Thirty-First Meeting
1 July 2005
Outcomes of the meeting held on 1 July 2005 at the Australian Securities and Investments Commission, Level 18, 1 Martin Place, Sydney.
Attendance
FRC Members:
Mr Charles Macek (Chairman)
Mr Don Challen
Mr Richard Humphry, AO
Mr Warwick Hunt
Mr David Jackson
Mr Graeme McGregor, AO
Mr Brian Scullin
Mrs Catherine Walter, AM
Ms Jan West
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 Paul Phenix (Australian Stock Exchange)
Mr William Bartlett (Consultant to the FRC on auditor independence –
Item 4 only)
Mr Douglas Niven (Australian Securities and Investments Commission)
Mr Steve Somogyi (Australian Prudential Regulatory Authority (APRA) –
Items 1 to 3 only)
Mr Robert Sharma (Australian Prudential Regulatory Authority (APRA) –
Items 1 to 3 only)
Apologies, FRC Members:
Ms Elizabeth Alexander, AM
Mr Jim Murphy
Mr Tom Pockett
Mr Phillip Prior
Agenda item 1: Introduction by FRC Chairman
The FRC Chairman, Mr Charles Macek, welcomed members to the 31st meeting of the FRC. The minutes of the 30th FRC meeting held on 4 April 2005 were approved.
FRC Membership
The FRC Chairman noted that since the last FRC meeting, Mr Greg Pound had resigned as Chief Accountant of ASIC and consequently, had also resigned from the FRC. In addition, Mr Greg Larsen, a former alternate member of the FRC, had completed his term as Chief Executive of CPA Australia.
The FRC Chairman placed on record his appreciation of the contributions made by Mr Pound and Mr Larsen to the FRC and in their respective roles at ASIC and CPA Australia.
Matters Arising from the Previous Meeting
A list of matters arising was circulated with the agenda papers, and noted.
Declarations of Interest
It was noted that Mr Brian Scullin was a director of a listed property trust, accounting standards for which were discussed as part of the AASB Chairman’s report at agenda item 2.
It was noted that Ms Jan West was a partner at an accounting firm which had met with the FRC Auditor Independence Subcommittee, as discussed as part of the report for the Subcommittee at agenda item 4.
Update on meetings
The FRC Chairman reported on meetings he and the FRC Secretary, Mr del Busto, and the General Manager of Treasury’s Corporations and Financial Services Division, Mr Rawstron, had held in London and Brussels during June. It was clear that while the process of convergence would take some years, the next twelve months would see a number of critical decisions being made in respect of international accounting standards and hence, the importance for Australia to be actively involved in discussions. In general, the European countries were feeling more positive about the likely outcomes of the convergence process. On auditing standards, there was an ongoing debate on how detailed standards should be, and linked with this, some concern on the risks of moving towards rules-based standards. The overall mood was one of concern with the tendency towards increased regulation in recent years.
The FRC Chairman also reported on meetings he had held with ASIC Chairman Mr Jeff Lucy, the Parliamentary Secretary to the Treasurer, Mr Chris Pearce, and the new National President of the Group of 100, Mr Tom Honan, and a number of presentations he had recently given.
Mr Richard Humphry reported on the last meeting of the International Accounting Standards Committee (IASC) Foundation trustees, which agreed to the final form of the IASC Foundation constitution, following the review that had occurred over the past year and a half. The new constitution preserves the independence of the IASB, allows for greater communication with national standard setters, and provides for consultation on the appointment of trustees. The Standards Advisory Committee will have a full-time Chair. IASB current developments are focused on convergence with the US. Both the SEC and the European Commission are supportive. In Japan the national accounting standard-setter has also committed to convergence with IAS and Warren McGregor is leading the discussions at this stage. Canada has also announced it will adopt International Financial Reporting Standards (IFRS) within 5 years. Rapid progress on convergence with the US holds out the promise of removing reconciliation requirements for listing in the US provided IFRS are applied and interpreted in a consistent fashion. To this end, work is being accelerated on segment reporting, accounting for income tax, business combinations, and an amendment to the treatment of contingent liabilities with a view to adopting them as common standards by FASB and IASB in 2005.
Mr Humphry also reported that the IASC Foundation was accelerating its contacts with India, and that Australia and New Zealand were held up as model countries in respect of their provision of funding for the Foundation.
Mr Warwick Hunt reported that in its recent Budget, the New Zealand Government had confirmed funding to the IASC Foundation on an ongoing basis. The Cabinet was giving consideration to recommendations from the review of New Zealand’s Financial Reporting Act, which covered the institutional arrangements governing accounting standard setting, and reporting requirements for different types of entities.
Agenda item 2: Report from the Chairman of the AASB
The FRC noted an update on AASB issues provided by the AASB Chairman including an update on IFRS adoption, implications arising from changes to IFRS standards, and GAAP / GFS harmonisation.
The AASB Chairman noted a recent statement issued by the European Financial Reporting Advisory Group that the European countries were aiming to work more closely together to provide early and considered input to the global standard setting process. This highlighted the need for Australia and other countries in the Asian region to do likewise.
The AASB Chairman advised that he had contacted the IASB Chairman, Sir David Tweedie, on the need to provide, as part of due process, sufficient lead time for any changes to current standards and their interpretations, being mindful of the situation in countries such as Australia where they have legislative status. A copy of the e-mail sent by the AASB Chairman was tabled at the meeting.
The AASB Chairman provided an update on the project to harmonise GFS and GAAP accounting standards for the public sector. The FRC noted the progress that the AASB had made and that the forthcoming release of the corresponding exposure draft would allow the AASB to benefit from additional feedback from stakeholders.
