Fifty fourth Meeting
1 December 2009
Outcomes of the meeting held on 1 December 2009 at the offices of the Australian Accounting Standards Board, Level 7, 600 Bourke Street, Melbourne. The meeting commenced at 9.05 am and concluded at 2.10 pm.
Attendance
FRC Members:
Mr Jeffrey Lucy AM
Mr Don Challen
Mr Michael Dwyer
Mr John Gethin-Jones (by telephone)
Ms Noelle Kelleher
Ms Merran Kelsall
Mr Eric Mayne
Mr Jim Murphy
Mr Kevin Simpkins
Mr John Stanhope
Mr Kevin Stevenson
Mr John Trowbridge
Ms Jan West AM
Mr Stuart Wilson (by telephone)
Mr Klaus Zimmermann
Invitees:
Mr Michael Coleman
Mr Mark Coughlin
Mr Bede Fraser (Australian Treasury)
Mr Robert Keys (AASB – agenda items 2(b)(i), 4(a) and 4(b))
Ms Judith Downes (Standards Advisory Council – agenda item 3(c))
Ms Caithlin Mc Cabe (International Auditing and Assurance Standards Board – agenda item 3(c))
Mr Tim Youngberry (Department of Finance and Deregulation –agenda item 4(a))
FRC Secretariat:
Ms Genevieve Watson (FRC Secretary)
Mr Les Pascoe
Apologies:
Mr Bruce Brook
Ms Kathryn Campbell
Mr Warren McGregor
Agenda Item 1 – Apologies and welcome
The FRC Chairman, Mr Jeffrey Lucy AM, welcomed FRC members and other attendees to the 54th meeting of the Council.
The Chairman informed the meeting that Messrs Coleman and Coughlin were attending in the capacity of observers, as it had not been possible to finalise the documentation for their reappointments prior to the meeting.
The Chairman also informed the meeting that agenda items 2(a) and 3(d) would be dealt with together and that he would raise an issue concerning the IASB Chairmanship under agenda item 7.
(a) Declarations of interest
The FRC noted the register of interests circulated by the Secretariat.
Mr Lucy advised that he is no longer a member of the Australian Institute of Company Directors.
Mr Stevenson advised that his entry in the register of interests should be amended by adding the following information under ‘other relevant matters’: Adjunct Professor, Faculty of Business, Law and Economics, University of Queensland; Fellow (Hon.), Department of Accounting and Finance, Monash University; and Fellow (Hon.), Faculty of Economics and Commerce, University of Melbourne.
Ms West informed the meeting that Ms Caithlin Mc Cabe, who would be providing the Council with a report on recent activities of the International Auditing and Assurance Standards Board, is a fellow partner at Deloitte.
(b) Confirmation of the minutes of the last meeting
The Minutes of the 53rd meeting, which was held in Melbourne on 21 September 2009, were approved.
(c) Matters arising from the minutes of the last meeting
The Secretariat paper on matters arising from the Minutes of the last meeting was noted.
The meeting was informed that the matters arising paper needed amendment as the comments about action taken in respect of long-tail liabilities failed to address the issue of volatility in reported liabilities for large items such as superannuation, a key issue raised in letters by the Victorian Treasurer and the Chair of Heads of Treasuries. The FRC agreed that the IASB should be called upon to reconsider the discounting of long term liabilities, given the potential volatility from the use of a specified rate that some stakeholders do not think is appropriate.
On the issue of discussions with the Water Accounting Standards Board (WASB), the Chairs of the AASB and AUASB informed the meeting that they had met recently with representatives of WASB. The FRC noted these comments and agreed that the Secretariat should continue to monitor the WASB’s activities.
(d) Votes by Circular Resolution
A Secretariat paper on the outcome of the one vote conducted by circular resolution since the FRC meeting on 21 September 2009 was noted by the FRC. Particulars of the vote were:
- On 8 October, the FRC’s 19 members were invited to approve the FRC’s 2008-09 Annual Report. Seventeen votes approving the report were received prior to the voting deadline of cob Monday, 12 October.
Agenda Item 2 – Stakeholder engagement
(a) Report by FRC Chairman
As noted under agenda item 1, this item was dealt with in conjunction with agenda item 3(d).
