Thirty-Fifth Meeting
20 March 2006
Outcomes of the meeting held on 20 March 2006 at The Institute of Chartered Accountants in Australia, Level 15, 37 York Street, Sydney. The meeting commenced at 9.04 am and concluded at 1.14 pm.
Attendance
FRC Members:
Mr Charles Macek (Chairman)
Ms Elizabeth Alexander, AM (by telephone)
Mr Bruce Brook
Mr Don Challen
Mr Richard Humphry, AO
Mr Warwick Hunt
Mr David Jackson
Mr Graeme McGregor, AO (by telephone)
Mr Eric Mayne
Mr Jim Murphy
Mr Phillip Prior
Mr Brian Scullin
Ms Catherine Walter, AM (by telephone)
Mr Lee White
Mr Klaus Zimmermann
AASB:
Prof. David Boymal (AASB Chairman) (by telephone)
AUASB:
Ms Merran Kelsall (AUASB Chairman) (by telephone)
FRC Secretariat:
Mr Jorge del Busto (FRC Secretary)
Mr Les Pascoe
Invitees:
Mr William Bartlett (Consultant to the FRC on auditor independence – Item 5 only)
Mr Garth Campbell-Cowan (Member, AASB – Item 2 for discussion on interpretation model) (by telephone)
Mr Bruce Porter (Member, AASB – Item 2 for discussion on interpretation model) (by telephone)
Mr Steve Somogyi (Australian Prudential Regulatory Authority – Item 5 only) (by telephone)
Apologies
Mr John Stanhope
Ms Jan West
Agenda item 1: Introduction by FRC Chairman
The FRC Chairman, Mr Charles Macek, welcomed members to the 35th meeting of the FRC.
Membership changes
Mr Macek welcomed the appointment of four new members to the FRC: Bruce Brook, Eric Mayne, John Stanhope and Lee White. Mr Macek also informed the meeting that three members, Jim Murphy, Catherine Walter and Klaus Zimmermann, had each been re-appointed for a further term of three years while his own term had been extended until the end of 2007.
Mr Macek expressed his appreciation for the contribution to the work of the Council made by member Tom Pockett and alternate members Roger Cotton, Stephen Harrison and Michael Rawstron, all of whom had recently retired from the Council. In addition, Mr Macek noted that Brian Scullin would retire from Council prior to its June meeting.
Minutes
The minutes of the 33rd FRC meeting held on 16 December 2005 and the FRC Strategy Meeting held on 20 February 2006 were approved.
Matters Arising from the Previous Meetings
Lists of matters arising from the 16 December 2005 and 20 February 2006 meetings were circulated with the agenda papers, and noted.
Mr Macek asked the FRC Secretariat to circulate the legal advice concerning the extent to which the requirements of the Australian Securities and Investments Commission Act 2001 (ASIC Act) conditioned the role of the AASB in its treatment of options and interpretations of IFRS to the newly appointed members of the FRC.
Declarations of Interest
Details of each member’s current business and professional affiliations were circulated with the agenda papers. Except as noted under agenda item 9, no other interests were declared by members.
Update on meetings
Mr Macek reported on a number of meetings he had had with stakeholder and other bodies since the December 2005 FRC meeting. These included:
- A joint Financial Stability Forum / International Accounting Standards Board / International Federation of Accountants Roundtable on Financial Reporting and Auditing held on 16-17 February 2006 in Paris. Issues considered were implementation of international accounting standards, an update on convergence, fair value accounting and risk and vulnerabilities in the financial reporting process.
- A meeting with Dr Ken Henry, Secretary of the Australian Treasury and Chair of the Heads of Commonwealth and State Treasuries, at which a range of issues associated with GAAP/GFS were discussed.
- A meeting with the Hon. Chris Pearce, Parliamentary Secretary to the Treasurer, at which a range of FRC-related issues were discussed. Mr Macek reported that Mr Pearce had offered to meet with members of the FRC and the Council agreed that priority should be given to arranging such a meeting.
- A further meeting with Mr Andrew Rogers, Chairman of the Audit Quality Review Board (AQRB). Mr Rogers said that, as the AQRB’s remit is the audit of public listed companies, it would concentrate its work on the big 4 accounting firms. Mr Rogers also indicated that the AQRB would be amenable to having a Memorandum of Understanding with the FRC on the exchange of information.