The FRC agreed that in the updated direction from the FRC to the AASB on private sector accounting standards to be discussed later in the year, issues relating to small and medium enterprises and not-for-profit entities would be given consideration.
Agenda item 3: Report from the Chairman of the AUASB
The AUASB Chairman reported that a number of new staff members had commenced at the AUASB over the previous few months, and that she expected that resourcing levels would remain relatively constant into the foreseeable future.
A number of AUASB meetings were held in April, May and June. The major outcome of these meetings was agreement by the AUASB that it implement a two-phase approach to the review and re-issuance of auditing standards. During the first phase, the redrafting focus would be on: (i) ensuring the enforceability of (black letter) mandatory obligations in the revised standards; (ii) clarifying in the revised standards any implied obligations from the pre-existing standards; and (iii) the inclusion of improvements in the revised standards, which may originate from other standard-setting bodies. This first revision phase will be completed by 31 March 2006, with a monitoring by the AUASB of the re-issued auditing standards through legislative instruments process in Parliament during the remaining period to 30 June 2006.
After the initial revisions phase, the second stage will focus on reviewing the auditing standards to improve quality, clarity, layout etc. Phase two will commence after the new auditing standards are in place for 1 July 2006, and will occur in line with the priority to be set by the AUASB. This second phase of review and re-issuance will be an on-going project and will be dependant on the Clarity of Standards Project developments of the IAASB, as well as new standards issued by other international auditing standard-setting bodies.
The AUASB Chairman also reported that the AUASB is currently developing a formal plan on how best to communicate the AUASB’s strategies and work programme to stakeholders. The AUASB Chairman indicated that she would be pleased to liaise with the AASB Chairman on this matter going forward.
The AUASB has established a research committee and would promote the topics of interest on its website for the benefit of interested accounting and auditing students and academics. The AUASB does not anticipate undertaking much research itself over the next 12 months due to the need for it to focus on the issuance of statutory auditing standards.
The FRC endorsed the AUASB’s proposed governance guidelines.
Agenda item 4: Report from the Chairman of the Audit Independence Subcommittee
Mr William Bartlett, who is assisting the Council on its audit independence functions, provided an update of the Subcommittee’s work, including meetings with key stakeholder bodies. This includes meetings with ASIC, APRA, and three of the ‘Big Four’ accounting firms. Meetings with some mid-tier accounting firms had been scheduled in the week following the FRC meeting.
Mr Bartlett noted that a draft report on auditor independence is currently being prepared and following further consultations with stakeholders, is expected to be circulated for comments by FRC members in August.
Agenda item 5: Report from the Chairman of the Finance Committee
The FRC agreed with the Finance Committee’s recommendation that there be a formal ceremony to name the AASB’s Boardroom after Mr Ken Spencer, as well as a research lecture held in his memory in early 2006.
The FRC noted that following the recommendation of the AASB Audit Committee, the keeping by the AASB of certain administrative records (staff time spent on technical projects) would cease with effect from 1 July 2005.
The FRC noted that in line with the authority delegated by the FRC, the Finance Committee agreed that a further $500,000 should be paid to the IASC Foundation bringing the total contribution to the IASC Foundation out of the 2004-05 FRC budget appropriation to $1 million.
The FRC noted that Treasury has advised the professional accounting bodies of its agreement to the proposed settlement of the AUASB transfer subject to a satisfactory audit of the figures by the Australian National Audit Office.
The FRC approved the 2005-06 draft FRC budget, the 2005-06 draft AASB budget and business plan, and the 2005-06 draft AUASB budget and business plan. The business plans will be published on the web sites of the respective boards.
The FRC noted:
- the projected 2005-06 cash position for the combined FRC, AASB and AUASB position;
- a Secretariat paper containing projected expenditures of the FRC, AASB and AUASB for the years 2005-06 to 2008-09 and existing funding commitments for those years;
- the Committee’s preliminary assessment of the medium term budget projections for the FRC, AASB and AUASB; and
- the draft timetable and responsibilities for the preparation of the 2004-05 FRC, AASB and AUASB annual reports.
Agenda item 6: Report from the Chair of the Nominations Committee
It was noted that since the last FRC meeting, the FRC had appointed Mr Frank Palmer to the AASB via circular resolution.
Following up on the decision at the FRC meeting on 21 February 2005 for a peer assessment of the performance of FRC members to be conducted, the FRC noted a questionnaire developed by the Secretariat. The questionnaire provides for FRC members to comment on a broad range of issues pertaining to the operations and performance of the Council. The FRC agreed to proceed with the questionnaire. Responses will be processed by the Secretariat for discussion by the Nominations Committee, with possible recommendations to be put at the September meeting of the FRC.
Ms Jan West was appointed to the Nominations Committee.
Agenda item 7: Sector Neutral Accounting Standards
Progress on appointing a consultant to report to the FRC on sector neutral standards was noted.
The Chairman of the AASB indicated that AASB staff would be available to prepare a research paper on sector neutrality in various national jurisdictions.
Agenda item 8: FRC Functions Charter
Following comments by FRC members at the meeting in April, the FRC agreed to the revised Functions Charter which outlines how the FRC addresses its statutory functions, and agreed that it be placed on the FRC website.
Agenda item 9: International developments
A paper on the work of relevant international organisations and national standard setting bodies, and other material relevant to the international regulatory environment, was circulated for the interest of members.
Agenda item 10: Other business
Correspondence was noted.