Home > Minutes > 2006 > FRC Meeting Minutes - 8 December 2006

Thirty-Eighth Meeting
8 December 2006

Outcomes of the meeting held on 8 December 2006 at the Offices of the Australian Stock Exchange, 20 Bridge Street, Sydney.  The meeting commenced at 9.00 am and concluded at 1.15 pm.

Attendance

FRC Members:

Mr Charles Macek (Chairman)
Ms Elizabeth Alexander, AM (by telephone)
Mr Bruce Brook
Ms Kathryn Campbell
Mr Michael Coleman
Mr Mark Coughlin
Mr Don Challen
Mr John Gethin-Jones
Mr Richard Humphry, AO
Mr Warwick Hunt
Mr David Jackson
Mr Eric Mayne
Mr Jim Murphy (by telephone)
Ms Catherine Walter, AM (by telephone)
Ms Jan West
Mr Lee White
Mr Klaus Zimmermann

AASB:

Prof. David Boymal (AASB Chairman)
Mr Angus Thomson (AASB Technical Director)

AUASB:

Ms Merran Kelsall (AUASB Chairman)

FRC Secretariat:

Mr Jorge del Busto (FRC Secretary)
Mr Les Pascoe

Invitees:

Mr Warren McGregor (International Accounting Standards Board)
Ms Judith Downes (IASB Standards Advisory Council – Item 1) (by telephone)
Mr William Bartlett (FRC’s consultant on auditor independence – Item 5)

Apologies:

Mr John Stanhope

Agenda item 1: Introduction by FRC Chairman

The FRC Chairman, Mr Charles Macek, welcomed members to the 38th meeting of the FRC.

Minutes

The minutes of the 37th meeting, held in Melbourne on 26 September 2006, were approved.

Matters Arising from the Previous Meetings

A list of matters arising from the 26 September 2006 meeting was circulated with the agenda papers, and noted.

Declarations of Interest

No members raised issues concerning their entries in the Register of Interests or declared an interest in respect of any agenda items.

Updates on meetings

Mr Macek reported on a number of meetings he had had with stakeholder and other bodies since the September 2006 FRC meeting.  These included:

• a number of round tables and forums organised by the professional accounting bodies on a range of issues such as the not-for-profit sector and SMEs (a key message from these meetings is that the current framework is not serving the needs of all constituents);
• a forum arranged by the International Ethics Standards Board for Accountants;
• a discussion group which focused on issues of relevance to the smaller accounting firms; and
• attendance at the IASC Foundation Trustees’ meeting in Washington DC during October.

Mr Macek informed the meeting that Ms Ruth Picker, a former member of the UIG and AASB, had been appointed to the International Financial Reporting Interpretations Committee.  Mr Macek indicated that he had met with Ms Picker and had invited her to provide reports to the FRC at regular intervals.

The FRC noted Ms Judith Downes’ written report on, and oral comments about, the Standards Advisory Committee meeting held in November.

Update on implementation of strategy meeting recommendations

The Council noted a Secretariat paper which provided a progress report on implementing the recommendations made at the FRC’s strategy meeting held on 20 February 2006.  In addition, the FRC considered a report by Savage and Partners, a media consultant engaged by the FRC to promote the messages contained in the 2005‑06 annual and auditor independence reports, on the key components of the communications strategy developed by the firm and the outcomes achieved.

During discussion of the report by Savage and Partners, the FRC Chairman noted that it may be more cost effective for the FRC and the two standard-setting boards to have an in-house communications manager.

Stakeholder issues

The key issues considered under this item were differential reporting for SMEs and recognition of IFRS adoption in Australia.

Differential reporting

The Council considered a paper on differential reporting in Australia prepared by Commonwealth Treasury in consultation with the AASB.  It canvassed a range of issues that will need to be addressed when the AASB releases for comment in Australia an exposure draft on the IASB draft accounting standard for SMEs.  The Council advised the AASB that it would be appropriate, in the first instance, for the AASB to propose a scope of application as part of its consultation on the upcoming draft IASB standard for SMEs.

FRC members noted that a high priority was relieving the compliance burden on SMEs and undertook to consider further this issue over the next 12 months.  Addressing this issue should enhance the support for IFRS in Australia.

Recognition of IFRS adoption

The FRC considered a paper prepared by the AUASB on issues associated with the possible inclusion in the auditor’s report of a statement of compliance of the financial reports with IFRS.  The issue was raised because of concerns in some overseas jurisdictions about the extent to which Australian financial reports are IFRS-compliant.

The FRC Secretariat will prepare a discussion paper for the next FRC meeting which canvasses the options considered at the meeting for both auditor’s reports and directors’ declarations and proposes a means of asserting prominently the extent to which the financial reports of Australian for profit reporting entities are IFRS-compliant.

