Twenty-Eighth Meeting
6 December 2004
Outcomes of the meeting held on 6 December 2004 at the Australian Securities and Investment Commission, Level 18, 1 Martin Place, Sydney.
Attendance
FRC Members:
Mr Charles Macek (Chairman)
Ms Elizabeth Alexander, AM (Deputy Chairman, by Phone Hook-Up)
Mr Don Challen
Ms Karen Hamilton
Mr David Jackson
Mr Graeme McGregor, AO
Mr Jim Murphy
Mr Greg Pound
Mr Phillip Prior
Mr Brian Scullin
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 Richard Scherlowski
Invitees:
Mr Warwick Hunt (New Zealand Accounting Standards Review Board)
Mr Geoff Connor (New Zealand Ministry of Economic Development)
Mr Richard Humphry, AO (IASC Foundation Trustee)
Mr Bill Palmer (ICAA)
Mr Rob Sharma (Australian Prudential Regulatory Authority)
Mr Steve Somogyi (Australian Prudential Regulatory Authority)
Apologies, FRC Members:
Mr Tom Pockett
Mr Warren McGregor
Agenda item 1: Introduction by FRC Chairman
The Chairman of the Financial Reporting Council (FRC), Mr Charles Macek, welcomed members to the 28th meeting of the FRC. There were no conflicts of interest declared in relation to any of the items on the agenda.
The minutes of the 27th FRC meeting, held on 20 September 2004, were approved. A Secretariat paper on matters arising from the previous meeting was noted and the Chairman indicated that such a paper will be circulated with all future FRC agenda papers.
Update on meetings
The Chairman provided an overview of the meetings he attended in Washington and Basle, hosted by the FSF and the latter jointly with the IASB and the World Bank. He noted that apart from hearing the European concerns on IAS 39 the Basle meeting in particular recognised that there was widespread concern on the impact of IFRS on Small and Medium Enterprises (SME’s). He also reported on the main messages received on his recent overseas trip, accompanied by Mr Jorge del Busto (FRC Secretary), to North America and Europe. The key findings arising from his discussions were:
- The European Commission was not prepared to go against the concerns of their prudential regulators and hence they had the carve outs on IAS 39. Resolution of this issue is expected during 2005;
- In Canada, unlike Australia, there is no overarching national corporate law system. This fragmentation of corporate law makes changes to accounting standards more difficult to adopt on a consistent basis;
- Canadian standards are currently based on US GAAP, however the results of a recent exposure draft paper on the future of Canadian accounting standard setting revealed that Canadian businesses have a preference for IFRS as opposed to the rules based approach of US GAAP standards;
- There was an increased emphasis, both in the US and in Europe, on the objective of achieving convergence between IFRS and US GAAP; and
- While some stakeholders remained concerned with the profession retaining control of developing auditing standards, there was some pragmatism accepting that for the time being the current framework needs to work as best as it can.
The FRC Chairman concluded that his assessment was that Australia had made the right call in adopting IFRS from 2005 and that although there were some transitional issues to address, they were not insurmountable.
Update from the IASC Foundation Trustees meeting
Richard Humphry, the newly appointed Australian Trustee of the International Accounting Standards Committee Foundation (IASCF) noted the main outcomes of the discussions from the recent meeting of the IASCF Trustees including the proposals arising from the IASCF Constitutional Review:
- 19 members expanded to 22 members, with 6 from each of North America, Europe and Asia Pacific and 4 that are open. This change would enable large countries which are presently nor represented such as China and India to be included, and also accommodate membership from the South American region;
- The importance of adequate consultation and due process was reaffirmed;
- Public sector issues were considered to be beyond the capacity of the IASC Foundation in the near term; and
- The funding contribution from IASC Foundation Trustee home countries is expected to shift away from market capitalisation towards Gross Domestic Product (GDP);
It is expected that the IASC Foundation Trustees will meet three times in 2005, with one meeting expected to be held in Paris, to further aid the consultative process with European stakeholders.
Agenda item 2: IFRS implementation issues
The Council noted a paper prepared by the Commonwealth Treasury outlining the main implementation issues with regard to the adoption of IFRS including:
- the treatment of identifiable intangible assets,
- the preparedness of ‘small’ companies for the adoption of IFRS, and
- the effect that specific IFRS standards will have on the funds management industry.
Agenda item 3: Report from the Chair of the AASB
The Council noted an update on AASB issues provided by the AASB Chair including progress towards the 2005 timetable for adoption of standards issued by the International Accounting Standards Board (IASB); liaison with the IASB; the GAAP/GFS convergence and other public sector projects.
The Council noted that the IASB is increasingly attracting a cohort of high quality international applicants for membership of its working groups and therefore it was important to encourage highly qualified Australian and New Zealanders to join the working parties of the IASB in order to maintain our region’s influence over the international accounting standard setting framework. The meeting also agreed that the AASB, as the source of Australian members of the IASB’s Project Teams of standard setters, should co-ordinate Australian efforts to have nominees appointed to the Working Groups established by the IASB for each of its major projects.