Mr White reported on the meeting of national audit oversight bodies that was held in Sydney on 14 March. The oversight bodies of 14 countries, along with the International Association of Insurance Supervisors, the Financial Stability Forum and the World Bank, were represented at the meeting. The meeting agreed that a group should be established to facilitate the sharing of information, promote collaboration and act as a point of focus for audit regulators. The structure of the group is to be considered prior to the next meeting, which is scheduled to be held in September 2006.
Mr Humphry reported on a range of matters affecting the International Accounting Standards Committee Foundation (IASCF). Issues mentioned included:
- the appointment of an Italian (Tommaso Padoa-Schioppa) as Chairman of the Foundation;
- the admission of China and India as members of the Foundation;
- continuing concerns in some parts of Europe about the adoption of IFRS; and
- the funding of the Foundation and the IASB.
Agenda item 2: Report from the Chairman 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 December 2005 meeting of the FRC. Issues covered by the report were recent developments concerning the IASB’s approach to convergence with US GAAP, a list of documents issued by the AASB since December 2005, progress with the GAAP/GFS project and the future of the Urgent Issues Group (UIG).
In presenting his report, Professor Boymal commented on a number of issues including:
- his attendance at a meeting of national standard setters which was held recently in Canada.
- the removal of the reference to Australia having sector neutral standards from the standards to be issued by the AASB. Professor Boymal informed the meeting that although the standards cover all three sectors, they contain differential treatments for different sectors. Accordingly, the standards should be described as ‘transaction neutral’ rather than sector neutral.
- A number of Council members expressed concerns about the AASB’s decision to move from a sector neutral to a transaction neutral approach without first consulting the FRC, especially in light of the research work being undertaken by Mr Kevin Simpkins on the sector neutrality of accounting standards.
- the meeting with Heads of Treasuries to discuss GAAP/GFS issues.
- concerns about the future of a number of projects (for example, extractive industries) being undertaken on behalf of the IASB by the AASB and other national standard setters. Professor Boymal said that there appears to be uncertainty about priority the IASB intends to give these projects, having regard to other issues on the IASB’s work programme (for example, IASB/US GAAP convergence).
- The meeting concluded that AASB work on those standards that are of particular interest to Australia, such as extractive industries, should continue and be submitted for the consideration of the IASB.
The FRC separately discussed that part of Professor Boymal’s report concerning the features of a new interpretations model proposed by the AASB as a replacement for the existing UIG. Under the new model, which is intended to apply from 1 July 2006, the Board would have direct responsibility for developing and approving interpretations. The model includes the establishment of an Interpretations Agenda Committee and advisory panels, each constituted as a committee of the AASB. The FRC agreed that it would provide a response to the AASB on its proposed interpretations model by the end of March.
Agenda item 3: Report from the Chairman of the AUASB
The FRC noted the report by Ms Merran Kelsall, Chairman of the AUASB, on the work of the AUASB since the December 2005 meeting of the FRC. Key issues mentioned in the report included that the comment period for each of the 36 exposure drafts of proposed auditing standards has closed and that the AUASB has commenced a rigorous review of both the comments received and final proposed auditing standards.
The FRC also noted Ms Kelsall’s oral advice that the timeline for the re-drafting of the auditing standards had been put back by two weeks since the preparation of the written report. Ms Kelsall informed the meeting the change would not impact on the Parliamentary disallowance process, as the Commonwealth Parliament is in recess during April.
The FRC also endorsed changes to the AUASB Governance Guidelines necessitated by the recent increase in AUASB membership.
The FRC considered a letter the Secretary of the Australian Not for Profit Network (ANFPN) had sent to Mr Macek expressing concern that the AUASB appears to be overlooking the FRC’s strategic direction and the objectives of the legislation as they affect the not for profit sector in Australia. In discussing the issues raised in the letter, the FRC noted that the current direction to the AUASB provides for it to issue other guidance on auditing and assurance matters and to participate in research which benefits its standard setting activities. The FRC also reaffirmed that the AUASB’s priority should be the review of the professional auditing standards to be given force of law under the Corporations Act. It was agreed that Mr Macek should write to the ANFPN concerning the issues raised in their letter.
Agenda item 4: Report from Chair of the Trans-Tasman Accounting Standards Advisory Group (TTASAG)
Mr Hunt provided an update on activities of the Trans-Tasman Accounting Standards Advisory Group (TTASAG) since the FRC meeting in December 2005. The FRC also noted that TTASAG had completed a Report to Ministers on its activities in 2005, which was available on the FRC web site.
