Twenty-Ninth Meeting
21 February 2005
Outcomes of the meeting held on 21 February 2005 at the Australian Accounting Standards Board, Level 4, 530 Collins Street, Melbourne.
Attendance
FRC Members:
Mr Charles Macek (Chairman)
Ms Elizabeth Alexander, AM (Deputy Chairman, by Phone Hook-Up)
Mr Don Challen (by Phone Hook-Up)
Mr Warwick Hunt (by Phone Hook-Up)
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 Peter Taft
Invitees:
Mr Geoff Connor (New Zealand Ministry of Economic Development, by Phone Hook-Up)
Mr Richard Humphry, AO (IASC Foundation Trustee, by Phone Hook-Up)
Mr Bill Palmer (ICAA)
Ms Joanna Perry (New Zealand Financial Reporting Standards Board)
Mr Paul Phenix (Australian Stock Exchange)
Mr William Bartlett (Consultant to the FRC on auditor independence – Item 6 only)
Mr Steve Somogyi (Australian Prudential Regulatory Authority (APRA) – Items 1 to 3 only)
Apologies, FRC Members:
Mr Tom Pockett
Agenda item 1: Introduction by FRC Chairman
The FRC Chairman, Mr Charles Macek, welcomed members to the 29th 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 28th FRC meeting, held on 6 December 2004, were approved, with the addition of a note in the report from the Chair of the Finance Committee indicating that the fit-out costs for the AASB and AUASB premises 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.
FRC Membership
The FRC Chairman informed the Council that a former member of the FRC, Mr Lewis Ting, passed away late in 2004, and that Ms Karen Hamilton had resigned from the FRC following the previous meeting. The Council expressed its appreciation for the contributions made by Mr Ting and Ms Hamilton.
The FRC Chairman reported that the Treasurer had made the following appointments to the Council:
- Mr Warwick Hunt, Chair of the Accounting Standards Review Board of New Zealand, for a three-year term with effect from 9 February 2005;
- Mr Richard Humphry and Ms Jan West, for a period of three years with effect from 7 March 2005.
- FRC Chairman also reported that the Treasurer had re-appointed Ms Elizabeth Alexander, Mr Don Challen, Mr David Jackson and Mr Graeme McGregor to the Council for a period of 18 months, with effect from 7 March 2005.
Update on meetings
The Chairman attended a presentation by Ms Katherine Schipper, a member of the US Financial Accounting Standards Board. The key message was that convergence meant one set of high quality financial reporting without the need for reconciliation. For it to be universal, it needed to be accepted “beyond the Anglo world”. The FRC Chairman noted that he shared this vision and while he was optimistic that it would happen, it would take time.
Mr Humphry reported on meetings between the IASC Foundation and the EU concerning representation on the International Accounting Standards Board (IASB). Mr Humphry also informed the FRC that the IASC Foundation was hosting a round table on the ‘fair value’ option in London on 16 March. The Australian representative on the IASB Insurance working group, Mr Tony Coleman, AASB member Ms Judith Downes, and Mr Rob Sharma of APRA will be attending by telephone.
Mr Humphry also informed the Board of the pending appointment of three new Trustees to the IASC Foundation - Mr Oscar Fanjul (Spain), Mr Tsuguoki Fujinuma (Japan) and Mr Antonio Vegezzi (Switzerland). The appointments are with immediate effect, and for the period ending on 31 December 2007.
Mr Challen noted that he and some other members of the Heads of Treasuries met informally with the AASB Chairman and a number of members of the AASB on the evening of 2 February to discuss issues in relation to harmonisation between GFS and GAAP. The meeting was very valuable and provided a good opportunity for an exchange of views on issues of considerable significance to public sector reporting.
Administrative Matters
The Chairman reported that the FRC had made a submission to the Parliamentary Joint Committee on Corporations and Financial Services’ Inquiry into the Australian Accounting Standards tabled in compliance with the Corporations Act 2001 on 30 August and 16 November 2004. The Committee subsequently recommended that the Senate and House of Representatives do not disallow the standards, and that small and medium enterprises be permitted an additional month to report to ASIC for their first report under the new standards.
A submission to the IASCF Constitution Review has been prepared on behalf of the FRC. The Review considers the Foundation’s proposals to amend their Constitution, which sets out the organisational framework of both the Foundation and the IASB.
Agenda item 2: Report from the Chairman of the AASB
The Council noted an update on AASB issues provided by the AASB Chairman including the tabling of the report of the Parliamentary Joint Statutory Committee on Corporations and Financial Services (see above under ‘Administrative Matters’).
Other issues dealt with in the report from the AASB Chairman include GAAP/GFS Convergence and liaison with the IASB. The IASB had scheduled two rounds of consultation for 2005, one with all of the national standard setters in September and one round with the liaison standard setters in April.
The AASB Chairman reported that the International Financial Reporting Interpretations Committee (IFRIC) was seeking increased involvement in interpretation by the national interpretive bodies, such as the Urgent Issues Group. The focus would be on issues that have a distinct national requirement, with a need to ensure that sound procedures were followed and the outcome agreeable to IFRIC.
The Council noted and provided feedback on amendments to the AASB’s Governance Guidelines, which were made necessary by the increased size of the AASB. Changes made by the Board as a consequence of Council’s feedback will be brought back to the Council for noting and endorsement. The most significant change is that the AASB will now require agreement from nine rather than seven members for the approval of a final standard.
