Home > Minutes > 2007 > FRC Meeting Minutes - 5 September 2007

Forty-Second Meeting
5 September 2007

Outcomes of the meeting held on 5 September 2007 at the offices of the Financial Reporting Panel, Level 11, 607 Bourke Street, Melbourne.  The meeting commenced at 9.05 am and concluded at 1.55 pm.

Attendance
FRC Members:            
Mr Charles Macek (Chairman)
Mr Bruce Brook
Ms Kathryn Campbell
Mr Michael Coleman (by telephone)
Mr Mark Coughlin (by telephone)
Mr Don Challen
Mr Warwick Hunt (by telephone)
Mr David Jackson
Mr Jim Murphy (by telephone)
Ms Catherine Walter, AM
Mr Lee White (by telephone)
Mr Klaus Zimmermann

IASB:
Mr Warren McGregor

AASB:
Prof. David Boymal (AASB Chairman – agenda item 8)

AUASB:
Ms Merran Kelsall (AUASB Chairman)
Mr Richard Mifsud (agenda item 9 - discussion on reporting to FRC by AASB and AUASB)

Invitees:
Mr Stephen Burton (representing Mr John Gethin-Jones) (by telephone)
Ms Michelle Frenkel (FRC/AASB/AUASB media consultant)
Mr Geoff Miller (Australian Treasury)
Mr Robert Sharma (APRA – agenda items 1, 2 and 8)
Mr Bill Bartlett (Consultant - agenda item 4)
Mr Richard Boele (Consultant – agenda item 4)
Mr Paul Hinchey (ANAO – agenda item 5)

FRC Secretariat:
Ms Suzanne Howarth (FRC Secretary)
Mr Les Pascoe
Ms Gabriela Sermeno

Apologies:
Ms Elizabeth Alexander, AM
Mr John Gethin-Jones
Mr Eric Mayne
Mr John Stanhope
Ms Jan West, AM

Agenda item 1: Introduction by FRC Chairman

The FRC Chairman, Mr Charles Macek, welcomed FRC members and other attendees to the 42nd meeting of the Council

Membership

Mr Macek informed the meeting that Ms Elizabeth Alexander’s term of appointment as a member of the Council would end on 31 October 2007.  Mr Macek acknowledged the significant contribution Ms Alexander had made to the work of the Council, especially in the area of auditor independence.  Other Council members endorsed Mr Macek’s comments.

Declarations of Interest

Ms Catherine Walter advised that since the last Council meeting she had been appointed a director of James Hardie Industries NV and a member of the Reserve Bank’s Payments System Board.

Mr Mark Coughlin informed the meeting that he had accepted a partnership with accounting firm PricewaterhouseCoopers.

The meeting decided that the Secretariat should update the Statement of FRC Members’ Interests and circulate it to members for checking.  It was also agreed that the Statement should be circulated with agenda papers for future Council meetings.

Minutes

The minutes of the 41st meeting, held in Sydney on 1 June 2007, were approved.

Matters arising

The Secretariat paper on matters arising from the previous meeting was noted.  Mr Macek drew attention to two inaccuracies in the paper:

1. Contrary to the statement in paragraph 3(a), the table of available funding for the FRC, AASB and AUASB had been circulated.  However, the meeting decided that it would be appropriate for the document to be recirculated by the Secretariat.
2. In paragraph 3(e), the reference to the Council’s 2006‑07 contribution to the IASCF being $200,000 should refer to ‘an additional $200,000’.

Updates of meetings

Mr Macek reported on a forum held by the Professional Accounting Bodies in July concerning the IASB’s draft SME standard.  He said that the view of meeting participants was that the draft standard does not go far enough in over coming the burden of financial reporting for SMEs.

At Mr Macek’s invitation, Mr Warwick Hunt, Chairman of the New Zealand Accounting Standards Review Board (ASRB), briefed Council members on the ASRB’s work on SMEs.

Mr Warren McGregor reported on the current activities of the IASB, including its focus on meeting commitments under its MOU with the US Securities and Exchange Commission.

