Twenty-Seventh Meeting
20 September 2004
Outcomes of the meeting held on 20 September 2004 at the 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 (by Phone Hook-Up)
Mr David Jackson
Mr Graeme McGregor, AO
Mr Jim Murphy
Mr Tom Pockett (by Phone Hook-Up)
Mr Phillip Prior
Mrs Catherine Walter, AM
Mr Klaus Zimmermann
AASB:
Mr David Boymal (AASB Chairman)
AUASB:
Ms Merran Kelsall (AUASB Chairman)
FRC secretariat:
Mr Jorge del Busto (FRC Secretary)
Mr Peter Taft
Invitees:
Mr Warwick Hunt (New Zealand Accounting Standards Review Board)
Mr Geoff Connor (New Zealand Ministry of Economic Development)
Mr Bill Palmer (ICAA)
Mr Rob Sharma (Australian Prudential Regulatory Authority)
Ms Kerstin Wijeyewardene (Commonwealth Treasury)
Mr Malcolm Rodgers (Australian Securities and Investments Commission) (by Phone Hook-Up)
– item 1
Mr Paul Hinchey (Australian National Audit Office) (by Phone Hook-Up) – items 3 and
5
Apologies
FRC Members:
Mr Greg Pound
Mr Brian Scullin
Agenda item 1: Introduction by FRC Chairman
The Chairman of the Financial Reporting Council (FRC), Mr Charles Macek, welcomed members to the 27th meeting of the FRC. The Chairman welcomed Ms Merran Kelsall, who was appointed as Chair of the Auditing and Assurance Standards Board (AUASB) on 10 August 2004, to her first FRC meeting. The Chairman informed members that since the previous meeting of the FRC, he had received the resignations of Mr John Langoulant and Mr Lewis Ting. The Council joined the FRC Chairman in expressing its appreciation of Mr Langoulant’s and Mr Ting’s contributions to the work of the FRC and wished them well with their future challenges.
There were no conflicts of interest declared in relation to any of the items on the agenda.
The minutes of the 26th FRC meeting, held on 18 June 2004, were approved as a true and accurate record of the meeting. As matters arising from that meeting, the FRC Chairman stated that he had provided a submission to the IASC Foundation Constitutional Review, which incorporated comments from FRC members, and had subsequently attended a hearing on the review in Tokyo on 13 July 2004. Among other things the meeting had discussed the need for the International Accounting Standards Board to communicate more effectively with its constituents. The Chairman reiterated the need for Australia and New Zealand to continue to demonstrate their interest and capacity to contribute at the international level. He stated that the IASC Foundation Trustees had shown considerable interest in ‘sector neutral’ standards. The FRC had previously considered employing a consultant to undertake work on this issue, and concluded that it was timely to activate this engagement.
The Chairman also reported on his meetings with the accounting profession, APRA and the IASB to discuss their views on auditing oversight and IFRS implementation in Australia and Europe. With respect to the latter, the Chairman reported that discussions on IAS 39 were still work in progress, with the possibility of some paragraphs on IAS 39 dealing with the fair value option and hedge accounting being carved out, but this did not pose any problems for Australia, which is adopting in 2005 IAS 39 as issued by the IASB on 31 March 2004.
The professional accounting bodies have confirmed their agreement to increase their annual funding contribution to the FRC for 2004-05. The Memorandum of Understanding between the FRC and APRA has been finalised and will be signed by the respective Chairmen at the earliest opportunity. The professional bodies have expressed their concerns regarding whether audit inspections will be carried out by APRA, ASIC or the FRC, and wanted to ensure that their roles were clearly delineated.
The FRC Chairman also provided an update on the main issues that had been raised by various stakeholders in Australia regarding the transition to IFRS, including the preparedness of small and medium sized companies, the treatment of intangible assets and issues associated with the funds management industry. The Council is continuing to monitor implementation issues.
The Council noted that many companies are well advanced in terms of the transition to IFRS and there is still adequate time for other companies to prepare for the transition to IFRS. It reaffirmed its endorsement of the 2005 timetable and its previous directives to the AASB that Australian equivalents of IFRS should fully apply to all reporting entities. However it also conveyed its support for any other appropriate initiatives that ASIC may provide such as facilitating the access by smaller companies to professional advice, to ensure a smooth transition in 2005.
It was also agreed that the AASB Chair will write to the companies that have expressed concerns regarding the treatment of intangible assets under AASB 138, conveying the AASB’s position on this standard.
Agenda item 2: Report from the Chair of the AASB
The Council noted an update on AASB issues provided by the AASB Chairman including reference to issues such as the relocation of the AASB premises, copyright, IASB projects and work priorities.
