Fifty First Meeting
5 May 2009
Outcomes of the meeting held on 5 May 2009 at the offices of the Australian Securities Exchange, 20 Bridge Street, Sydney. The meeting commenced at 9.05 am and concluded at 2.00 pm.
FRC Members:
Mr Jeffrey Lucy AM
Ms Kathryn Campbell
Mr Don Challen (by telephone until 12.45 pm)
Mr Michael Coleman
Mr Mark Coughlin
Mr John Gethin-Jones
Ms Merran Kelsall
Mr Eric Mayne
Mr Jim Murphy (by telephone from 11.05 am until 11.55 am)
Mr John Stanhope
Mr John Trowbridge
Ms Jan West AM
Mr Stuart Wilson
AASB:
Mr Bruce Porter (Acting Chairman, AASB)
Invitees:
Dr Ian Beckett (Treasury)
Mr Bede Fraser (Treasury – by telephone)
Mr Michael Dwyer (ASIC)
Mr Warren McGregor (IASB)
Mr Kevin Simpkins (NZ ASRB)
Ms Bridget Brill (Department of Climate Change – item 2(e))
Ms Di Barclay (Department of Climate Change – item 2(e))
Ms Judith Downes (SAC – by telephone for item 2(i))
FRC Secretariat:
Ms Suzanne Howarth (FRC Secretary)
Mr Les Pascoe
Mr Marcus McKillop (by telephone)
Apologies:
Mr Bruce Brook
Agenda Item 1 – Apologies and Welcome
The FRC Chairman, Mr Jeffrey Lucy AM, welcomed FRC members and other attendees to the 51st meeting of the Council.
The FRC Chairman informed the meeting that the Minister for Superannuation and Corporate Law (Senator the Hon. Nick Sherry) had reappointed Messrs Bruce Brook, Eric Mayne, Jim Murphy, John Stanhope and Klaus Zimmermann as part-time members of the FRC for a period of three months commencing on 6 April 2009. The Chairman also indicated that the Minister is seeking Government approval to extend these appointments to full three-year terms and to fill four other existing or upcoming vacancies.(a) Declarations of interest
Members advised the meeting of the following changes to their entries in the register of interests circulated by the Secretariat.
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Mr Lucy advised that he is no longer a director of Regis Resources; and
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Mr John Stanhope advised that he is no longer a director of 3GIS.
(b) Confirmation of Minutes of Previous Meeting
The Minutes of the 50th meeting, which was held in Melbourne on 17 February 2009, were approved, subject to an amendment to Mr Michael Coleman’s advice about his declaration of interest to indicate that, as the Business Regulation Advisory Group no longer exists, its name should be removed from his list of interests.
(c) Matters Arising from previous meeting
The Secretariat paper on matters arising from the Minutes of the last meeting was noted.
The FRC Chairman said it was unfortunate that there had been a delay in writing to Professor Jayne Godfrey of the Water Accounting Standards Board (formerly known as the Water Accounting Development Committee) concerning the work of the Board. During subsequent discussion of this item, the FRC:
- agreed that the FRC Secretary should brief the Minister’s office about the water accounting issue; and
- reaffirmed its earlier decision that the FRC Chairman, following consultation with the Chairs of the AASB and AUASB, should write to Professor Godfrey.
Agenda Item 2 – Recent Stakeholder Engagement/international developments
(a) Report by Chairman
A comprehensive report on the FRC Chairman’s visit to New York, Washington, London, Brussels and Beijing during March and April was noted by the Council. In speaking to his report, the FRC Chairman outlined some of the key messages arising from his meetings, including:
- the Obama administration is seeking to have more women serve on corporate boards in the belief that they provide a steadying influence in corporate decision-making;
- the International Federation of Accountants (IFAC) is seeking to develop closer ties with the International Accounting Standards Board (IASB);
- the American Institute of Certified Public Accountants (AICPA) has indicated its support for International Financial Reporting Standards (IFRS) and is now issuing IFRS guidance;
- the International Monetary Fund (IMF) encouraged Australia to take a regional lead in relation to public sector accounting and auditing developments;
- US Public Company Accounting Oversight Board (PCAOB) is having greater regard to the International Auditing and Assurance Standards Board’s (IAASB’s) standard setting activities and has made reference to some IAASB standards in PCAOB documents;
- UK Financial Services Authority (FSA) has observed some independence issues with prudential audits in the aftermath of the global financial crisis;
- UK Treasury has a high respect for the Australian approach to public sector accounting and considered that there should be greater interaction between Australian and UK agencies;
- the European Parliament has now put forward a funding mechanism for the IASC Foundation and European Financial Reporting Advisory Group (EFRAG); and
- IFRS Regional Policy Forums are to be continued, with the next one being in Singapore. There is a view that the Forum could be expanded to cover audit issues.
