Thirty-Seventh Meeting
26 September 2006
Outcomes of the meeting held on 26 September 2006 at the Offices of the Australian Accounting Standards Board, Level 7, 600 Bourke Street, Melbourne. The meeting commenced at 9.00 am and concluded at 2.00 pm.
Attendance
FRC Members:
Mr Charles Macek (Chairman)
Ms Elizabeth Alexander, AM
Mr Bruce Brook
Ms Kathryn Campbell
Mr Michael Coleman
Mr Mark Coughlin (by telephone)
Mr Don Challen (by telephone)
Mr John Gethin-Jones
Mr Richard Humphry, AO (by telephone)
Mr David Jackson
Mr Eric Mayne (by telephone)
Mr Jim Murphy
Mr John Stanhope
Ms Jan West
Mr Lee White
Mr Klaus Zimmermann
AASB:
Mr Bruce Porter (AASB Member)
Ms Leone Mansell (AASB Director of Administration – Item 8)
AUASB:
Ms Merran Kelsall (AUASB Chairman – by telephone)
FRC Secretariat:
Mr Jorge del Busto (FRC Secretary)
Mr Les Pascoe
Invitees:
Mr Paul Hinchey (Australian National Audit Office – Item 8) (by telephone)
Mr Robert Sharma (Australian Prudential Regulatory Authority – Items 1-3)
Mr William Bartlett (FRC’s consultant on auditor independence – Item 6)
Apologies:
Prof. David Boymal
Mr Warwick Hunt
Ms Catherine Walter, AM
Agenda item 1: Introduction by FRC Chairman
The FRC Chairman, Mr Charles Macek, welcomed members to the 37th meeting of the FRC.
Membership changes
Mr Macek welcomed Ms Kathryn Campbell, Mr Michael Coleman and Mr Mark Coughlin to their first Council meeting. He also congratulated Ms Elizabeth Alexander, Mr Don Challen and Mr David Jackson on their reappointment to the Council.
In addition, Mr Macek expressed his appreciation for the contribution to the work of the Council made by Mr Graeme McGregor and Mr Phillip Prior, both of whom had recently retired from the Council.
Minutes
The minutes of the 36th meeting, held in Sydney on 22 June 2006, were approved.
Matters Arising from the Previous Meetings
A list of matters arising from the 22 June 2006 meeting was circulated with the agenda papers, and noted.
Mr Macek drew attention to two matters that still have to be addressed:
- the preparation of a letter to the new Chief Executive Officer of the Australian Stock Exchange concerning the Exchange’s support for the work of the Council; and
- the establishment of arrangements with the Audit Quality Review Board for closer links between the FRC and the Board (including arrangements for the exchange of information).
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.
The meeting noted that the Secretariat would be contacting the new members to obtain information for inclusion in their entries in the Register of Interests.
Updates on meetings
Mr Macek reported on a number of seminars he had attended, and meetings he had had with stakeholder and other bodies, since the June 2006 FRC meeting. These included:
- recent ICAA/NIA and CPA Australia seminars held in Canberra;
- a meeting with the Parliamentary Secretary to the Treasurer;
- an Ethics Forum held recently in Sydney;
- a meeting of the Financial Sector Advisory Council; and
- a visit to North America and Europe in July 2006, during which he met with senior representatives of bodies performing oversight functions equivalent to those performed by the FRC and relevant standard setting and professional bodies.
The FRC also noted that Japan will host a regional forum on IFRS implementation in March 2007.
Update on implementation of strategy meeting recommendations
The FRC noted a Secretariat paper which provided an update on progress in implementing recommendations made at the FRC’s strategy meeting held on 20 February 2006.
Stakeholder issues
The FRC noted a letter dated 15 August 2006, and an accompanying discussion paper Differential Reporting – A Call for Legislative Reform, from Pitcher Partners regarding the application and relevance of accounting standards to entities that do not operate in capital markets.
Agenda item 2: Report from the Chair of the AASB
Mr Bruce Porter presented a report on behalf of Prof. David Boymal, Chairman of the AASB, on the activities of the Board since the June 2006 meeting of the FRC. Issues covered by the report, which was noted by the FRC, included:
- recent developments in respect of international standards, including the announcement by the IASB that any further immediate changes to IFRSs will have a 1 January 2009 application date;
- a review of the AASB’s work programme, which resulted in a reallocation of time from some IASB projects to domestic projects (including public sector projects);
- the AASB’s approval of AASB 1049, which introduces GAAP/GFS harmonisation for the general government sector; and
- progress with the establishment of the AASB’s new interpretations model.
