Thirty-Sixth Meeting
22 June 2006
Outcomes of the meeting held on 22 June 2006 at The Institute of Chartered Accountants in Australia, Level 15, 37 York 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 (by telephone – until 11.55am)
Mr Don Challen (until 1.00pm)
Mr Richard Humphry, AO (by telephone)
Mr Warwick Hunt (by telephone)
Mr David Jackson
Mr Graeme McGregor, AO (by telephone – until 12.30pm)
Mr Phillip Prior (by telephone – until 12.30pm)
Mr John Stanhope
Ms Catherine Walter, AM
Ms Jan West
Proxies:
Mr Paul Phenix (appointed by Mr Eric Mayne)
AASB:
Prof. David Boymal (AASB Chairman)
AUASB:
Ms Merran Kelsall (AUASB Chairman)
FRC Secretariat:
Mr Jorge del Busto (FRC Secretary)
Mr Les Pascoe
Invitees:
Mr Roger Cotton (NIA)
Mr Geoff Miller (The Treasury)
Mr Douglas Niven (ASIC)
Mr Robert Sharma (Australian Prudential Regulatory Authority – Items 1‑5)
Ms Judith Downes (by telephone – Item 1)
Mr Kevin Simpkins (FRC’s Sector Neutral Consultant – Items 1‑3)
Mr William Bartlett (FRC’s consultant on auditor independence – Item 5)
Mr Chris Hall (AUASB member – Item 10)
Ms Dianne Azoor Hughes (AUASB member – Item 10)
Prof. Christine Jubb (AUASB member – Item 10)
Mr David Simmonds (AUASB member – Item 10)
Mr Jon Tyers (AUASB member – Item 10)
Apologies
Mr Richard Humphry, AO
Mr Eric Mayne
Mr Jim Murphy
Mr Lee White
Mr Klaus Zimmermann
Agenda item 1: Introduction by FRC Chairman
The FRC Chairman, Mr Charles Macek, welcomed members to the 36th meeting of the FRC.
Membership changes
Mr Macek welcomed Mr John Gethin‑Jones to his first Council meeting.
Mr Macek also expressed his appreciation for the contribution to the work of the Council made by Mr Brian Scullin, who had recently retired from the Council.
Minutes
The minutes of the 35th meeting, held in Sydney on 20 March 2006, were approved.
Matters Arising from the Previous Meetings
A list of matters arising from the 20 March 2006 meeting was circulated with the agenda papers, and noted.
Declarations of Interest
The Register of Interests, which detailed each member’s business and professional affiliations as at June 2006, was circulated with the agenda papers. Ms Catherine Walter informed the meeting of an amendment to the business affiliations contained in her entry in the Register.
The FRC agreed that the Register of Interests of FRC members should be published on the FRC’s website.
Updates on meetings
Mr Macek reported on a number of meetings he had had with stakeholder and other bodies since the March 2006 FRC meeting. These included:
- a National Institute of Accountants (NIA) conference in Malaysia on challenges facing the professional accountant;
- an executive briefing by the AUASB on the new auditing standards;
- a NIA roundtable on FASB/IASB convergence involving Michael Crooch (FASB), Warren McGregor (IASB) and senior Australian business executives;
- an appearance before the Senate Estimates Committee, where the focus of the questioning was on the respective roles of the Audit Quality Review Board and the AUASB, the FRC’s auditor independence function and public sector accounting issues;
- a visit to Japan, China and Singapore as a follow-up to the IFRS Regional Forum held in Australia in October 2005; and
- a meeting with a mid-tier firm which provided an overview of the problems confronting smaller companies under the current regulatory regime.
In addition, Mr Macek informed the meeting that the Ken Spencer Memorial Lecture, which was held in Melbourne in late April, had been well attended and that Mrs Spencer had written expressing her gratitude for the holding of the lecture. Mr Macek expressed the view that the FRC should now be giving thought to the 2007 lecture, including potential speakers and possible venues.
Ms Judith Downes, a member of the IASB’s Standards Advisory Council, provided FRC members with written and oral reports on the February 2006 meeting of the SAC. The FRC noted Ms Downes’ report.
Update on implementation of strategy meeting recommendations
The FRC considered a Secretariat paper which outlined the progress to date in implementing the decisions taken at the strategy meeting held in February 2006. Issues discussed included the FRC’s relationship with the standard setters, enhanced liaison with stakeholder bodies, raising the FRC’s public profile and the funding of the standard setting process.