In concluding his report on the China leg of the visit, the FRC Chairman reported on the preparatory meeting for the establishment of the Asia Oceania Standard Setters Group (AOSSG). The next meeting of the AOSSG will be held in Malaysia during November 2009. At the end of this report, Mr Bruce Porter commended the FRC Chairman for the contribution he had made to the success of the AOSSG meeting and the IFRS Regional Policy Forum.
In addition, the FRC Chairman informed the meeting that on 2 May 2009 he presented a paper International trends in accounting and audit regulation and what it means for Asia/Oceania to a session of the Asian Development Bank’s annual meeting. In reporting on the meeting, the FRC Chairman advised that Indonesia was poised to adopt IFRS in three years time and International Auditing Standards the year after. The Chairman said that he anticipated being approached for further assistance as Indonesia proceeds with adoption of these standards.(b) International relationships
Mr Kevin Simpkins, Chair of the NZ Accounting Standards Review Board (ASRB), reported on the work of the ASRB. Mr Simpkins said that the ASRB has both a policy role in respect of financial reporting and an approval role in respect of accounting standards. Other matters mentioned in Mr Simpkins’ report included: that the NZ Government is also considering whether the ASRB should have a role in respect of audit matters (including oversight of auditors); and the direct adoption of IFRS standards by New Zealand.
There was discussion of the possibility that Mr Paul Pacter, who is responsible for the IASB’s work on accounting for private entities (formerly SMEs), might be invited to visit Australia and New Zealand later this year (possibly in August or September) and that it would be beneficial for him to give a public presentations on this work as well as meeting with relevant standards setting bodies and government officials.(c) Going Concern Issues
A paper by the Secretariat about recent developments in respect of the going concern principle in the preparation of financial statements was circulated for the information of FRC members. A Treasury paper A state of play analysis of auditing issues relating to the ‘going concern’ principle in the preparation of financial statements was circulated under cover of the Secretariat paper.
Comments made during the consideration of this item included that:
the AUASB had issued its Bulletin on Auditing Considerations in an Uncertain Economic Environment on 30 April 2009;
- the AUASB and AICD are close to issuing a publication focusing on the responsibility of directors to perform a going concern assessment, and for auditors to review and consider that assessment when forming their opinion on the financial statements;
- in the current year there have been more emphasis of matter paragraphs than in the previous year but the market does not appear to have reacted adversely to this trend.
The FRC:
- noted the Treasury paper and Treasury’s conclusion that Australia’s financial reporting and audit framework in relation to the going concern principle is robust and consistent with international best practice and agreed that no further action is required in respect of the paper;
- decided, in light of the publication of the AUASB Bulletin and the upcoming release of the joint AUASB/AICD publication, that it would not publish UK Financial Reporting Council documents dealing with the going concern issue.
(d) Stakeholder Issues
The FRC Chairman invited FRC members to brief the meeting on issues of concern to the stakeholder bodies that had nominated them for appointment to the Council. Issues raised included the following:
- need for up-to-date valuation and impairment recognition for unlisted assets of superannuation funds to maintain members’ equity in such assets;
- executive remuneration, especially in terms of capping, disclosure requirements and the need to exclude superannuation payments and statutory entitlements (e.g. annual and long service leave) from exit payments;
- concerns that the global financial crisis may lead to a new round of regulation; and
- with financial reporting, a need to ensure entities continue to focus on their obligations as to ‘going concern’ during the current financial crisis.
(e) Climate Change
Ms Bridget Brill (Assistant Secretary, Emissions Reporting and Policy) and Ms Di Barclay of the Australian Department of Climate Change made a presentation to FRC members about the Government’s proposals for auditing under the National Greenhouse and Energy Reporting Act 2007 and the Carbon Pollution Reduction Scheme.