During its consideration of this item, the FRC discussed Prof. Boymal’s letter of 14 September 2006 seeking clarification about the extent to which the GAAP/GFS project should extend to whole of government, government departments, local government and other government entities. The FRC decided that, in the first instance, it would be helpful for the AASB to make a presentation to update the FRC on the AASB’s progress and experience from its work relating to GAAP-GFS harmonisation from a GGS perspective and to provide their views on the issues raised.
The FRC agreed that the FRC Chairman should write to Prof. Boymal accepting the AASB’s offer to make a presentation on the matter and inviting the Board to provide their views on the issues raised.
Agenda item 3: Report from the Chair of the AUASB
A report on activities of the AUASB over the last three months was presented to the FRC by Ms Merran Kelsall, Chair of the AUASB. The report, which covered a range of topics including formulating legally enforceable auditing standards, formulating other auditing and assurance standards and formulating guidance pronouncements, was noted by the FRC.
As a follow-up to the June meeting between the FRC and members of the AUASB, there was some discussion about auditing standards for small and medium-sized entities. At the conclusion of the discussion, Ms Kelsall offered to prepare a paper for the next FRC meeting canvassing issues associated with the development and use of such standards.
Agenda item 4: Process for setting strategic directions to the AASB and AUASB
The FRC Secretariat presented a paper on the development and issuing of strategic directions to the AASB and AUASB by the FRC.
The FRC approved the proposed guidelines outlining the procedures to be used in the development of any broad strategic directions that the FRC proposes issuing to either the AASB or AUASB under section 225 of the ASIC Act. The guidelines require the FRC to:
- give the relevant Board adequate time to consider, and comment to the FRC on, a draft direction; and
- consult with relevant stakeholders.
The FRC also agreed that the guidelines should be published on the FRC’s website.
Agenda item 5: Report from Chair of the Trans-Tasman Accounting and Auditing Standards Advisory Group (TTAASAG)
Mr Jim Murphy presented a report on behalf of Mr Warwick Hunt, Chairman of TTASAG, about the TTAASAG meeting held in Sydney on 5 September 2006. The FRC noted the report.
Agenda item 6: Report from Chair of the Audit Independence Subcommittee
Ms Elizabeth Alexander, Chair of the Audit Independence Subcommittee, reported on the work of the Subcommittee since the previous FRC meeting on 22 June.
Activities of the Subcommittee during the period included:
- holding an MOU meeting with ASIC during September;
- overseeing the work of the short-term consultants engaged to undertake the ethics, disciplinary procedures and quality review consultancies;
- progressing the preparation of the FRC’s 2005-06 auditor independence report; and
- reviewing the Charter of the Subcommittee.
Following consideration of the Subcommittee’s report, the FRC:
- noted the report from the Chair of the Audit Independence Subcommittee;
- noted the revised timetable for the preparation of the auditor independence report;
- approved an amendment to paragraph 2 of the Subcommittee’s Charter to give the Chair of the Subcommittee more flexibility in who may be invited to attend meetings of the Subcommittee;
- agreed to the name of the Subcommittee being changed to ‘Audit Independence Committee’; and
- noted that the Subcommittee had deferred a review of its membership until the Government had announced the outcome of the September round of appointments to the FRC.
Agenda item 7: Engagement of media consultant for FRC
The FRC considered a paper concerning the engagement of a consultant to assist the Council in enhancing the breadth and quality of the media coverage of the work of the FRC, particularly in respect of the release of the FRC’s report on auditor independence matters.
Following consideration of the proposal, the FRC:
- agreed to the engagement of a media consultant;
- approved the consultant recommended by Mr Macek, subject to sign-off on the contract by the Australian Treasury.
Agenda item 8: Report from Chair of the Finance Committee
Mr Macek introduced the report on work of the Committee since the last FRC meeting.
After consideration of the initial item in the report, appointment of a new Chair of the Finance Committee, the FRC agreed to the appointment of Mr Bruce Brook as Chair of that Committee.
Following his appointment, Mr Brook spoke to the other matters in the report.
The FRC:
- approved the 2005-06 FRC stocktake of operations against its functions and agreed to the publication of the stocktake on the FRC website;
- approved, subject to a number of minor technical amendments, the 2005-06 FRC/AASB/AUASB annual report, including the financial statements of the AASB and AUASB for the year ended 30 June 2006, and authorised:
- Mr Macek and Professor Boymal to sign the Management Representation letter from the FRC to the ANAO in regard to the 2005-06 AASB financial statements;
- Mr Macek, Mr Brook and Professor Boymal to sign the Statement by Directors of the AASB and the AASB’s Chief Executive Officer in regard to the 2005-06 AASB financial statements;
- Mr Macek and Ms Kelsall to sign the Management Representation letter from the FRC to the ANAO in regard to the 2005-06 AUASB financial statements; and
- Mr Macek, Mr Brook and Ms Kelsall to sign the Statement by Directors of the AUASB and the AUASB’s Chief Executive Officer in regard to the 2005-06 AUASB financial statements; and
- noted the progress being made by the Commonwealth with the review of FRC funding, to determine whether the $1 million per year over four years allocated to the FRC in the 2003-04 Budget should become a permanent appropriation.