The following material was circulated for the information of FRC members: a report on the recent activities and findings of the FRC Chairman; and a report outlining the key messages from a series of meetings between the FRC Chairman and a range of bodies from the accounting and auditing communities of the United Kingdom, Europe and the United States that were held during late September and early October. Both reports were noted by the FRC.
In speaking to the reports, the Chairman informed the meeting that during his recent meeting with APRA, the question of overseeing compliance with accounting standards by superannuation funds that are subject to prudential regulation by APRA was discussed.
Following consideration of the matter by the Council, it was agreed that the FRC Chairman should write to the Executive Director of the Markets Group, Australian Treasury, on this matter and suggest that it may be appropriate for the Review into the governance, efficiency, structure and operation of Australia’s superannuation system (the Cooper Review) to consider the issue.
(b) Reports by Stakeholders
(i) Chair of AASB
A report by Mr Stevenson, Chair of the AASB, covering the work of the Board during the period since the FRC meeting on 21 September was circulated for consideration at the meeting. Comments made by Mr Stevenson in speaking to his report included:
- that he is delighted with the progress being made by the AASB;
- that the AASB and NZ FRSB have decided, in the context of the Australia/NZ Prime Ministers’ outcomes framework, to review differences in the reporting requirements for ‘for-profit’ entities and prepare an exposure draft to resolve those differences;
- observations about the relative progress being made by New Zealand and the AASB on accounting standards for the for-profit private sector, not-for-profit private sector and the public sector;
- that a successful first meeting of the Asian-Oceania Standards Setters Group (AOSSG) was held in Kuala Lumpur during November. A Malaysian delegate was elected Chair of the Group, while a Japanese delegate was elected Deputy Chair. Mr Stevenson noted that: seven of the countries represented on AOSSG were G-20 countries; and the Group appeared to be looking to Australia for input on its more complex projects. The FRC asked the FRC Secretary to inform Treasury’s G-20 Secretariat about AOSSG and the AASB’s involvement with it; and
- that IFRS 9 Financial Instruments: Recognition and Measurement was issued during November and the AASB hopes to make the Australian standard in the near future.
(ii) Chair of AUASB
A report by Ms Kelsall, Chair of the AUASB, on the work of the Board during the period since the last FRC meeting was circulated for consideration at the meeting. In speaking to her report, Ms Kelsall informed the Council that, with the making of the ‘clarity’ standards, the Board’s emphasis was now one of communication. Joint information sessions have been arranged with the professional accounting bodies; and it was noted that different messages may be needed for different segments of the practitioner group. It was also noted that the various communication initiatives would intensify in the lead-up to the end of the first reporting period for which the standards will be operative. Other matters reported on by Ms Kelsall included her attendance at a recent meeting of the NZ Professional Standards Board, a move designed to foster closer relations between the two bodies.
(iii) Other stakeholders
The following observations were made by FRC members about recent news from, or other developments concerning, their respective stakeholder bodies:
- Mr Coleman (AICD) informed the meeting that matters currently of interest to the AICD included the AASB’s project on disclosures by private sector not-for-profit entities and the AASB’s request for comments on the Management Commentary exposure draft.
- Mr Coughlin (CPA Australia) reported that the body’s educational programs will cover the new clarity auditing standards commencing from the first semester in 2010.
- Mr Dwyer (ASIC) advised that ASIC’s audit inspection report for 2008-09 was now in draft form and had been submitted to the auditing firms for comment. He also indicated that the 2009 financial reporting surveillance program is largely complete.
- Mr Trowbridge (APRA) said that APRA had developed proposals for changes to prudential reporting by general insurers. The proposed changes, which will align prudential reporting closely with statutory reporting, will reduce the reporting burden that currently causes general insurers to prepare full accounts on two different bases.
- Ms West (ICAA) circulated a paper about the need to align the use within government requirements of the words ‘audit’ and ‘assurance’ and associated reporting to the AUASB’s standard setting framework. Following consideration of the paper, the Council agreed that it would be appropriate for the FRC Chairman to write to the Minister for Finance and Deregulation (with a copy to the Minister for Financial Services, Superannuation and Corporate Law) drawing attention to the issue raised by the ICAA.