The FRC agreed that the Department of Climate Change should be invited to provide further reports to the Council as proposals for auditing the scheme were developed.
(f) Water Accounting
The FRC noted a report from the Manager of the Water Accounting Development Office about progress with the development of Australian Water Accounting Standards.
[Note: Discussion of water accounting issues also occurred under agenda item 1(c) – matters arising.]
(g) Public Sector Accounting Workshop
The FRC approved the write-up of issues from the Public Sector Accounting Workshop held in Canberra on 5 November 2008.
(h) Letter from Victoria Treasurer concerning financial reporting
The FRC noted a letter from the Victorian Treasurer raising concerns about the usefulness of published financial statements, particularly where they are required to disclose the ‘fair value’ of long term liabilities and financial assets using inappropriate measurements.
Mr Don Challen informed the meeting that the Victorian Treasurer’s concern was driven by balance sheet volatility caused by the superannuation liability for the public sector. He indicated that there are large increases in the superannuation liability because of a significant departure from the long-term average level of the Commonwealth 10 year bond rate, which is used as a discount rate for calculating the present value of the liability. Mr Challen also indicated that the discussion paper referred to in the Treasurer’s letter is currently being finalised.
During discussion of this matter, the meeting noted that:
- the issue raised by Treasurer is not unique to the public sector, as it also occurs in the insurance sectors; and
- the Chair of the AASB advised that he had also received a letter from the Treasurer on this matter and had responded saying that he would examine that matter when the discussion paper was received.
The FRC agreed that the FRC Chairman should acknowledge the Treasurer’s letter and advise that he would consider the matter as soon as the additional information referred to in the letter is received. It was further agreed that the matter should be listed for consideration at the FRC’s June meeting.
(i) Report on last SAC Meeting
Ms Downes’ report on the SAC meeting held in London on 23-24 February 2009 was noted. During discussion of her report, Ms Downes informed the meeting that issues raised in her presentation to the Tokyo Round Table on 3 December 2008 (focussing on a number of difficulties facing Australian bankers in the existing international accounting standards) are now being considered by the IASB.
(j) Report on last SAC Meeting
Ms Picker’s report on the IFRIC meeting held in London on 5 March 2009 was noted.
The FRC Chairman proposed that he write to Ms Downes and Ms Picker thanking them for their reports on meetings of SAC and IFRIC. The FRC endorsed this proposal.Agenda Item 3 – FRC operations
(a) Governance and policy-related issues
(i) FRC Rules of Procedure
The FRC approved a Secretariat recommendation that the FRC adopt revised Rules of Procedure that reflect the environment in which the Council currently operates (see Attachment A).
Prior to approving the revised Rules, the Council discussed the change to the Rules concerning appointment of proxies. While the old Rules did not place any restrictions on who could be appointed as a proxy, the revised Rules restrict the appointment of a proxy to a person who is already a member of the FRC. Some members suggested that such an arrangement could be unduly restrictive and may prevent stakeholder bodies from being represented at a meeting that their nominee was unable to attend. The Secretariat informed the meeting that the revised Rules would still enable the FRC Chairman to allow a stakeholder to be represented at a meeting by a person other than the member appointed by the Minister, with the only restriction being that the person would not be able to vote.
In concluding consideration of this item, the FRC Chairman asked that the appointment of a Deputy Chairman be listed on the agenda for the next meeting and invited members to put themselves forward as candidates for the position.
(ii) Funding arrangements for standards setting
At the invitation of the FRC Chairman, Mr Bede Fraser of the Australian Treasury outlined the current funding arrangements for the AASB and AUASB. The key points made by Mr Fraser were:
- as both Boards now operate under the Financial Management and Accountability Act 1997 (FMA Act), they are subject to the normal Budget funding processes which are developed by the Department of Finance and Deregulation and administered by the Portfolio Department and subject to the oversight by Ministers;
- under this framework, the Chief Executive of an FMA Act agency and its responsible Minister have primary responsibility for ensuring that their agency is appropriately funded. In the event that additional resources are required, the FMA Act agency is required to seek funding through the Budget conditional upon obtaining support from the responsible Minister and the Portfolio Department;
- in the case of the two Boards, the responsible Minister (the Minister for Superannuation and Corporate Law) is also able to approve supplementary funding from the Companies and Unclaimed Monies Account; and
- where the Australian Government concludes that it is unable to provide additional funding for the Boards either through the Budget funding processes or other mechanisms, the FRC may seek further funding from stakeholders for the purposes of meeting the costs of the Australian accounting and auditing standards setting processes.