During its consideration of this item, the FRC decided:
- to prepare a document for consultation with the AASB and AUASB which sets out the agreed process for developing and issuing strategic directions to the Boards under section 225 of the Australian Securities and Investments Commission Act 2001;
- to consider, in consultation with the AASB and AUASB, the communications needs of the three bodies and how the needs could best be addressed;
- that a register of suitable candidates for appointment to relevant international bodies be established and maintained by the FRC Secretariat in accordance with the recommendation made in the report by the Chairman of the Nominations Committee, and that FRC members consider suitable persons for inclusion on the register and forward these to the Secretariat; and
- that a status report on the implementation of strategy meeting recommendations should be made a standing item on the agenda for future FRC meetings.
The meeting also noted:
- Paul Phenix’s advice that the XBRL taxonomy is expected to be completed shortly and that work will then focus on the field testing phase; and
- Mr Macek’s advice that, as part of the Uhrig Report implementation, the Department of Finance and Administration had agreed to a review of the structural framework under which the FRC, AASB and AUASB functioned. Treasury would shortly convene a meeting with representatives of all three bodies to consider the issues associated with, and the objectives of, the review.
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 March 2006 meeting of the FRC.
The FRC considered a ‘business plan strategies’ document prepared by the AASB outlining the initiatives underpinning the AASB’s business plan. Subject to consultation with the FRC Chairman on a number of changes to the document to better reflect the AASB’s relationship with the FRC (including the latter’s strategic directions) and the International Public Sector Accounting Standards Board (IPSASB), the FRC agreed to the publication of the document on the AASB’s website.
The FRC also noted a revised AASB paper describing the new interpretations model. Professor Boymal informed the meeting that the AASB has issued invitations seeking expressions of interest from people interested in serving on the advisory panels to be established under the new arrangements. He reported that the initial response has been slow, but expects more reaction when an issue arises.
In presenting his report, Professor Boymal also informed the FRC that he proposed volunteering AASB resources for work to be undertaken by the IPSASB on a conceptual framework for the public sector and accounting by a grantor for service concessions. The offer, which would have budget/resource implications for the AASB as each project required the allocation of half a person per year, would necessitate a reduction in the level of activity on other AASB projects.
Agenda item 3: Report from the Chair of the Sector Neutral Standards Steering Committee
The FRC:
- noted a report by Mr Phillip Prior, Chairman of the Sector Neutral Accounting Standards Advisory Committee on the work of the Committee since the last FRC meeting;
- received the report A review of the policy of sector-neutral accounting standard-setting in Australia by Mr Kevin Simpkins, a consultant engaged by the FRC to undertake research on the extent to which accounting standards should be ‘sector neutral’;
- considered a draft consultation paper prepared by the Secretariat for the purpose of seeking public comments on Mr Simpkins’ report;
- approved the consultation paper, subject to the re-framing of several questions in the paper and a number of other editorial changes being made;
- agreed that Mr Simpkins’ report, in conjunction with the consultation paper, be published on the FRC website for the purpose of soliciting comment from stakeholders on the findings in the report; and
- agreed that the AASB be invited to comment on the full report by Mr Simpkins.
Agenda item 4: Report from Chair of the Trans-Tasman Accounting Standards Advisory Group (TTASAG)
The FRC noted the report by Mr Warwick Hunt, Chairman of TTASAG, on activities of the Group since the FRC meeting in March 2006.
Agenda item 5: Report from Chair of the Audit Independence Subcommittee
Ms Elizabeth Alexander, Chair of the Auditor Independence Subcommittee, reported on recent progress with the performance of the auditor independence function. She informed the meeting that, since the previous meeting, the Subcommittee had:
- held MOU meetings with ICAA and CPA Australia and met with each of the major accounting firms;
- overseen the extension of the Auditor Independence Consultant’s contract and the engagement of three short-term consultants to undertake the ethics, disciplinary procedures and quality review consultancies;
- prepared a timetable for the preparation of the FRC’s 2005‑06 independence report and developed a revised structure for the report; and
- developed a work programme for performing the auditor independence function in 2006‑07.
Mr William Bartlett, the FRC’s auditor independence consultant, supplemented Ms Alexander’s report with a brief oral report on the MOU meeting with ASIC held on 20 June.
The FRC noted Ms Alexander’s report and the comments by Mr Bartlett.
The FRC agreed that the 2005‑06 auditor independence report should be published separately from the annual reports of the FRC, AASB and AUASB. The FRC also agreed that:
- the structure of the report be based on that proposed by the Subcommittee;
- extracts from the reports of the three short-term consultants, rather than the full text of each report, should be included in the 2005‑06 independence report;
- relevant ‘forward‑looking’ issues should be included in the report; and
- the preamble to the report should articulate the role the FRC plays in terms of its enabling legislation and its oversight of the accounting profession, the latter focusing on independence issues.
