the terms and conditions for the engagement of the proposed consultant will be determined by the FRC Chair;
- that the terms of reference that will guide the services provided by the consultant will be those provided to the Council in the agenda papers; and
- consider the issue of appointments to the AUASB and agree in principle, as a temporary measure, to appoint, on the date that CLERP 9 becomes effective, anticipated to be 1 July 2004, the current board for a period of 12 months.
Other Business
The FRC noted copies of relevant correspondence since the last FRC meeting.