The current arrangements are a mix of funding from the Australian Government and other sources, such as the Australian Securities Exchange, the professional accounting bodies and State and Territory Governments. As funding from non-Australian Government sources is expected to cease after 2009‑10, the Minister has indicated that he will be seeking full Government funding for the Boards for the 2010‑11 and subsequent financial years.
In conjunction with these changes to the funding arrangements, the FRC’s current statutory functions of seeking contributions towards the costs of the standards setting processes and monitoring the level of funding and the funding arrangements associated with these processes are expected to be repealed.
The FRC decided that it needs to be advised, no later than its June meeting, if there are any amounts for which the FRC needs to seek funding for the AASB and AUASB.
(iii) FRC, AASB and AUASB business plans for 2009‑10
The draft Business Plans for the FRC, AASB and AUASB for 2009‑10 were considered by the FRC. The draft Business Plan for the FRC was accepted in principle and it was agreed that the document should be considered further at the FRC’s June meeting.
The discussion about the draft Business Plans identified the following matters as ones that should be addressed in the material prepared for the June meeting:
- identify new matters that have been added to the Business Plan;
- identify matters that have been removed from the Business Plan; and
- consider matters that are not currently being done and whether they could, or should, be done.
(iv) FRC Annual Report for 2008‑09
The Secretariat provided the meeting with an oral report on planning for the 2008‑09 annual report. The FRC approved the Secretariat proposal to prepare the FRC’s annual and auditor independence reports as a single document.
The meeting noted that the AASB and AUASB, as FMA Act agencies, would be preparing their own separate annual reports.
(v) Report on Auditor Independence function
A Secretariat paper reporting on the performance of the auditor independence function since the last FRC meeting was noted.(b) Administrative matters
(i) Report by Chair of Nominations Committee
The report by the Chair of the Nominations Committee on the Committee’s work since the last FRC meeting was noted. The FRC:
- approved amendments to the format and text of the Nominations Committee’s Charter;
- approved the format for the 2009 peer review forms for members of the FRC, AASB and AUASB. The FRC also decided that when the peer review forms are sent to the members of the AASB and the AUASB, the Chair of the Committee should write to the members of the Board about the process for conducting the review, including the provision of feedback to members; and
- approved the appointment of Mr Eric Mayne to the Committee.
(ii) Ken Spencer Memorial Lecture
A Secretariat paper reporting on the 2009 Ken Spencer Memorial Lecture and preliminary planning for the 2010 Lecture was noted.
Mr Lucy reported on the success of the Lecture delivered by Mr Mark Olson, Chairman of the US PCAOB, in Melbourne on 11 March 2009. Mr Lucy expressed his appreciation to KPMG, the Professional Accounting Bodies and the PCAOB for their sponsorship of the Lecture.
Planning for the 2010 Lecture has now commenced, and the names of two potential speakers (one from a major accounting firm, the other from a standard setting body) were suggested during the meeting. Mr Lucy indicated that he would be seeking a decision about a speaker at the FRC’s June meeting and invited Council members to submit names of possible speakers for consideration at that time.Agenda Item 4 – Report from Chair of TTAASAG
The report by the Chairman of TTAASAG on the Group’s meeting held in Wellington NZ on 19 February was taken as read.
Agenda Item 5 – Report from Chair of AASB
The report by the Acting Chair of the AASB on the work of the Board since the last FRC meeting was noted. In speaking to his report, Mr Porter informed the meeting that:
- proposed amendments to accounting standards are now issued for comment in a more user friendly format which shows new text with underlining and text to be deleted with strike-through; and
- roundtable discussions on ED 174 Amendments to Australian Accounting Standards to facilitate GAAP/GFS Harmonisation for Entities with the GGS would be held in early May 2009.