- Mr Zimmermann (NIA) informed the Council that the NIA had created eight Faculties to anticipate, collectively discuss and respond to emerging issues in the accounting profession both in Australia and abroad. The NIA’s Faculties cover the following issues: accounting education, accounting regulation, corporate governance, financial services, public sector, small business, taxation and international.
Agenda Item 3 – International developments
(a) Report from Chair of NZ ASRB
Mr Simpkins, Chair of the NZ ASRB, briefed the meeting on recent developments in New Zealand. At the end of September, the Ministry of Economic Development’s discussion document on a statutory framework for financial reporting in New Zealand and the ASRB’s companion discussion document on the ‘Proposed Application of Accounting and Assurance Standards under the Proposed New Statutory Framework for Financial Reporting’ were released for public comment.
Mr Simpkins also advised that, in late October, the NZ Government announced a new regime for auditor registration and oversight, with the NZ Institute of Chartered Accountants regulating auditors as a specialist profession and the ASRB becoming responsible for monitoring and reporting on the way the Institute regulates auditors. Legislation to implement the new regime is expected to be introduced into the New Zealand Parliament during 2010.
(b) Report from TTAASAG
The FRC was advised that TTAASAG had not met since the FRC meeting on 21 September 2009. The next TTAASAG meeting is scheduled to be held in Melbourne on 2 December 2009 and a full report on that meeting will be provided to the next regular meeting of the FRC.
(c) Reports on activities of international bodies
Reports on recent activities of the following international bodies were tabled: IASB’s Standards Advisory Council (prepared by Ms Judith Downes); IASB’s International Financial Reporting Interpretations Committee (prepared by Ms Ruth Picker); and International Public Sector Accounting Standards Board (prepared by Mr Ken Warren).
Observations made by Ms Downes, in speaking to her report, included that: SAC’s November meeting was one of the most balanced she had attended in that discussions were not dominated by any particular regional group; IASB/FASB convergence in the area of financial instruments will not be easy; and having the continuing program of convergence extending beyond 2011 is a matter for concern.
In addition, Ms Caithlin Mc Cabe, a member of the International Auditing and Assurance Standards Board (IAASB), presented an oral report on recent activities of that Board. Her report was divided into three parts: outcomes of the IAASB’s September meeting; the agenda for the December meeting; and her involvement with Australian stakeholders.
Matters dealt with at the IAASB’s September meeting included: approving a new standard about assurance reports on controls at a service organisation; approving a consultation paper on the development of auditing guidance relating to complex financial instruments; discussing issues concerning the development of a standard about assurance on greenhouse gas statements; considering a draft standard about assurance reports on the compilation of pro forma financial information included in prospectuses; and considering XBRL-related issues.
The IAASB’s December meeting is scheduled to consider a range of issues including: assurance reports on compilation of pro forma financial information included in prospectuses; engagements to compile financial information; assurance engagements other than audits or reviews; and auditing complex financial instruments.
Ms Mc Cabe also informed the meeting that since mid 2009, she has been keeping Australian stakeholders, including AUASB, ASIC and the Treasury, informed of IAASB developments. The FRC Chairman thanked Ms Mc Cabe for her presentation and invited her to make similar presentations to future FRC meetings.
(d) FRC International Meetings – UK, Europe and North America
This matter was dealt with in conjunction with agenda item 2(a).
(e) G-20 Update
FRC members noted a brief update on the G-20’s activities in the areas of accounting and auditing standards since the FRC meeting in September 2009. During this period the G-20 leaders met in Pittsburgh, USA, on 24-25 September, while G-20 Finance Ministers met at St Andrews, Scotland, on 6-7 November.
Agenda Item 4 – Strategic matters
(a) Public Sector accounting
The FRC considered a Secretariat paper about recent developments concerning the completion of Phase 2 of the GAAP/GFS Harmonisation Project. The following additional material was circulated to FRC members with the Secretariat paper: an AASB progress report on GAAP/GFS harmonisation and Mr Challen’s response to the AASB’s progress report. The FRC’s consideration of this item focused on the AASB’s tentative decision to develop the proposals in ED174 Amendments to Australian Accounting Standards to facilitate GAAP/GFS Harmonisation for Entities within the GGS into non-mandatory guidance.