Agenda item 5: Report from Chair of the Audit Independence Subcommittee
Ms Alexander, Chair of the Auditor Independence Subcommittee, reported on recent progress with the performance of the auditor independence function, including the engagement of additional consultants to consider issues associated with the teaching of professional and business ethics, disciplinary procedures of the professional accounting bodies and the quality review programmes of those bodies.
The meeting:
- noted the written and oral reports presented by Ms Alexander;
- approved the revised 2005-06 Audit Independence Subcommittee work plan forming part of the written report; and
- noted the schedule of proposed meetings for giving effect to that work plan.
During the discussion of this item, the FRC also noted comments by Mr Somogyi about the circumstances in which APRA would make application to the Companies Auditors and Liquidators Disciplinary Board (CALDB) concerning the conduct of an auditor. Mr Somogyi said that, to date, APRA had not had to refer a matter to CALDB.
Agenda item 6: Report from Chair of the Finance Committee
The FRC noted the report by Mr McGregor, Chairman of the Finance Committee.
The FRC confirmed its agreement to the payment of Australia’s 2005-06 contribution of $800,000 to the IASCF. It was also agreed that the FRC’s June 2006 meeting will consider whether scope existed for the FRC to make a further contribution of up to $200,000 to the IASCF in 2005-06.
It was further agreed that Professor Boymal should negotiate directly with the IASB concerning the quantum of a royalty payment permitting the AASB to provide IFRS-related material (Basis for Conclusions and Implementation Guidance) free-of-charge to Australian users.
In addition, the FRC agreed that:
- sitting fees received by AASB and AUASB members for attendance at regular meetings of those Boards be increased from $620 per day, to $720 per day, for meetings held on or after 1 January 2006;
- reviews of sitting fees should be undertaken at the final FRC meeting of each calendar year, for implementation from 1 January of the following year; and
- sitting fees be paid to AASB and AUASB members for attendance at Committee meetings relevant to the functioning of the Boards, subject to consideration by the FRC Finance Committee of detailed guidelines applicable to those payments, and of their impact on the corresponding budgets.
In respect of other matters raised in Mr McGregor’s report, the FRC:
- noted the financial position of the FRC and approved an updated FRC budget for 2005-06;
- agreed that a suitable desktop computer be purchased for the use of the FRC Chairman and that a maximum amount of $3,000 from the FRC budget for 2005-06 be allocated for this purpose;
- noted progress with preparations for the Ken Spencer Memorial Lecture; and
- noted that the Finance Committee will consider at its next meeting the FRC’s input into the October 2006 Commonwealth review of FRC funding.
Agenda item 7: Report from Chair of the Sector Neutral Standards Committee
The FRC noted a progress report on the work being undertaken by Mr Kevin Simpkins, a consultant who has been engaged to undertake research on the extent to which accounting standards can be made ‘sector neutral’. As discussed with the project steering committee, the focus of the research will be on sector neutrality in terms of the functions of entities rather than size. The FRC was informed that Mr Simpkins has largely completed meetings with stakeholder groups and is now undertaking survey work across a range of overseas and international jurisdictions, based on agreed research issues.
The FRC agreed to the following variations in Mr Simpkins’s contract, subject to Treasury’s sign-off:
- the term of the contract being extended by two months, to 24 June 2006; and
- the fees payable being increased to a maximum of $103,200.
The variations to the contract will enable Mr Simpkins to complete the agreed scope of work and present his final report to the FRC at its next meeting on 22 June.
The FRC also noted oral advice from Professor Boymal that Mr Simpkins is currently undertaking an international project on accounting and that the AASB will be making payments to him in connection with that work.
Agenda item 8: 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.
It was agreed that the Secretariat should prepare a list of websites containing information relevant to the work of the FRC and circulate the list to members.
Agenda item 9: Other business
Correspondence
Particulars of correspondence received or sent by the FRC for the period 12 December 2005 to 10 March 2006 were noted.
FRC Meeting venues
FRC meeting venues for the remainder of 2006 were agreed. They are:
- Thursday, 22 June, in Sydney;
- Tuesday, 26 September, in Melbourne; and
- Friday, 8 December, in Sydney.
As previously agreed, meetings will commence at 9.00 am.
Other matters
Professor Boymal informed the meeting that an issue had arisen concerning the sub-lease of accommodation from the Australian Stock Exchange (ASX) for the use of the AASB and AUASB. The meeting noted the advice and Mr Macek asked Professor Boymal to keep him informed of further developments.
Prior to the discussion of this matter, Ms Walter, a director of ASX, informed the Chairman that she had a conflict of interest and left the meeting.