Agenda Item 6 – Report from Chair of AUASB
The report by the Chair of the AUASB on the work of the Board since the last FRC meeting was noted. Ms Kelsall informed the meeting that:
- the AUASB will consider its Business Plan at its meeting next week. Ms Kelsall indicated that she would be happy to receive feedback about the Plan from FRC members, especially in respect of the AUASB’s mission and thought processes;
- a paper on the future of audit, being prepared for the Professional Accounting Bodies by Professor Houghton, is expected to be released shortly; and
- she and the AUASB’s Principal Executive had recently attended a meeting of National Auditing Standards Setters. She said that there is strong support in Europe (other than France) for the IAASB’s clarity standards and that the European Community may adopt them from 2011.
In concluding her report, Ms Kelsall indicated that she wanted Australia to adopt the clarity standards in accordance with the timeline (2010) that she had previously proposed and sought the FRC’s endorsement for that action. Mr Lucy informed the meeting that he had recently noted several reports (cost benefit analysis of ISAs and a comparison of ISAs and PCAOB standards) which were supportive of the clarity standards and that, as a consequence, he would support Australia’s adoption of the clarity standards from 2010.
The meeting resolved to endorse Australia’s adoption of the clarity standards in accordance with the timeline previously proposed by Ms Kelsall.Agenda Item 7 – Correspondence
A Secretariat paper listing FRC correspondence for the period from 7 February 2009 to 29 April 2009 was noted.
Agenda Item 8 ‑ Other Business
Two items of other business were raised at the meeting.
(a) Update on ISQC1
The meeting noted that the AUASB has issued an exposure draft of a legally enforceable version of this standard and that APESB is re-issuing APESB 320. The meeting supported the need for the two boards to work cooperatively in issuing their respective standards.
(b) XBRL Status Report
The meeting was informed that there had been much discussion between Mr Paul Madden of the Australian Treasury and Mr Olivier Servais of the IASB concerning the draft 2009 IFRS Taxonomy and that there appeared to be a possibility of Australia (and some other countries) diverging from the Taxonomy developed by the IASB.
The FRC agreed that this matter should be raised as a high level issue for discussion at the FRC’s June meeting.Agenda Item 9 – Next Meeting
The next meeting will be held in Canberra on 10 June 2009.
Attachment A
FRC Rules of Procedure
1. Meetings
1.1 Notice of a proposed meeting of the Council will be provided, in writing by the secretariat on the Chairman's behalf, no later than 30 days before the meeting date.
1.2 Meetings may be held using electronic conferencing facilities and business may be conducted without meeting, at the Chairman's discretion.
1.3 Subject to paragraph 11, meetings will be held in private.
2. Quorum
2.1 Half the number of members constitutes a quorum for a meeting.
3. Presiding officer
3.1 The Chairman of the Council will preside at all meetings, except:.
- in the absence of the Chairman, the Deputy Chairman will preside;
- in the absence of both the Chairman and the Deputy Chairman, the Council members present may choose another member to chair the meeting.
4. Voting
4.1 Every appointed member present in person or by proxy has one vote, whether on a show of hands or on a poll.
4.2 Where there is a show of hands, a resolution will not be taken to be carried unless there is an affirmative vote of more than 50 per cent of those entitled to vote. In the event of a tied result, the presiding Chairman will have the casting vote, in addition to his or her vote.
4.3 Where there is a poll, a resolution will not be taken to be carried unless there is an affirmative vote of more than 50 per cent of those entitled to vote. In the event of a tied result, the presiding Chairman will have the casting vote, in addition to his or her vote.
5. Taking of Poll
5.1 If a poll is required, it must be taken in such a manner and at such a time and place as the presiding Chairman directs.
5.2 The result of the poll will be deemed to be the resolution of the meeting at which the poll was sought.
5.3 In the case of a dispute as to the acceptance or rejection of a vote, the presiding Chairman shall determine the dispute and the determination made in good faith will be final and conclusive.
6. Circular Resolutions
6.1 When the Council must reach a decision between meeting dates, this decision may be made by circular resolution.
6.2 In carrying out a vote by circular resolution, the Secretary to the FRC must attempt to contact all FRC members. A circular resolution will be taken to be carried only when the majority of FRC members vote in the affirmative.
6.3 Where the Council conducts a vote by circular resolution, the outcome of the vote is to be tabled at the first Council meeting held after the conclusion of the voting period specified in the message seeking the vote and recorded in the minutes of that meeting.