The FRC also noted Ms Judith Downes’ report on the June 2007 meeting of the Standards Advisory Council, which was circulated by the Secretariat to Council members on 15 August 2007.

Stakeholder issues

Apart from matters raised under updates of meetings, no other stakeholder issues were raised.

Agenda item 2 – Report from the Chairman of the AUASB

The meeting noted the report by Ms Merran Kelsall, Chairman of the AUASB.  In speaking to her report, Ms Kelsall indicated that:

1. amendments were made to the auditing standards during June to require a statement of compliance with IFRS to be included in the auditor’s report;
2. the AUASB is now considering issues associated with the IAASB’s clarity project; and
3. work is being progressed on issues associated with the auditing of SMEs.

Mr Macek expressed the FRC’s appreciation of the Board’s actions in amending the standards to require the statement of compliance with IFRS.

Ms Kelsall also raised the issue of whether a single body should be responsible for the two standards dealing with quality control of auditing work.  At present, the AUASB is responsible for ASA 220 Quality Control for Audits of Historical Financial Information while the Accounting Professional and Ethical Standards Board, a body established by the accounting profession, is responsible for APES 320 Quality Control for Firms.  The issue is to be considered by the two boards and will be referred back to a future meeting of the Council.

Agenda item 3 – Report from the Chair of TTAASAG

The written report by Mr Hunt, Chairman of TTAASAG, was noted.  Mr Hunt supplemented his written report with an oral report on the TTAASAG meeting held on 29 August 2007.

Agenda item 4 – Report from Chair of Audit Independence Committee

The meeting noted the report presented on behalf of Ms Alexander, Chair of the Audit Independence Committee.  In conjunction with the presentation of the Independence Committee’s report, Mr Richard Boele of The Banarra Trust gave the FRC an oral briefing on the findings and recommendations in his draft report Evaluation of how professional and business ethics are applied in practice by accounting firms.

Following consideration of the report, the meeting:

1. approved the auditor independence function work programme for 2007‑08;
2. approved the calling of tenders during September for an auditor independence consultant;
3. noted that a RFT for the development of a conceptual framework for the structural arrangements for financial reporting requirements will be prepared and, subject to the FRC’s approval of the statement of requirement to be included in the RFT, issued before the end of 2007;
4. noted the report by Mr Richard Boele of The Banarra Trust;
5. noted the progress report on the preparation of the FRC’s 2006‑07 Report on Auditor Independence; and
6. approved an amendment to the Committee’s Charter, with the first sentence in paragraph 2 of the Charter being replaced by:

The Audit Independence Committee is to be chaired by a member of the FRC and is to include at least two other FRC members.  None of the FRC members appointed to the Committee are to be serving partners or employees of an accounting firm.

In addition, the meeting considered the most appropriate means of progressing work on the consultancy reports prepared by The Allen Consulting Group and The Banarra Trust and decided that both documents should be published on the FRC’s website as discussion papers, with references to them being included in the FRC’s 2006‑07 Report on Auditor Independence and any media releases issued following the tabling of the Independence Report.

Agenda item 5 – Report from Chair of Finance Committee

Mr Bruce Brook, Chair of the Finance Committee, presented a report on the Committee’s work since the FRC meeting on 1 June 2007.

The FRC:

1. endorsed the Committee’s preferred funding option, full Commonwealth Government funding for the FRC/AASB/AUASB from 2008-09 onwards, with the matter being progressed through Treasury as part of the 2008-09 Budget process;
2. approved, subject to any minor technical amendments, the financial statements of the AASB and AUASB for the year ended 30 June 2007 and authorised:
   1. two directors of the AASB to sign:
      1. the Management Representation letter from the FRC to the ANAO in regard to the 2006‑07 AASB financial statements; and
      2. the Statement of Directors of the AASB and the AASB Chief Executive Officer in regard to the 2006‑07 AASB financial statements; and
   2. two directors of the AUASB to sign:
      1. the Management Representation letter from the FRC to the ANAO in regard to the 2006‑07 AUASB financial statements; and
      2. the Statement of Directors of the AUASB and the AUASB Chief Executive Officer in regard to the 2006‑07 AUASB financial statements; and
3. considered the draft annual reports of the FRC, AASB and AUASB for 2006‑07 and agreed to finalise and approve the reports out-of-session;
4. noted the cover designs to be used for the FRC’s 2006‑07 Annual and Auditor Independence Reports;
5. noted progress with arrangements for the 2008 Ken Spencer Memorial Lecture and agreed that the FRC Chairman should write to the professional accounting bodies proposing that they and the FRC co-sponsor the function; and
6. noted the agreed arrangements for the progression of the Compliance Report for CAC Act entities.