Agenda item 2: Report from the Chair of the AASB

The FRC noted the written report by Professor David Boymal, Chairman of the AASB, on the activities of the AASB since the September 2006 meeting of the FRC.  Matters mentioned in the report included completion of the XBRL taxonomy for the IFRS standards approved by the AASB, revised arrangements for the preparation of regulation impact statements, the anticipated release of an IASB exposure draft on IFRS standards for SMEs, the establishment of a consultative panel of constituents from the not-for-profit private sector and an update on the new interpretations model.

The AASB Chairman and the Board’s Technical Director gave a presentation to the FRC about the experience gained to date by the AASB from the development of AASB 1049 Financial Reporting of General Government Sectors by Governments and sought the FRC’s clarification of the broad strategic direction in terms of the extent to which the GAAP/GFS harmonisation should now be pursued for other entities within the public sector.  The AASB proposed that, as a first stage, it would undertake a project on GAAP/GFS harmonisation for whole of government reporting (and for the Public Non Financial Corporation and Public Financial Corporation sectors) by the Australian Government and State and Territory Governments.  As a second stage, the AASB would undertake a project on GAAP/GFS harmonisation for entities within the General Government Sector (GGS).  The AASB envisaged that stages 1 and 2 would be completed by August 2008 and February 2010 respectively.

Under this item, the FRC also noted a supplementary paper prepared by FRC members Mr Don Challen, Ms Kathryn Campbell and Mr Jim Murphy, which recommended a release date of October 2007 for the harmonised accounting standard for whole of government financial reporting.

After consideration of the AASB’s presentation and the supplementary paper, the FRC endorsed the Board’s proposal for additional work on GAAP/GFS harmonisation but suggested a stage 1 completion date of October 2007 which would allow the consistent preparation of financial statements for all sectors of government in the 2008‑09 Budget and Outcome reporting.  The AASB Chairman noted the FRC’s views and indicated that the Board would endeavour to achieve the revised timetable.

In light of the views of stakeholders (as reflected in the supplementary paper and as articulated at the meeting), the FRC agreed that, with the completion of stages 1 and 2 as described above, the requirements of the public sector strategic direction would be met.

Agenda item 3: Report from the Chair of the AUASB

Ms Merran Kelsall, Chair of the AUASB, presented a report on the activities of the Board over the last three months.  The report, which covered a range of topics including participation in the standard-setting activities of the International Auditing and Assurance Standards Board and liaison with other national standard setters and the Board’s ongoing work on formulating legally enforceable auditing standards, formulating other auditing and assurance standards and formulating guidance pronouncements, was noted by the FRC.

In addition, Ms Kelsall presented a paper prepared by the AUASB on whether there should be differential audits with diminished auditing requirements for ‘smaller’ entities that are required to be audited.  The AUASB concluded that it did not support the concept of differential auditing and noted that perceived difficulties in the financial reporting framework are thought to contribute to onerous audit requirements in smaller entities.  The FRC noted the paper and encouraged the Board to have further consultations with interested stakeholders about this issue.

Agenda item 4: Report from Chair of the Trans-Tasman Accounting and Auditing Standards Advisory Group (TTAASAG)

Mr Warwick Hunt, Chairman of TTAASAG, provided an oral report on the TTAASAG meeting held in Melbourne on 6 December 2006.  Issues considered at the meeting included:

• potential adoption of a differential reporting regime for small and medium-sized entities;
• reports on recent activities of the AASB and New Zealand Financial Reporting Standards Board (FRSB);
• mutual recognition of auditors in Australia and New Zealand;
• preparations for the next IFRS regional policy forum in Japan;
• an update on the NZ Ministry of Economic Development’s work on amendments to the NZ Financial Reporting Act 1993 and on auditor regulation;
• auditor’s reports on compliance with IFRS; and
• cross appointments between the AASB and the FRSB.

The FRC noted Mr Hunt’s report of the meeting.

Agenda item 5: Report from Chair of the Audit Independence Committee

The FRC noted a report by Ms Elizabeth Alexander, Chair of the Audit Independence Committee, on the work of the Committee since the FRC meeting on 26 September.

Following consideration of the Committee’s report, the FRC:

• agreed, subject to the approval of the Treasury delegate, to the FRC’s preferred tenderer being engaged to provide consultancy services concerning the findings of recommendations of the quality review and disciplinary procedures consultancies;
• approved:
  • inviting tenders for a consultant to evaluate how ethics is applied in practice in the accounting firms; and
  • the proposed statement of requirement for the consultancy; and
• agreed that, following consultation with FRC members, the FRC Chairman should make a submission to the Parliamentary Secretary to the Treasurer on the following consultative papers:
  • Australian Auditor Independence Requirements – A Comparative Review; and
  • Corporate and Financial Services Regulation Review – Proposals Paper

Agenda item 6: Report from Chair of the Finance Committee

The FRC noted a report by Mr Bruce Brook, Chair of the Finance Committee, on the work of the Committee since the FRC meeting held on 26 September.  The principal activities of the Committee during this period included reviewing the 2006‑07 Budgets of the FRC, AASB and AUASB, reviewing sitting fees for AASB and AUASB members, considering issues associated with the 2007 Ken Spencer Memorial Lecture and reviewing the Charters of the Finance Committee, the AASB Audit Committee and the AUASB Audit Committee.

