Thirty-Second Meeting
16 September 2005
Outcomes of the meeting held on 16 September 2005 at the Australian Accounting Standards Board, Level 4, 530 Collins Street, Melbourne.
Attendance
FRC Members:
Mr Charles Macek (Chairman)
Ms Elizabeth Alexander, AM
Mr Don Challen (by phone)
Mr Richard Humphry, AO (by phone)
Mr Warwick Hunt
Mr David Jackson
Mr Graeme McGregor, AO
Mr Jim Murphy
Mr Tom Pockett
Mr Phillip Prior
Mrs Catherine Walter, AM
Ms Jan West
Mr Klaus Zimmermann
AASB:
Mr Angus Thomson (AASB Technical Director)
AUASB:
Mr Howard Pratt (AUASB Senior Project Manager) (Items 1 to 4 only)
FRC Secretariat:
Mr Jorge del Busto (FRC Secretary)
Mr Les Pascoe
Invitees:
Mr William Bartlett (Consultant to the FRC on auditor independence –
Item 4 only)
Mr Paul Hinchey (Australian National Audit Office – Item 5 only) (by phone)
Ms Leone Mansell (AASB – Item 5 only)
Mr Paul Phenix (Australian Stock Exchange)
Mr Steve Somogyi (Australian Prudential Regulatory Authority (APRA) –
Items 1 to 4 only)
Mr Lee White (Australian Securities and Investments Commission)
Ms Kerstin Wijeyewardene (Commonwealth Treasury)
Apologies:
Mr Brian Scullin
Mr David Boymal (AASB Chairman)
Ms Merran Kelsall (AUASB Chairman)
Agenda item 1: Introduction by FRC Chairman
The FRC Chairman, Mr Charles Macek, welcomed members to the 32nd meeting of the FRC. The minutes of the 31st FRC meeting held on 1 July 2005 were approved.
Declarations of Interest
It was noted that Ms Jan West was a partner at an accounting firm which has been dealing with the FRC Auditor Independence Subcommittee.
The FRC agreed to establish a list of each member’s current business and professional affiliations to indicate relevant interests. This would be tabled at each meeting.
Matters Arising from the Previous Meeting
A list of matters arising was circulated with the agenda papers, and noted.
Update on meetings
Since the last FRC meeting the FRC Chairman had engaged in discussions with a range of organisations including professional accounting bodies, accounting firms, peak bodies engaged in the field of corporate governance, and a visiting delegation from the US Congress. A common theme emerging from the discussions was the extent of regulation and the role of regulators, including ASIC, in relation to auditor independence. There was a desire for improved communication between businesses and regulators.
Stakeholder Issues: International Financial Reporting Standards (IFRS) Implementation
The FRC considered issues raised by stakeholders on IFRS implementation. A number of common themes had emerged from the submissions, including the level of Australian influence over the development of IFRS, education and the skill level of those responsible for implementing IFRS, issues affecting small and medium enterprises, the stability of the accounting standards platform, and issues arising from the process by which standards are set by the AASB. Some of the issues raised could be categorised as being manageable and would largely resolve themselves over time. Others were more substantive and consequently, the FRC agreed to:
- write to the AASB seeking their response to the issues raised, so that the matter could be considered further at the December meeting of the FRC;
- review the strategic direction to the AASB at its meeting in December, as flagged previously;
- write to the ASX seeking a review of IFRS issues raised in financial statements for the year ending on 30 June 2005 prior to the preparation of the statements for the half-year ending on 31 December 2005;
- consider, through the work of the Trans-Tasman Accounting Standards Advisory Group, the different reporting regimes which apply in Australia and New Zealand with a view to bringing these into line; and
- brief the Treasurer on the issues raised.
Agenda item 2: Report from the Chairman of the AASB
The FRC noted an update on AASB issues, including an update on IFRS adoption, GAAP / GFS harmonisation, and the review of the future role and structure of the Urgent Issues Group.
It was noted that the AASB’s contacts with its New Zealand equivalent, the Financial Reporting Standards Board, were expanding significantly and that the two bodies had undertaken to facilitate the sharing of resources. A formal protocol of co-operation between the two boards has been drafted.
Agenda item 3: Report from the Chairman of the AUASB
The FRC noted an update on matters concerning the AUASB, including progress in the redrafting of Auditing Standards, references to ethical and other professional pronouncements in Auditing Standards, and the AUASB’s communications plan.