Agenda item 6 – Report from Chair of Nominations Committee

A report on the work of the Nominations Committee since the last FRC meeting was presented by Mr Klaus Zimmermann, Chair of the Committee, and noted by the FRC.  Key matters mentioned in Mr Zimmermann’s report included that:

1. peer evaluations had been carried out by AASB and AUASB members, with both written comments and quantitative responses being provided to a series of questions;
2. the Committee had discussed the evaluations with the Chairs of the respective Boards, who will discuss relevant matters with their Board members individually;
3. the evaluations of the AASB and AUASB Chairs were forwarded directly to the FRC Chairman by the FRC Secretariat; and
4. tthe Committee is satisfied overall with the performance of the AASB and AUASB.

Following consideration of the report, the FRC approved the following process for the filling of those vacancies on the Boards that are expected to arise up to the end of June 2008:

1. public advertisements to be placed in the national press in late September 2008 seeking expressions of interest for appointment to the AASB, with the desire for applicants to have an academic background or corporate expertise being emphasised;
2. public advertisements to be placed in the national press in late September seeking expressions of interest for appointment to the AUASB, with the desire for applicants to have an academic background or knowledge of issues pertaining to mid tier accounting firms or corporate expertise;
3. suitable candidates to be shortlisted at the October meeting of the Committee with any interviews to be held in Melbourne on 8, 15 or 20 November, and
4. the Committee to make recommendations on possible appointments to the Boards for consideration at the December meeting of the FRC.

In addition, the FRC noted that a peer review of FRC members had been carried out, with the results being forwarded directly to the FRC Chairman by the FRC Secretary.  It was agreed that the summary of the FRC peer review should be circulated to Council members.

The FRC further noted action by the Committee concerning the identification and support of suitable Australian candidates for appointment to positions on relevant international accounting and auditing boards.

Agenda item 7 – 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 8 – Report from the Chairman of the AASB

The meeting noted the report from the Chairman of the AASB.  Issues raised in Professor Boymal’s report included:

1. implications for the AASB of activity by the IASB on international standards;
2. an update on Australian work on international projects;
3. a report on the round-tables concerning the AASB’s proposals for application of the IASB’s SME exposure draft in Australia; and
4. the appointment of advisory panels to consider interpretations issues.

Immediately following the presentation of Professor Boymal’s report, members of the AASB joined with members of the FRC for an informal discussion of a range of issues of mutual interest to the two bodies.

Agenda item 9 – Other Business

A Secretariat paper providing particulars of correspondence received or sent by the FRC during the period from 28 May 2007 to 30 August 2007 was noted.

Ms Michelle Frenkel, who was appointed communications manager for the FRC, AASB and AUASB during August, made a presentation to the FRC outlining her vision for the position and the role she would perform in assisting the three bodies.

Ms Kelsall raised for consideration of FRC members the issue of what form of periodic reporting by the AASB and AUASB was most appropriate to the needs of the FRC.  She noted that while current reporting by the Boards largely satisfied the FRC’s needs in terms of information needed for the governance of the Boards, it may not meet the FRC’s needs when considering issues associated with the strategic directions of the Boards.  The FRC decided that Ms Kelsall would work with the Secretariat to develop views in a paper to be presented to the FRC’s December meeting.

It was also agreed that a briefing on the implications of the Uhrig reforms for the FRC, AASB and AUASB should be given to the FRC at its December meeting.

Agenda item 10 – Next Meeting

The next meeting of the FRC will be in Sydney on Thursday, 6 December 2007, commencing at 9.00 am.