The AASB Chairman also noted that that the IASB is considering substituting its regular national standard setter meetings for more technical and selective project based meetings. The Council concurred with the AASB Chairman that it was desirable for consultations to continue to retain the national standard setter meetings and agreed that in consultation with New Zealand a joint view on this issue should be put forward to the IASB.
Agenda item 4: Report from the Chair of the AUASB
It was noted that at its meeting on 30 November 2004 the Auditing and Assurance Standards Board (AUASB) held wide-ranging discussions on a number of important matters including further consideration of the AUASB’s proposed drafting principles for auditing standards, and an initial consideration of public comment letters received by the FRC and made available to the AUASB, with regard to the AUASB strategic directions paper.
The AUASB Chair also gave a presentation which considered the current Australian auditing standards drafting approach, the PCAOB drafting approach and the drafting approach considered under the IAASB clarity project. This presentation revealed the dilemma whether the AUASB should make minimalist changes to the existing standards, with further amendments expected as the IAASB clarity project unfolds over the next five to eight years, or whether the AUASB should make more significant changes to its standards ahead of the IAASB clarity project as it needs to issue revised audit standards which will have the force of law by June 2006.
It was noted that the AUASB strategic directions paper emphasises the objective of serving the public interest and having the highest quality auditing standards taking precedence over the objective of having minimal departure from international auditing standards.
The Council agreed that at the April meeting of the FRC in 2005, the FRC would be provided with a further paper to assist in the development of the proposed strategic direction for the AUASB which will have analysed the feedback received from the strategic direction discussion paper on the FRC website as well as teasing out the implications of the IAASB clarity project.
Agenda item 5: Report from the Chair of the Nominations Committee
On the recommendation of the Nominations Committee, the FRC agreed to all the recommended appointments to the AASB and AUASB, detailing the names and terms of appointees). The FRC received a high level of interest from outstanding applicants and had more suitable candidates than positions were available. The Nominations Committee Chairman noted the rigorous selection process undertaken.
With regard to future performance reviews of AASB and AUASB members, the Council agreed that a copy of the individual performance summary sheets will be provided to all members of the Nominations Committee, in addition to the Chairmen of both Boards and the Chairman of the FRC.
Agenda item 6: Report from the Chair of the Finance Committee
On the recommendation of the Finance Committee, the Council approved the updated AASB budget for 2004-05; the revised AUASB budget for 2004-05; the revised FRC budget for 2004-05 and the reallocation of $200,000 from the IASC funding contribution to overseas travel to enable the FRC to meet the costs of overseas travel by FRC representatives attending official international meetings and other Australians attending IASB or IAASB related activities where their travel costs are not met by stakeholder groups.
The FRC also noted the updated summary of costs for fitting out AASB and AUASB accommodation at Level 4, 530 Collins Street, Melbourne. As reported by the Chairman of the AASB, these costs were considerably higher than expected as a result of unavoidable building costs which had not been fully anticipated, such as changes to the air conditioning and fire services for the boardroom and the computer room.
Agenda item 7: Report from the Chair of the Audit Independence Subcommittee
On the recommendation of the Audit Independence Subcommittee, the FRC agreed to offer a contract of engagement to a consultant on auditor independence. The council clarified that the timing and duration of the workload of the consultant would need to be clearly established by the committee prior to the commencement of the consultancy.
Agenda item 8: AUASB strategic direction – 2004-05
This agenda paper was dealt with under agenda item 4.
Agenda item 9: FRC’s review of operations
This agenda item was postponed until the next FRC meeting, scheduled for late February 2005.
Agenda item 10: International developments
The FRC noted this agenda paper.
Agenda item 11: Other matters
The FRC agreed to the documents necessary to progress the engagement of an FRC consultant on sector neutral accounting standards including the ‘Terms of Reference’ and the ‘Selection Criteria’ and that the FRC Chairman will have the authority to conduct the corresponding tender process for the selection of an FRC consultant on sector neutral accounting standards with the assistance of interested FRC members, so that a recommendation on a selected consultant could be considered by the FRC either via circular resolution or at its first meeting in 2005. It was noted that an advertisement for the consultancy position should be released in early 2005.
The FRC agreed to the appointment of Ms Joanna Perry, Chairman of the New Zealand Financial Reporting Standards Board, to the AASB until 31 December 2005. This appointment is consistent with the objective of developing closer Trans-Tasman ties on accounting issues between Australia and New Zealand.
The FRC agreed to meeting dates for 2005, these dates have been posted on the What's new page of FRC website. The FRC also agreed to hold an additional meeting during the second half of February 2005, with a date yet to be established.