In the case of the 2006‑07 auditor independence function work programme, the FRC:
- approved the proposed work programme prepared by the Subcommittee; and
- noted the auditor independence-related consultancies that have been included in the Government’s procurement plan for 2006‑07
Agenda item 6: Report from Chair of the Finance Committee
Mr Graeme McGregor, Chairman of the Finance Committee, presented a report on the work of the Committee since the last FRC meeting. The FRC noted the report.
Following consideration of the report, the FRC:
- agreed to delegate, to the Finance Committee, authority for authorising the acquisition of assets by the AASB for use by the FRC to the value of $5,000;
- approved the 2006-07 draft AASB budget, which provided for total income of $4.189 million and total expenses of $4.155 million, and the associated business plan;
- approved the 2006-07 draft AUASB budget, which provided for total income of $1.947 million and total expenses of $2.141 million, and the associated business plan;
- noted the FRC’s own accrual budget for 2005-06 and agreed that an amount of $180,000 be transferred from the FRC to the AASB in 2005-06 in order to bring the results for the AASB closer to balance;
- approved the 2006-07 draft FRC budget, which provides for expenditures of $2.650 million, including a budgeted contribution of $800,000 to the International Accounting Standards Committee Foundation that the FRC makes on behalf of Australia;
- noted that:
- on the basis of funding commitments and projected expenditures, the AASB and AUASB are expected to record a combined deficit in each of 2006‑07, 2007‑08 and 2008‑09; and
- these may require the Boards and the FRC to find expenditure savings and draw upon cash reserves
- noted that, in October 2006, the Commonwealth will review the $1 million per year over four years allocated to the FRC in the 2003-04 Budget, to determine whether it should become a permanent appropriation (in the context of the review, advice could be provided to the Commonwealth on the need to review overall FRC funding in another two years);
- agreed to authorise payments:
- to AASB members who participate at Committee meetings and panels; and
- for attendance at part‑day Board meetings of the AASB and AUASB,
with the payments to be made in accordance with guidelines approved by the FRC;
- agreed that there should be a further contribution of $200,000 to the IASCF in 2005-06, bringing the total for the year to $1 million; and
- noted the draft timetable and responsibilities for the preparation of the 2005‑06 FRC, AASB and AUASB annual reports.
During discussion of this item, the need for the FRC to prepare a business plan in support of its own budget was considered. It was agreed that, in future, a business plan should be prepared for the FRC.
Mr Macek noted that, with the retirement of Mr Scullin from the FRC, there was a need to appoint additional members to the Finance Committee. Council approved Mr Macek’s proposal for the appointment of Messrs Bruce Brook and John Stanhope to the Committee.
Agenda item 7: Report from Chair of the Nominations Committee
The FRC noted the report from Mr Prior, Chair of the Nominations Committee, on the work of the Committee since the last FRC meeting.
The FRC approved a recommendation from the Nominations Committee for the appointment of a new member to the AASB, subject to completion of referee checks1. In addition, the FRC:
- noted the process that that Nominations Committee intends to follow in regard to the filling of vacancies on the Boards expected to arise up to the end of June 2007;
- agreed to proceed with the FRC peer member assessment based on the survey paper circulated with Mr Prior’s report; and
- agreed that the FRC Nominations Committee Charter be amended to better reflect its duties.
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.
Agenda item 9: Other business
A Secretariat paper providing particulars of correspondence received or sent by the FRC for the period 13 March to 16 June 2006 was noted.
Agenda item 10: Report from the Chair of the AUASB
The FRC noted the report by Ms Merran Kelsall, Chair of the AUASB, on the work of the AUASB since the March 2006 meeting of the FRC. Key issues covered by the report included:
- the successful completion of the AUASB’s programme to issue the auditing standards having force of law for the purposes of the Corporations Act; and
- confusion in the media about the impact of the new standards, especially in respect of the date from which they would apply and the cost of compliance.
Members of the AUASB joined the FRC for consideration of the report by the Chair of the AUASB. At the conclusion of the FRC’s formal agenda, AUASB members participated in a wide-ranging discussion with FRC members on issues associated with operations of the AUASB and its standard setting role.
1 On 5 July 2006, the FRC announced the appointment of Mr Brett Rix, Manager, Group Accounting – Policy and Governance, at BHP Billiton, for a three year term commencing on 4 July 2006.