The AASB Chairman advised the FRC that all of the pending Australian versions of International Accounting Standards Board (IASB) standards were posted on the AASB website by 30 June 2004, and were formally made at the 15 July 2004 AASB meeting. The standards have been tabled in the Senate but not yet in the House of Representatives, due to the prorogation of Parliament for the election.
A proposal to link the websites of the IASB, AASB, and the three accounting bodies websites has been delayed as the IASB has not yet finalised an agreement with the Institute of Chartered Accountants in Australia (ICAA) and the National Institute of Accountants (NIA) on copyright issues. The AASB Chairman indicated that there remained two unresolved copyright issues and noted the need for the financial contribution to the IASB to take into account the costs of any copyright fees that might need to be paid for access to IASB publications.
The AASB Chairman also noted that the AASB had prepared a paper commenting on a recent proposal by the IASB on how it intends to relate to National Standard Setters (NSS). He indicated that the paper was to be discussed at an upcoming meeting of NSS in London.
Agenda item 3: Report from the Chair of the AUASB
The Council noted that the inaugural meeting of the Auditing and Assurance Standards Board (AUASB) was held on 31 August 2004, and was mainly concerned with the ongoing work of the former AuASB and administrative matters required to support the work of the Board.
The AUASB Chair also submitted a revised version of the proposed AUASB strategic directions paper. A key theme of the paper, as discussed by the FRC-AUASB strategic direction taskforce, is that the objective of having the highest quality auditing standards should take precedence over the objective of having minimal divergence from international standards due to the role of auditing standards in the broader governance framework and the need to take account of the public interest. The FRC decided that the current version of the paper, with a covering introduction to be prepared by the Secretariat in consultation with the AUASB Chair, should be placed on the FRC website for public comment, and that further discussion should take place at the next FRC meeting in December 2004. It is expected that this should occur by 1 October 2004 with public comment invited by 15 November 2004 enabling further discussion to take place at the next FRC meeting on 6 December 2004.
Agenda item 4: Report from the Chair of the Nominations Committee
The FRC agreed to a revised criteria and process for the appointment and performance assessment of AASB and AUASB members, including the Chairmen. This revised process included the performance assessment rating system being increased from a scale of 1 to 3, to a scale of 1 to 5 and the Chairman of the FRC having more direct oversight of the evaluation of the AASB and AUASB Chairmen.
Agenda item 5: Report from the Chair of the Audit Committee
On the recommendation of the Audit Committee, the Council approved the 2003-04 stocktake of FRC operations against its functions, the draft 2003-04 FRC / AASB Annual Report, the updated 2004-05 AASB Budget, and the terms and conditions of the remuneration for the members of the AASB and AUASB (other than their Chairmen).
The FRC agreed to a contribution of an additional $1 million to the IASC Foundation, subject to further consultations by the FRC Chairman with the incoming Government.
Following the receipt of legal advice, the FRC agreed to the establishment of separate Audit Committees for each of the AASB and AUASB and to the establishment of a FRC Finance Committee, with the same FRC members comprising the membership for these three Committees and approved their corresponding Charters. It also agreed to the proposed 2004-05 draft Budgets for the AUASB and the FRC’s own operations, subject to review by the AUASB Audit Committee and the FRC Finance Committee respectively.
Agenda item 6: Report from the Chair of the Audit Independence Subcommittee
The FRC approved the charter of the Audit Independence Subcommittee. The FRC noted that the Subcommittee is still considering the selection of a part-time consultant to assist the FRC with its responsibilities for monitoring the effectiveness of auditor independence requirements in Australia.
Agenda item 7: FRC Website Copyright Issues
The FRC agreed with two requests to use, for commercial purposes, material posted on the FRC website. It further agreed that the Chairman be authorised to deal with similar requests concerning copyright and the use by outside parties of material from the FRC website, subject to adequate protection of copyright issues, including determining whether there is a need for the request to be considered by the FRC.
Agenda item 8: FRC’s review of operations
The FRC noted a background paper prepared by the FRC Secretariat dealing with three issues: the opening of FRC meetings to the public, the composition of the Council and the structure of its Secretariat. A further detailed paper, incorporating information regarding the framework adopted in other jurisdictions will be prepared following the bi-annual visit to the US and Europe by the FRC Secretary and Chairman in November. This will enable the FRC to deal with this issue at its meeting in December.
Agenda item 9: FRC Secretariat paper on international developments
The FRC noted the paper.
Agenda item 10: Other business
The Chairman asked members of the Council to give consideration to the frequency, timing and location of FRC meetings for 2005, for consideration at the next meeting in December.
It was noted that the terms of some FRC members would expire on 6 March 2005. FRC members were requested to advise the corresponding stakeholders that their views on representations be conveyed to the FRC Secretariat.