Following consideration of the relevant issues, the FRC confirmed that the broad strategic direction (issued in December 2002) is still relevant and decided that the Board’s tentative decision would not satisfy that direction, because no standard would be developed. The AASB Chairman was asked to inform the Board of the FRC’s views.
Prior to arriving at its decision, the FRC had a wide-ranging discussion which covered:
- the role of the FRC in setting strategic directions;
- issues considered by the AASB;
- issued raised by other FRC members; and
- relevance and applicability of 2002 strategic direction.
Role of FRC in setting strategic directions
The FRC considered the distinction between technical matters (the Board’s role) and strategic matters (the FRC’s role) and concluded that the direction is consistent with the FRC’s role. FRC members acknowledged that members of the AASB might disagree with the strategic direction, but it is the Board’s role to make technical decisions within the context of that direction.
Issues considered by the AASB
The Chair of the AASB informed the FRC about a range of issues considered by the AASB during its consideration of this matter, including:
- concerns about the need for a standard on GAAP/GFS on basis of the AASB’s consultative process;
- the Board’s conclusion that the existing standards could produce the disclosures that are being sought; and
- the possibility that the IASB’s 2010 presentation project may cause maintenance challenges for AASB 1049. Accordingly, why require the general government sector to change their reporting when the presentation project may be changing it again?
Issues raised by other FRC members
During the Council’s consideration of this matter, a number of issues were raised by other FRC members, including:
- a standard on GAAP/GFS would enhance comparability, so that a user of financial statements could compare a department in one state with the corresponding department in each of the other states;
- the desirability of public sector standards being set by an independent standard setter and not having governments set their own standards;
- if non-mandatory guidance were issued, the various jurisdictions may differ significantly in the timing of their adoption of the guidance;
- concerns about the ability of auditors-general to audit material prepared in accordance with non-mandatory guidance;
- a standard on GAAP/GFS harmonisation would facilitate entities within the GGS meeting their accountability obligations; and
- the AASB should give greater weight to the considered views of peak bodies that reflect the views of users, rather than individuals or preparers.
Relevance and applicability of 2002 strategic direction
To conclude the general discussion, the FRC Chairman asked each member for the views of their stakeholder body in relation to the continued relevance and applicability of the 2002 strategic direction. In response, members representing the following bodies indicated that the direction was relevant and appropriate: Australian Department of Finance and Deregulation, Heads of State and Territory Treasuries, Australian Treasury, CPA Australia, ICAA, NIA, AICD (although qualified as not being a formal view) and ASIC. Other than the comments flagged by the AASB, no members raised concerns with the relevance and applicability of the 2002 strategic direction.
(b) Differential Reporting; and
(c) Corporate Reporting Reform Bill
The following material was circulated to FRC members to facilitate consideration of these items:
- a status report (including a draft record of the Differential Reporting Workshop held on 17 August 2009) prepared by the FRC Secretariat on action taken in respect of differential financial reporting since the FRC meeting on 21 September 2009;
- a draft consultation paper prepared by the AASB proposing the introduction of a second tier of reporting requirements into the Australian financial reporting framework to substantially reduce the net time and cost spent by Australian entities in the preparation of financial reports. The AASB’s consultation paper also proposes to clarify the circumstances in which general purpose financial statements (GPFS) will be required to be prepared. Under the reforms being proposed, financial statements prepared under a legal mandate in accordance with Accounting Standards and lodged on a public register (such as ASIC) would be regarded as GPFS; and
- an Australian Treasury paper providing an update on reforms to improve Australia’s legislative framework for corporate reporting.
The FRC noted these documents and also approved the draft record of the Differential Reporting Workshop.
The Council also noted that the AASB consultative paper and the draft legislation for reforming the corporate reporting framework were expected to be released for public comment within a few days of the meeting.
