Thirty-Ninth Meeting
19 February 2007
Outcomes of the meeting held on 19 February 2007 at the Offices of the Australian Accounting Standards Board, Level 7, 600 Bourke Street, Melbourne. The meeting commenced at 10.30 am and concluded at 1.05 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 – 10:30 to 11:30)
Mr John Gethin-Jones
Mr Richard Humphry, AO (by telephone)
Mr Warwick Hunt
Mr David Jackson
Mr Eric Mayne
Mr Jim Murphy
Mr John Stanhope
Ms Jan West
Mr Lee White
Mr Klaus Zimmermann
AASB:
Prof. David Boymal (AASB Chairman)
AUASB:
Ms Merran Kelsall (AUASB Chairman)
Mr Richard Mifsud (Principal Executive)
FRC Secretariat:
Mr Jorge del Busto (FRC Secretary)
Mr Les Pascoe
Apologies:
Ms Catherine Walter, AM
Agenda item 1: Introduction by FRC Chairman
The FRC Chairman, Mr Charles Macek, welcomed members to the 39th meeting of the FRC.
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 his attendance at the IASC Foundation Trustees’ meeting, which was held in Tokyo during January.
Agenda item 2: Sector Neutral Accounting Standards
A Secretariat paper containing a summary of the public comments on the Simpkins’ report A review of the policy of sector-neutral accounting standard setting in Australia was circulated to facilitate consideration of this item.
The public consultation, which was structured around 10 matters related to standard setting, attracted a total of 19 submissions from stakeholders. The Council identified the key issues arising from the submissions as:
- the desire for a conceptual framework that adequately reflects the needs of the three sectors (for profit, public sector and not‑for‑profit);
- the need for a statement of user needs; and
- the provision of sector specific guidance.
The meeting observed that the issue of greatest concern to stakeholders was the need for a conceptual framework covering the needs of all three sectors which, in itself, should address the need for a statement of user needs. Australia’s current conceptual framework focuses on the need of the ‘for profit’ sector, an approach that is consistent with that adopted in comparable jurisdictions. While conscious of the difficulties in dealing with all three sectors in the same conceptual framework, the FRC noted a number of recent developments which are either currently providing or will in the future provide guidance for the public sector:
- the issuing of accounting standard AASB 1049 Financial Reporting of General Government Sectors by Governments, which assists the public sector by providing it with a workable set of accounting standards for its financial reporting needs; and
- the current project of the International Public Sector Accounting Standards Board (IPSASB) to develop a conceptual framework for public sector.
The meeting considered whether the Australian Accounting Standards Board (AASB) should press on with its own project for the development of its own conceptual framework for the public and not-for-profit sectors noting that, in the case of these sectors, the need for international comparability was not compelling or a priority. Professor David Boymal, Chairman of the AASB, argued that, in his view, Australia should contribute to the IPSASB project as an international solution is better than a local solution.
Specific issues associated with the not-for-profit sector were also considered by the FRC. In particular, concerns were noted about the relevance of using IFRS accounting standards for most not-for-profit entities which have particular accountability and stewardship financial reporting needs. Professor Boymal informed the meeting that the AASB is meeting with representative groups in the not-for-profit sector to discuss issues associated with their financial reporting needs and that some of these issues will be addressed through the current project on differential reporting.
On the need for a statement of user needs, the Council concluded that as the conceptual framework should be based on the needs of users, there is no need for a separate statement.
Council also considered the issue of sector specific guidance and noted, in particular, the positive experience in New Zealand with the use of non-authoritative guidance in addressing the financial reporting needs of public benefit entities.
In concluding its consideration of this matter, the FRC:
- noted that the needs of users for a single conceptual framework are not currently being met;
- took comfort from the level of progress, both in Australia and internationally, over the last 12 months on public sector issues;
- noted that the AASB’s priorities for 2007 are progressing issues in respect of public and not-for-profit sector accounting; and
- agreed to review progress in dealing with those issues that are of relevance to the not-for-profit sector in mid 2008.
Agenda item 3: Differential Accounting Standards for SMEs
A paper dated 7 February 2007, prepared by Professor Boymal and AASB staff for the AASB meeting on 14-15 February 2007, was circulated to Council members as background information for the consideration of this agenda item.
Professor Boymal briefed Council on the exposure draft of the SME (small medium entity) accounting standard issued during February 2007 by the International Accounting Standards Board (IASB).
The FRC noted Professor Boymal’s advice that the current thinking of the AASB was that the definition of entities that would be required to apply the IFRS for SMEs standard would cover all Australian entities that prepare general purpose financial statements except listed public entities and deposit takers which, in line with the definition of public accountability discussed by the IASB, would be required to apply full IFRS.
Following Professor Boymal’s comments questions were raised as to the appropriateness of the IFRS for SMEs as a means of significantly reducing their compliance burden. It was suggested that some local solutions may need to be adopted if the current onerous burden is to be lifted as the proposed SME standards are still very extensive and, therefore, do not appear to be designed to reduce the compliance burden for the majority of those entities.
The FRC noted that the number of tiers of accounting standards that Australia should have is an issue that is still under consideration by the AASB. The FRC further noted that consideration of the public interest might be a useful guide for the AASB in its further deliberations on this issue.
Agenda item 4: Recognition of IFRS adoption in Australia
At its last meeting, in December 2006, the Council considered issues associated with the possible inclusion in the auditor’s report of a statement of compliance of the financial reports with IFRS.
This meeting gave further consideration to this issue having regard to advice from Treasury (included in the agenda paper circulated by the Secretariat) and the Auditing and Assurance Standards Board (AUASB) (included in Ms Merran Kelsall’s letter of 14 February 2007).
The FRC agreed to the clarification of the AUASB’s strategic direction, which, among other things, requires the development of auditing standards that have a clear public interest focus. The FRC is of the view that promoting the international recognition of Australia’s IFRS adoption is in the public interest and that the inclusion of a statement of IFRS compliance in the auditor’s report would further the recognition of Australia’s IFRS adoption by helping to address the current lack of prominence given to IFRS compliance in the financial reports of Australian companies.
The FRC expressed its appreciation of the way and speed with which the AUASB addressed this issue and endorsed the AUASB’s proposed approach for making appropriate amendments to the auditing standards. The Council also noted that, in time, it would be desirable to consider amendments to the legislation in relation to the directors’ declaration, so that it also includes a reference to IFRS compliance.
Agenda item 5: Other business
No matters of other business were raised at the meeting.
At the conclusion of the formal agenda, the FRC met with members of the AUASB to discuss a range of issues of mutual interest to the FRC and the Board.