Twenty-Fourth Meeting
23 April 2004
Outcomes of the meeting held on 23 April 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
Mr Roger Cotton (Alternate to Mr Klaus Zimmermann)
Ms Karen Hamilton (by Phone Hook-Up)
Mr David Jackson
Mr Jim Kerwin (Alternate to Mr Phillip Prior)
Mr John Langoulant
Mr Graeme McGregor, AO
Mr Jim Murphy
Mr Greg Pound
Mr Brian Scullin
Ms Catherine Walter, AM
AASB:
Mr David Boymal (AASB Chairman).
FRC secretariat:
Mr Jorge del Busto (FRC Secretary)
Mr Richard Scherlowski
Invitees:
Mr Peter Day (Standards Advisory Committee)
Mr Bill Palmer (Institute of Chartered Accountants in Australia)
Mr Rob Sharma (Australian Prudential Regulation Authority)
Mr Steve Somogyi (Australian Prudential Regulation Authority)
Apologies:
FRC Members:
Mr Warren McGregor
Mr Tom Pockett
Mr Phillip Prior
Mr Lewis Ting
Mr Klaus Zimmerman
Agenda item 1: Introduction by FRC Chairman
The Chairman of the Financial Reporting Council (FRC), Mr Charles Macek, welcomed
members to the 24th meeting of the FRC.
The minutes of the 23rd FRC meeting, held on 31 March 2004, were approved with
the clarification that APRA supported the principle of adoption of international
accounting and that APRA is forming its views with regard to the prudential
response to international accounting standards in part through consultation
with international regulators such as the FSA in the UK.
The Chairman noted that Mr Ken Spencer had passed away the day before the last FRC Meeting held on 31 March 2004. The Council agreed with the Chairman in expressing their deep appreciation and acknowledgement of Mr Ken Spencer’s contribution to the current framework of international accounting standards and that he will be sorely missed by the FRC, accounting profession and IASC. The FRC agreed unanimously to establish a commemoration in Mr Ken Spencer’s memory.
Agenda item 2: Report from Chair of the AASB
IASB/AASB Work Program Update
The AASB Chairman, Professor David Boymal, confirmed that the international accounting standards released by 31 March 2004 by the IASB met the AASB’s requirements and that the AASB will be able to make available on its website the corresponding versions of Australian standards by 30 June 2004.
In regard to the consequential amendments from IAS 39 upon other international accounting standards the AASB Chairman indicated that these had been completed for all but two of the standards and that the consequential amendments for these standards are expected be completed by the IASB shortly.
Copyright
The AASB Chairman noted that CPA Australia has agreed with the IASB in regard to royalties and copyright payments for the basis for conclusion and the additional guidance or explanatory material in regard to international accounting standards and that there was a need for the other two major professional accounting bodies to engage in a similar agreement with the IASB so that the copyright issue could be resolved. The FRC representatives from the ICAA and NIA agreed that they would liaise with each other to resolve the matter as expeditiously as possible.
UIG Charter
The Chair of the AASB discussed proposed changes to the Urgent Issues Group (UIG) Charter and commented on the AASB proposal to include UIG abstracts which provide interpretations needed for the application of accounting standards under a separate accounting standard. Concern was noted that the UIG abstracts may not be subject to an ‘exposure draft’ process as with the accounting standards.
The meeting agreed that the AASB will consult with FRC members and will present a paper with a revised UIG Charter at the 19 May FRC meeting explaining the proposed changes and the rationale for the dismissed alternatives.
Agenda Item 3: Transition to 2005
The Council heard an update from FRC members on their consultations with stakeholders
following their in-principle agreement on 31 March 2004 to proceed with the
current Australian timetable for adoption of international accounting standards
from 1 January 2005. It was acknowledged that announcement of the agreement
had provided certainty on the timing for implementation in Australia, particularly
in relation to IAS 39, and therefore alleviated many of the concerns on the
timing schedule. Stakeholders appeared broadly supportive of the decision, provided
the AASB would be able to meet its work program deadline by 30 June 2004.
APRA member Mr Steve Somogyi, advised the Council that APRA will continue with
its work program to revise prudential standards in line with the international
accounting standards to be adopted by Australia and noted that challenges remained
in raising awareness and managing operational risk particularly amongst small
and medium sized businesses in the finance and insurance sectors.
Mr Peter Day, commented that many companies including AMCOR are working in order to be ready for the adoption of international accounting standards. Mr Day also noted that, as a member of the International Standards Advisory Committee (SAC), he was now more actively liaising with the AASB, including through the sharing of agenda papers.
The FRC noted advice from the Chair of the IASB on developments in Europe indicating that the adoption of International Financial Reporting Standards (IFRS) from 1 January 2005 was on schedule. The European Commission cannot delay implementation of approved IFRS without proposing a new regulation. While there remains uncertainty whether the European Commission will endorse IAS 39 as part of the 2005 timetable, the UK Accounting Standards Board is proposing the adoption of IAS 32 for all companies and IAS 39 for all listed companies. It was also noted that the European Central Bank (ECB) subsequent to the completion of the final batch of IAS on 31 March 2004, has recommended adoption of all standards including IAS 39.