Agenda item 4: Report from the Chairman of the Audit Independence Subcommittee
The FRC approved the draft FRC Auditor Independence Report for 2004-05, subject to minor amendments. The report will be submitted to the Minister in conjunction with the combined annual report of the FRC, AASB and AUASB.
The FRC approved the engagement of consultants to undertake the following tasks forming part of the FRC’s 2005-06 auditor independence work programme:
(i) examine the teaching of professional and business ethics by, or on behalf of, the professional accounting bodies (to the extent to which the teaching of those subjects relates to auditor independence) and prepare a report to the FRC on the adequacy of that teaching;
(ii) examine the quality review programmes of Australia’s professional accounting bodies (to the extent that those reviews relate to auditor independence requirements), having regard to the programmes of equivalent overseas bodies, and prepare a report to the FRC on any measures that may be needed to enhance the Australian programmes;
(iii) examine the disciplinary procedures in place in Australia relating to auditor independence, having regard to the procedures of equivalent overseas bodies, and prepare a report to the FRC on any measures that may be needed to enhance the Australian procedures; and
(iv) examine auditor independence issues in respect of non-Corporations Act audits, such as superannuation funds.
The terms of reference for each consultancy will be prepared by the FRC Secretariat with assistance from Mr Bartlett, and will be approved by the Subcommittee in consultation with the FRC Chairman. The FRC will be asked to approve the engagement of each consultant prior to Treasury entering into a contractual arrangement with the individual in accordance with the Government’s procurement guidelines.
The FRC noted that the Subcommittee had reviewed its Charter and concluded that no amendments are needed to the Charter at this time. The FRC agreed that, in conjunction with future reviews of the Subcommittee’s Charter, the membership of the Subcommittee should also be reviewed.
The FRC also agreed that the FRC Chairman should write to audit firms seeking information about the difficulties being encountered with the requirement to rotate review partners.
Agenda item 5: Report from the Chairman of the Finance Committee
The FRC approved the draft 2004-05 FRC/AASB/AUASB annual report including the financial statements of the AASB and AUASB for the year ended 30 June 2005, subject to clarification of minor outstanding issues.
The FRC also approved the 2004-05 FRC stocktake of operations against its functions, and agreed to its publication on the FRC website.
The FRC noted the progress report on the implementation of the FRC’s decisions concerning a memorial for Ken Spencer, including identifying a suitable person to give the inaugural Ken Spencer memorial lecture.
Agenda item 6: Sector Neutral Standards - Engagement of consultant
Progress on appointing a consultant to report to the FRC on sector neutral standards was noted. Two candidates were interviewed by members of the Sector Neutral Standards subcommittee in August.
The FRC agreed that Kevin Simpkins Advisory Services Limited be the preferred tenderer to be employed as a consultant to undertake research on sector neutral accounting standards. Mr Simpkins recently retired as the Deputy Auditor General of New Zealand, and is based in Wellington. It was noted that the other tenderer was also rated as suitable.
An announcement will be made following agreement to contractual terms between the preferred tenderer and the Commonwealth Treasury.
Agenda item 7: Report from the Chair of the Nominations Committee
The terms of three members of the AASB, Mr Bryce Denison, Ms Alice Williams and Mr Glenn Appleyard were extended to the end of 2005, to ensure continuity of membership on the AASB through the period in which the FRC will conduct a public selection process for the AASB and AUASB.
The FRC agreed to amend the selection criteria for appointments to the AASB and AUASB. The amended criteria will be available on the FRC website, and will apply in relation to the forthcoming public selection process for Board members. The FRC noted the timetable for this process, which would commence with advertisements in selected newspapers on 23 and 24 September 2005.
The FRC discussed the consolidated results of the survey of FRC members of the performance of the FRC and a report on the results, which was circulated following the last FRC meeting. The FRC agreed to:
- consider a communication strategy for the FRC at its next meeting; and
- hold a meeting early in 2006 (in addition to the usual quarterly meetings) to consider the formalisation of an FRC business plan, including its forward strategy in relation to its oversight role of the standard setting bodies and the scope of its work on auditor independence.
Further, the FRC agreed to undertake a similar survey each year, which would include an assessment of individual FRC members.
Agenda item 8: 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 information of members.
Agenda item 9: Other business
Correspondence was noted.
It was noted that the Standards Advisory Council of the IASB had recently been restructured, and that the FRC had put forward some names for membership from Australia. Judith Downes, a former member of the AASB, had been appointed to the Council.