7. Minutes as Evidence of Result
7.1 A declaration will be made by the presiding Chairman that a resolution, on a show of hands or on a poll, has been carried or not.
7.2 Upon this declaration an entry by the Secretary to that effect in the minutes of the proceedings of the Council, signed by the Chairman, will be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against the resolution.
8. Confidentiality
8.1 The Council must take all reasonable measures to protect from unauthorised use or disclosure information given to it in confidence, in accordance with section 237 of the Australian Securities and Investments Commission Act 2001.
9. Conflicts of interest
9.1 Under the Australian Securities and Investments Commission Act 2001, the Council:
- provides broad oversight of the processes for setting accounting and auditing standards in Australia, including: giving advice or feedback to the AASB and the AUASB on their priorities, business plans, and procedures; giving advice or feedback to the Offices of the AASB and AUASB on their budgets and staffing arrangements; and determining the AASB's and AUASB’s broad strategic direction. The Council recognises that the ASIC Act specifically precludes the Council from directing the AASB or the AUASB in relation to the development or making of a particular accounting or auditing standard and provides that it does not have the power to veto a standard formulated and recommended by either the AASB or the AUASB; and
- monitors the effectiveness of auditor independence requirements in Australia, having particular regard to the systems and processes of audit firms, quality review programs and disciplinary procedures of the professional accounting bodies, the teaching of ethics by those bodies and compliance by companies with audit-related disclosure requirements.
9.2 Any member who becomes aware of a material personal interest in a matter that relates to the affairs of the Council, AASB or AUASB must give the other members notice of the interest. The notice must:
- give details of the nature and extent of the interest and its relation to the affairs of the Council, the AASB or the AUASB; and
- be given at a meeting of the Council as soon as practicable after the member becomes aware of the interest, and be recorded in the minutes of the meeting.
9.3 A member may give the other members standing notice about an interest. The notice may be given at any time and whether or not the matter relates to the affairs of the Council, the AASB or the AUASB at the time the notice is given.
9.4 A standing notice must give details of the nature and extent of the interest and be given at a meeting of the Council (either orally or in writing) or to the other members individually in writing. A standing notice given to the other members individually in writing must be tabled at the next meeting of the Council after it is given. The member must ensure that the nature and extent of the interest disclosed in the standing notice is recorded in the minutes of the meeting where the standing notice is given or tabled.
9.5 The standing notice takes effect as soon as it is given and ceases to have effect in relation to a particular interest if the nature or extent of the interest materially increases above that disclosed in the notice.
9.6 Members who have a material personal interest in a matter that is being considered at a meeting of the Council must not be present while the matter is being considered at the meeting or vote on the matter unless the other members have passed a resolution that: identifies the member, the nature and extent of the member's interest and its relation to the affairs of the Council, the AASB or the AUASB; and states that those members are satisfied that the interest should not disqualify the member from voting or being present.
9.7 Members will provide other members, through the secretariat, with a list of their current affiliations and update this list as affiliations change.
10. Appointment of Proxies
10.1 A member of the Council may, in writing, appoint another person who is a member of the Council as his or her proxy to vote on his or her behalf at a meeting of the Council at which the first-mentioned member is not present.
10.2 An instrument appointing a proxy shall be deposited with the Chairman before the time for holding the meeting at which the person named in such instrument proposes to vote.
10.3 An instrument appointing a proxy may direct the proxy as to the manner in which the proxy is to vote on a particular matter or matters that may arise at the meeting or on a particular motion or motions that may be proposed at the meeting.
11. Observers and Guests
11.1 A member of the Council may only invite observers or guests to attend FRC meetings with the approval of the FRC Chairman.
11.2 Observers and guests at FRC meetings do not have any voting rights.
11.3 All persons, other than FRC members and proxies appointed under these rules, present at FRC meetings have observer or guest status only.
12. Representing the FRC
12.1 Subject to paragraph 12.2, only the Chairman and Deputy Chairman of the FRC are authorised to publicly speak on behalf of the FRC.
12.2 The Chairman of the FRC or, in the Chairman’s absence, the Deputy Chairman, may authorise another member of the FRC to publicly speak on behalf of, or otherwise represent, the Council. The authorisation is to be in writing and to specify the purpose for which the member is to represent the Council.