Stakeholder views were carefully considered by the FRC as was the advice from Sir David Tweedie, APRA and the AASB Chairman. Following these presentations, the Council unanimously agreed to ratify and make final its decision regarding the adoption of international accounting standards by Australia from 1 January 2005. The Council also noted the need to monitor preparations for adoption and agreed that the FRC Chairman should contact the professional accounting bodies and other stakeholder groups to request them to elevate awareness amongst their members and clients. It was also agreed that the FRC Chairman will formally inform the Government and the AASB of the Council’s decision on the timetable for adoption of international accounting standards by Australia.
Agenda Item 4: Report from FRC Audit Committee Chair
Ms Elizabeth Alexander AM, Chair of the FRC Audit Committee invited Ms Leonie Mansell from the AASB to attend agenda items 4 and 5 of the FRC meeting because of her involvement in the FRC Audit Committee discussions. The Chair of the FRC Audit Committee and Ms Mansell outlined the results of the updated 2003-04 AASB Budget and noted that a net surplus of $1.5 million was projected, but this result did not include any copyright payments nor contributions to the IASB.
The Chairman of the FRC indicated that the FRC was still withholding $300 000
of an allocated $1 million funding contribution to the IASC on the grounds of
resolving copyright issues. However, as advised by the AASB Chairman, it was
acknowledged that the copyright issue had now been progressed and on that basis
the FRC agreed to proceed to inform Mr Paul Volcker, Chairman of the IASC, of
the forthcoming $300 000 payment.
The Chair of the Audit Committee, with the support of the Chairman of the FRC,
asserted that it was a matter of urgency for the Secretariat and the AASB to
send out letters with attached invoices to the relevant companies of the top
100 companies that agreed to support the funding of the FRC for a period of
3 years. The letters with their attached invoices will seek business contributions
to FRC funding for the 2003-04 financial year. The Secretariat indicated that
these letters would be sent as soon as possible.
Following the presentation by the FRC Audit Committee Chair, Ms Elizabeth Alexander AM, in regard to the Audit Committee meeting held on 18 March 2004, the Council agreed that:
- A discussion of FRC’s 2004-05 Budget issues, including preliminary budgets for the AASB and AUASB will be held at the FRC meeting on 19 May 2004;
- The FRC Chairman will write to Mr Paul Volcker, Chairman of the IASC, advising the FRC’s decision to contribute to the IASB a further $300 000, which will complete the $1 million the FRC originally indicated it would contribute for 2002-03. The decision on the additional contribution to the IASB was based on the satisfactory progress on copyright negotiations, as advised by the AASB Chairman. The FRC Chairman would also write to Mr Volcker submitting Australian candidates to be considered by the IASC as a potential replacement for Mr Ken Spencer; and
- The AASB Chairman will be authorised to exceed the budgeted figure for fixed asset expenditure by up to $50 000 per year and for operating expenditures for up to $70 000 per year without prior approval by the FRC.
Agenda Item 5: AUASB 2004-05 Budget: staffing, accommodation and related transitory arrangements
The meeting noted the Secretariat paper indicating that options for AUASB staffing, accommodation and transitory arrangements were still being canvassed. Mr Boymal indicated that the most favoured current option is for the AASB to relocate with the AUASB to Level 4 of the ASX building, 530 Collins Street Melbourne primarily because of the appropriate office space available and the subsidised rental rate.
Agenda Item 6: Implementation of FRC’s expanded responsibilities under CLERP 9 – Update
The Chairman of the FRC indicated that the FRC had taken receipt of the consultancy report from Mr Robert Lynn in regard to the FRC’s expanded responsibilities, focusing on the FRC’s new role in regard to the monitoring of auditor independence. It was agreed that this matter would be considered at the FRC CLERP 9 taskforce meeting scheduled to occur before the next FRC meeting and the subsequent minutes from this CLERP 9 taskforce meeting would become an agenda paper at the next FRC meeting.
Agenda Item 7: FRC Rules of Procedure – allowing for proxy votes
FRC members noted an agenda paper from the Secretariat that sought to amend the FRC rules of procedure in order to allow for absent FRC members who wish to do so, to delegate their voting powers to invited guests which may hold proxy voting powers. With the support of the FRC Chairman the proposed changes to the rules of procedure were agreed.
Agenda Item 8: Other Business
The Chairman of the FRC noted that New Zealand representatives of the Trans Tasman Accounting Standards Advisory Group met on 8 March, and Australian representatives met via phone hook-up on 15 April. It is proposed that the full group meet in conjunction with the FRC meeting scheduled for 19 May. Jim Murphy has been nominated to chair meetings for 2004. A New Zealand representative will chair meetings for 2005.
It was noted that the following issues were discussed, which will be elaborated upon in a meeting of the full group including: reciprocal meeting attendance arrangements between standard-setting and oversight bodies in the two countries; the potential for divergence in Australian and New Zealand standards due to the different ways that they are operationalising the commitment to adopt international standards; differences between the two countries in the broader legal frameworks governing accounting standard setting; and co-operation between Australia, New Zealand and other countries in the region in relation to influencing international accounting standards and other IASB matters.
The FRC noted copies of relevant correspondence since the last FRC meeting.