The FRC agreed that, in future, the Ken Spencer Memorial Lecture will be held annually. In coming to this decision, it was noted that an annual lecture will provide opportunities for people of great repute to speak on topics of broad interest. It was also agreed that the Finance Committee should continue to have responsibility for administrative matters associated with the lecture.
The FRC also considered a letter dated 22 August 2006 from Mr Wayne Cameron, an Australian member of the International Public Sector Accounting Standards Board (IPSASB) and the then Auditor-General of Victoria, proposing that Australia provide a funding contribution to the IPSASB. The FRC concluded that it did not currently have the capacity to provide direct financial support to the IPSASB. In coming to this conclusion, it was noted that ‘in kind’ support is already provided to the IPSASB by the AASB, which undertakes work on a number of projects included on the IPSASB’s work programme. It was agreed that Mr Macek would reply to Mr Cameron’s letter:
- indicating support for the work being undertaking by the IPSASB;
- noting that ‘in kind’ support is already provided to the IPSASB by the AASB;
- advising that the FRC did not currently have the capacity to provide direct financial support to the IPSASB; and
- expressing reservations about some aspects of the IPSASB’s governance arrangements, including the mechanism for appointing members to the Board.
Agenda item 9: Report from Chair of the Nominations Committee
Mr Macek introduced the report from the Chair of the Nominations Committee, which primarily dealt with the peer evaluation of AASB and AUASB members and appointments to the AASB and AUASB during 2006-07. The report was noted by the FRC.
In respect of the peer evaluation of AASB and AUASB members, the FRC noted that:
- peer evaluations were carried out by AASB and AUASB members, including both written comments and quantitative responses to a series of questions;
- the Committee discussed the evaluations with the Chairs of the respective Boards, who will discuss relevant matters with their Board members individually;
- the evaluations of the AASB and AUASB Chairs were forwarded directly by the FRC Secretariat to the FRC Chairman; and
- the Nominations Committee is satisfied overall with the performance of the Boards.
In the case of appointments to the AASB and AUASB during 2006-07, the FRC agreed that:
- in view of the increased focus of the work on the AASB on public sector issues, the strength of the Board in this area should be enhanced without increasing the size of the Board; and
- the following process be followed for the filling of vacancies on the Boards expected to arise up to the end of June 2007:
- a public advertisement seeking expressions of interest for appointment to the AASB, with the desire for applicants to have public sector knowledge being emphasised; and
- a public advertisement seeking expressions of interest for appointment to the AUASB, with the desire for applicants to have knowledge of issues pertaining to medium sized and smaller accounting firms.
The FRC also noted that the FRC peer member assessment had been carried out, with the results being forwarded directly by the FRC Secretary to the FRC Chairman. At the suggestion of the FRC Chairman, it was agreed that a summary of the FRC peer assessment, based on the summaries prepared for the AASB and AUASB, should be circulated to FRC members for their information.
Mr Porter was absent from the meeting during the discussion of this item.
Agenda item 10: 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 11: Other business
Correspondence
A Secretariat paper providing particulars of correspondence received or sent by the FRC for the period 17 June to 19 September 2006 was noted.
Nomination to international body
The FRC endorsed the nomination of an Australian for appointment to the International Working Group on Accounting for Leases.
Membership of FRC Committees
With the changes to the membership of the FRC mentioned above, the Council approved the following consequential changes to the membership of its standing committees:
- Mr Michael Coleman was appointed as an additional member of the Finance Committee;
Mr Klaus Zimmermann was appointed Chair of the Nominations Committee, with Ms Kathryn Campbell and Mr Mark Coughlin joining the Committee as additional members; and
- Mr John Gethin-Jones was appointed as an additional member of the Audit Independence Committee.
Attendance at meetings of IASC Foundation
The FRC was informed that the Australian appointed to the IASC Foundation would be taking leave of absence at the time of the next one or, possibly, two meetings of the Foundation and that the FRC had been invited to nominate a person to attend those meetings.
It was agreed that any FRC members interested in attending the meetings should submit their names to either Mr Macek or Mr Murphy.
FRC Secretariat staffing
Mr del Busto informed the meeting that two positions in the FRC Secretariat were being advertised in the Australian Government Gazette and some newspapers.
Presentation on Standard Business Reporting
At the conclusion of the FRC’s formal agenda, Ms Jenny Allen of the Australian Treasury gave a presentation on standard business reporting and XBRL.