(d) G100 disclosure principles project
The FRC noted the paper ‘Less is More’ prepared by the G100 and presented to the IASB concerning principles that the G100 believes should be applied by standard-setters when developing disclosure requirements in accounting standards.
Mr Stanhope informed the meeting that the G100 is road-testing the proposals in the paper and indicated that the G100 would provide the Council with feedback on this process.
(e) Audit quality
An Australian Treasury paper providing a report on the current status of Treasury’s strategic review on audit quality in Australia was noted by the FRC.
(f) Audit independence
This matter was covered by the Chairman’s report under agenda item 2(a).
(g) International audit representation
The FRC noted a Secretariat paper concerning the need to strengthen Australia’s representation on, or other involvement with, the IAASB.
The FRC noted that the only Australian currently on the IAASB is Ms Mc Cabe. Ms Kelsall informed the meeting that the AUASB is informally advising Ms Mc Cabe of the AUASB’s views about matters on the IAASB’s work program.
The importance of maintaining Australia’s influence on the IAASB (and other international bodies) was supported by all FRC members. Mr Coughlin agreed to report back to the next FRC meeting on the steps being undertaken by the professional accounting bodies in this area.
Agenda Item 5 – FRC operations
(a) Annual report for 2008-09
The FRC noted advice from the Secretariat that the Council’s 2008-09 Annual Report was tabled on 13 November 2009.
(b) Nominations Committee report
Mr Zimmermann, Chair of the Nominations Committee, reported on the activities by, or on behalf of, the Committee since the Council’s last meeting. The principal activities have been:
- seeking feedback from all AASB and AUASB members on the current peer review process regarding possible changes that could be made to the process for the next three years; and
- finalising the administrative arrangements for making the appointments approved by the Council at its last meeting:
- Ms Sue Highland, Ms Kris Peach and Ms Joanna Perry each reappointed to the AASB for a three year term commencing on 1 January 2010; and
- Ms Dianne Azoor Hughes and Mr Clive Mottershead each reappointed to the AUASB for a three year term commencing on 1 January 2010.
(c) Revision of rules of procedure
Consideration of a proposed amendment to the FRC’s Rules of Procedure to establish a protocol for communications between members of the Council and members of the standards-setting boards was deferred until the next meeting.
The FRC also noted an observation by Mr Challen that the draft amendment circulated for consideration by Council members may require further refinement to ensure that the correspondence to be copied to the FRC Chairman relates to the work of the board of which the addressee is a member.
(d) Planning for 2010 Ken Spencer Memorial Lecture
The meeting considered a status report by the FRC Secretariat on preparations for the 2010 Ken Spencer Memorial Lecture, which is scheduled to be held in Sydney on 2 March 2010. Following consideration of the report and noting, in particular, that the ASIC Summer School will be held in Melbourne on 1-3 March 2010, the FRC decided that the Lecture should be held in Melbourne on 2 March and asked the Secretariat to make appropriate arrangements with KPMG.
(e) 2010 Meeting Schedule
The FRC approved the following meeting dates for 2010:
| • Wednesday, 3 March | Melbourne | Regular FRC meeting |
| • Wednesday, 12 May | Melbourne | 2010-11 Planning Day (tbc)1 |
| • Tuesday, 27 July | Melbourne | Regular FRC meeting |
| • Tuesday, 21 September | Sydney | FRC workshop |
| • Thursday, 2 December | Melbourne | Regular FRC meeting |
(f) Report to Minister
The Secretariat informed the Council that it has commenced preparation of the next periodic report to the Minister for Financial Services, Superannuation and Corporate Law and invited members to inform the Secretariat of matters they consider should be included in the report.
Agenda Item 6 – Correspondence
A Secretariat paper listing FRC correspondence for the period from 22 September 2009 to 18 November 2009 was noted.
Agenda Item 7 – Other business
The FRC Chairman informed the meeting that the IASC Foundation will soon be advertising the position of Chairman of the IASB. The Foundation has established a comprehensive set of criteria to be used to identify the preferred candidate.
No other matters of other business were raised.
Agenda Item 8 – Next Meeting
The next regular meeting will be held in Melbourne on 3 March 2010.
1 The date for this meeting was subsequently changed to Tuesday, 11 May.