Following consideration of the Committee’s report, the FRC:

• approved revised 2006‑07 Budgets for the AASB and AUASB;
• agreed that the sitting fees for AASB and AUASB members be increased from $720 per day to $750 per day for meetings commencing after 1 January 2007;
• agreed that funding of up to $25,000 be provided to assist with the staging of the Ken Spencer Memorial Lecture in 2007, and that the FRC Secretariat be authorised to continue preparations for the lecture in consultation with the FRC Chairman and the Chair of the Finance Committee;
• approved amendments to the Finance Committee Charter, and the Charters of the AASB Audit Committee and the AUASB Audit Committee, that:
  • explicitly recognise that the FRC Chairman is an ex‑officio member of the Committees;
  • indicate that the Committees may be delegated tasks by the FRC other than those that might be expected by the objectives of the Committees; and
  • require the Committee Charters to be reviewed regularly;
• noted that the Secretariat has been asked to prepare a timetable for the preparation of the 2006‑07 financial reports of the AASB and AUASB, including the dates on which material is to be available to the Finance Committee, the FRC and the Minister;
• noted that the ASX has agreed to provide annual funding of $100,000 to the FRC for a further three years;
• noted that guidance to the AASB and AUASB to assist them in the preparation of their annual business plans should be provided to the Boards at the March meeting of the FRC; and
• noted that the Committee agreed that in 2007 it would schedule its meetings during the first half of February, May, August and December.

Agenda item 7: Report from Chair of the Nominations Committee

The FRC noted a report by Mr Klaus Zimmermann, Chair of the Nominations Committee, on the actions taken by the Nominations Committee to identify suitable applicants for appointment to the AASB and AUASB during 2007.

The FRC agreed to make the following appointment to the AASB:

• Ms Sue Highland, for a term commencing on 15 February 2007 and ending on 31 December 2009.

The FRC agreed to make the following re‑appointments to the AASB:

• Ms Kris Peach, for a term commencing on 15 February 2007 and ending on 31 December 2009;
• Mr Brett Kaufmann, for a term commencing on 15 February 2007 and ending on 31 December 2008; and
• Ms Joanna Perry, for a term commencing on 1 January 2007 and ending on 31 December 2009.
  • The term of Ms Perry’s re‑appointment is subject to her maintaining her position as Chair of the New Zealand Financial Reporting Standards Board.

The FRC agreed to make the following re‑appointments to the AUASB:

• Ms Dianne Azoor Hughes, for a term commencing on 1 January 2007 and ending on 31 December 2009; and
• Mr Clive Mottershead, for a term commencing on 1 July 2007 and ending on 31 December 2009.

The FRC noted that:

• the appointments would lead to an enhancement in the strength of the AASB on public sector issues without increasing the size of the Board; and
• following the retirement of Professor Ken Leo from February 2007, there would not be an academic member on the AASB and resolved to give strong consideration to rectifying this matter at the earliest available opportunity.

Agenda item 8: Sector Neutral Accounting Standards

Consideration of public comments on the Simpkins report A review of the policy of sector-neutral accounting standard-setting in Australia was deferred until the next meeting of the FRC.

Agenda item 9: FRC Secretariat paper on international developments

The FRC noted a Secretariat paper on the work of relevant international organisations and national standard setting bodies, and other material relevant to the international regulatory environment, that had been circulated for the information of members.

Agenda item 10: Other business

Correspondence

A Secretariat paper providing particulars of correspondence received or sent by the FRC for the period 20 September 2006 to 30 November 2006 was also noted.

Meeting dates for 2007

The FRC decided that in 2007 its regular meetings would be held on 6 March (Melbourne), 1 June (Sydney), 5 September (Melbourne) and 6 December (Sydney).

In addition, it was agreed that an additional meeting should be held in Melbourne during the second half of February, primarily for the purpose of considering public comments on the Simpkins report (subsequently set for 19 February).

Meeting with representatives of Professional Accounting Bodies

At the conclusion of the formal agenda, the FRC met with the Presidents and Chief Executives of CPA Australia, The Institute of Chartered Accountants in Australia and the National Institute of Accountants for a wide-ranging discussion on a range of issues of mutual interest to the FRC and the accounting profession.

Other

The FRC Chairman expressed his appreciation to the ASX for making a meeting room available for use by the FRC.