The Chairman advised that the Financial Reporting Panel decided not to take space in the AASB’s new premises, and that an alternative tenant would be sought.
Mr Steve Somogyi noted that APRA would shortly be issuing two discussion papers setting out its proposed prudential response to the adoption of International Financial Reporting Standards (IFRS) by APRA-regulated institutions. The first paper would deal with the prudential implications of a number of specific IFRS-related changes to Australian accounting standards. The second paper would deal with the treatment of eligible Tier 1 capital instruments and securitisation. The two papers would be followed by consultation on changes to APRA’s prudential and reporting standards.
Agenda item 3: Report from the Chairman of the AUASB
The Chairman of the AUASB informed the meeting that the Board had held its first meeting for the year on 3 February. Matters discussed included the agenda for the International Auditing and Assurance Standards Board (IAASB) / National Auditing Standards Setters meeting in London, the drafting of auditing standards as disallowable instruments, and the audit reporting implications of the AASB project to develop an accounting standard for financial reports for the general government sector.
The AUASB will give detailed consideration to the AUASB strategic direction paper at its March meeting, with a view to framing recommendations to the FRC at its meeting on 4 April on its strategic direction for auditing standards setting.
The Council noted recent legal advice received from the Australian Government Solicitor, which confirmed their preferred view that for the purposes of the CAC Act, the FRC is the governing body of the AASB and the AUASB. On the basis of this advice, the FRC decided to endorse current arrangements and to seek further clarification on the role of the chief executive or Chairman of the AASB and AUASB.
The AUASB Chairman updated the meeting on arrangements for recruiting additional staff. The difficulties caused by the tight market for technical accounting and auditing staff were noted. It was anticipated that appointments would be made by the end of March. Consideration of further appointments will depend upon the expected workload of the AUASB during the auditing standards re-writing as legal instruments phase.
Agenda item 4: FRC review of operations
Members considered a number of matters pertaining to the operation of the FRC. There was unanimous support for enhanced consultative arrangements, such as seeking public comment on key policy proposals under consideration by the FRC. The majority of members were not supportive of opening FRC meetings to the public, as this risked having an adverse impact on the frankness and quality of discussion and consequently on the ability of the Council to take appropriate decisions.
The FRC also decided that it would consider a number of other measures which had been suggested by members during the course of the review which would enhance the capacity of stakeholders to provide input into the work of the FRC.
- FRC considered a number of other matters arising out of the review of operations and concluded that there was no need to recommend any changes to current arrangements. These include the Secretariat arrangements, the size and composition of the Council, and the potential need for a full-time FRC Chairman. The FRC also agreed to a proposal to conduct a peer assessment of the performance of its members.
Agenda item 5: Appropriation of FRC Funds
The FRC agreed to provide up to $50,000 to assist with the staging of a regional forum on International Financial Reporting Standards (IFRS), to be held in Sydney on 24 October 2005. This will be taken from the ‘Travel-overseas’ allocation in the FRC budget for 2004-05. It was noted that the New Zealand Ministry of Economic Development had indicated that it would contribute up to half of the costs of the forum, to a limit of NZ$40,000.
The FRC also agreed to a protocol governing the payment of travel expenses for overseas travel by FRC representatives attending official international meetings and by other Australians attending IASB or IAASB related activities. The protocol is available on the FRC website.
Agenda item 6: Report from the Chair of the Audit Independence Subcommittee
The Chair of the Audit Independence Subcommittee introduced Mr William Bartlett, who has been appointed by the FRC to assist the Council with its audit independence functions, to FRC members. Mr Bartlett outlined his proposed work programme for the next few months, including meetings with key stakeholders with which the FRC has entered into Memoranda of Understanding. The immediate priority is to prepare the FRC’s report on audit independence for 2004-05 and establish the scope of action and steps that would be required to achieve this objective.
Mr Bartlett and other members of the subcommittee noted that they would be meeting with representatives from the Public Company Accounting Oversight Board (PCAOB) in early March to discuss audit independence issues, including the regime for inspections of audit firms by the PCAOB and ASIC.
The FRC Chairman noted that with Ms Hamilton’s resignation from the FRC, there was a vacancy on the subcommittee and invited members to nominate for it.
Agenda item 7: Legislative Instruments Act and its implications for the FRC
The Council noted the broad operation of the Legislative Instruments Act 2003, and the legal advice from the Australian Government Solicitor on the implications of the Act for the FRC which indicated that the strategic directions and rules of procedure issued to date by the FRC are not classified as legislative instruments.
Agenda item 8: Sector neutral standards
The FRC noted the progress made with respect to the engagement of a consultant on sector neutral accounting standards.
The Council was informed that an advertisement for the sector neutral accounting standards consultancy appeared in major newspapers on 21 and 22 January 2005. It was noted that relevant documentation was also posted on AusTender in accordance with the Commonwealth Procurement Guidelines. The Council confirmed that the selection committee for the position would consist of Mr Charles Macek, Mr Phillip Prior, Mr Don Challen and Mrs Catherine Walter. It is anticipated that a successful candidate will be recommended for consideration by the FRC either via circular resolution or at its meeting on 4 April 2005.
Agenda item 9: Other business
Correspondence was noted.