Fifty Second Meeting
10 June 2009
Outcomes of the meeting held on 10 June 2009 at the offices of the Department of Finance and Deregulation, King Edward Terrace, Parkes ACT. The meeting commenced at 9:00 am and concluded at 1:50 pm.
FRC Members:
Mr Jeffrey Lucy AM (Chairman)
Mr Bruce Brook
Ms Kathryn Campbell
Mr Don Challen (by telephone until 1:00 pm)
Mr Michael Coleman (by telephone until 12:00 noon)
Mr Mark Coughlin
Mr Michael Dwyer
Mr John Gethin-Jones
Ms Noelle Kelleher
Ms Merran Kelsall
Mr Eric Mayne
Mr Jim Murphy
Mr Kevin Simpkins
Mr John Stanhope
Mr John Trowbridge
Ms Jan West AM
Mr Stuart Wilson
AASB:
Mr Bruce Porter (Acting Chairman, AASB)
Invitees:
Mr Paul Madden (Treasury)
Ms Jan Harris (Treasury)
Mr Tim Youngberry (Finance and Deregulation)
FRC Secretariat:
Ms Suzanne Howarth (FRC Secretary)
Mr Bruce Donald
Mr Les Pascoe
Mr Marcus McKillop
Apologies:
Mr Klaus Zimmermann
Mr Warren McGregor (IASB)
Agenda Item 1 – Apologies and Welcome
The FRC Chairman, Mr Jeffrey Lucy AM, welcomed FRC members and other attendees to the 52nd meeting of the Council and announced an apology for Mr Kevin Stevenson. He noted that it was the first meeting as members for Ms Noelle Kelleher, Mr Michael Dwyer and Mr Kevin Simpkins. He also noted Ministerial approval for the extensions of the appointments for Mr Bruce Brook, Mr John Gethin‑Jones, Mr Eric Mayne, Mr Jim Murphy, Mr John Stanhope and Mr Klaus Zimmermann.
(a) Declarations of Interest
Members informed the meeting of the following changes to their entries in the register of interests circulated by the Secretariat:
- Mr Bruce Brook is a non-executive director of Energy Developments Ltd.
- Mr John Stanhope is CFO and Group Managing director, Finance and Administration, Telstra Corp Ltd, Director AGL Energy Ltd, Director Telstra Corp Ltd, and Chairman/Director of TelstraClear.
- The new members of the FRC, Ms Kelleher, Mr Dwyer and Mr Simpkins, tabled their declarations of interest.
(b) Confirmation of Minutes of last meeting
The Minutes of the 51st meeting, which was held in Sydney on 5 May 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 selection of a Deputy Chair was considered under agenda Item 4(a).
Agenda Item 2 – Stakeholder engagement
(a) Reports by FRC Chairman
The chairman noted that the recent Cabinet reorganisation had meant a new Minister for the FRC has been appointed - it was now the Hon Chris Bowen, MP, Minister for Financial Services, Superannuation and Corporate Law; Minister for Human Services.Mr Jim Murphy noted that the main changes would be that the new Minister would be in Cabinet and would also be the Minister with responsibilities for both APRA and ASIC.
Mr Lucy informed the meeting that he had attended the AUASB meeting on 19 May 2009, which was very productive.
Mr Lucy expressed the view that the IASB's revised timeline for the revision to IAS 39 was going to put enormous pressures on accounting standards setters in Australia and New Zealand as both have been asked by the IASB to provide comment on various aspects of the developing standard.
Mr Lucy also highlighted the likely visit in September by Japanese business representatives organised by the Japanese (IASCF) Trustees and the Chamber of Commerce and Industry to see how IFRS adoption worked in Australia. There is also the prospect of a similar visit from Chinese representatives. He informed the meeting that he has been asked to coordinate a meeting of with the Asian-Oceanian IASCF Trustees immediately prior to the next Trustees meeting to be held in Amsterdam.
(b) FRC's periodic report to Minister
It was decided that the draft Report to the Minister previously circulated should go forward, with a number of amendments, to the new Minister.
(c) Reports by Stakeholders
Mr John Stanhope noted that the work leading to the G100 Status Report on the Disclosure Principles Project had arisen when Sir David Tweedie had invited participants at a G100/FRC conference in August 2008 to assist the IASB determine the type and nature of disclosures to be included in an IFRS financial report. The G100 had already determined that while the report required more work it would be completed by 30 June 2009, after which the report will come as a draft to the FRC. The main objective of the report was to suggest some principles to ensure that disclosures were fair and reasonable and enabled comparability.
Ms Jan West AM spoke to the ICAA report on the use of the terms audit and assurance in government and quasi-government requirements, when these were not certifiable. After some discussion, it was agreed the report would be further developed by the ICAA in discussion with the Department of Finance and Deregulation (DoFD) and AUASB, with the possibility of being referred to the Auditors-General or the COAG Reform Council.
Mr Michael Dwyer gave a report on developments in ASIC, including distributing a paper explaining the reorganisation which has led to the elimination of the title of Chief Accountant. He also commented on a recent Australian Financial Review article titled “Regulator to Crackdown on Auditors” (2 June 2009). He noted that the article quoted ASIC Chairman Tony D'Aloisio at an SDIA Forum as saying that ASIC would be looking at larger market participants to ensure they have sound processes for managing and measuring financial risk. His comments were addressed at brokers not at auditors and the headline was deceptive in that it suggested an inordinate crackdown on auditors. Mr Dwyer commented that ASIC's normal review process would continue with increased numbers of reviews but there was no intention of heightening concern that any changed or increased emphasis would be placed on auditors.
Mr Eric Mayne reported that the ASX was reviewing corporate governance by companies, and would release a report by the end of the month. He advised the report would show that generally the level of compliance had improved over last year. Mr Mayne offered to present a report at the next FRC meeting on the results of the corporate governance review which would include the levels of risk management reporting by listed entities. He also advised that ASX has produced a leaflet of risk reporting for the small and medium-sized entities (SME) sector and is conducting seminars nationally to offer assistance to smaller companies on this topic. Mr Mayne also informed the meeting of a series of workshops ASX is conducting on capital monitoring of brokers as there was a perceived need to educate auditors on the Market Rules requirements of capital monitoring as auditors are required to provide an annual audit of Participant returns.
Mr John Trowbridge noted APRA's work requiring more disclosure of executive remuneration; and that in general there was a need to ensure that remuneration gives the appropriate incentives and this might require in some instances deferring benefits. He also noted work by the Financial Stability Board and Basel Committee on Banking Supervision, including that on provisioning, which is likely to affect accounting standards and banking in the future.
Mr Stuart Wilson said that the Australian Shareholders' Association was focusing on two new strands of research: whether emphasis of matter or going concern statements were a leading indicator of chronic difficulties (e.g. suspension or worse); and whether executive remuneration might be linked with large accounting changes, such as for example the appointment of a new CEO leading to a large write-down (and subsequent better than expected returns).
Mr Michael Coleman reported that the AICD has three main items on its agenda: to support audit committees in troubled times, which is being achieved with a new publication developed with the AUASB; to give guidance on risk reporting; and to give direction about forecasting and earnings guidance. They are also investigating whether the availability of profit is the right criterion for determining the payment of dividends, or whether, as in New Zealand, a solvency test is appropriate.
(d) 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. Mr Bruce Porter highlighted the work on ED 174 dealing with the harmonisation of GGS agency reporting in the process of GAAP-GFS harmonisation. The feedback from the round tables seemed to fall into three groups: (1) those that supported the project; (2) those that opposed the project on cost/benefit grounds and from the perspective of user needs; and (3) those who opposed the project but were resigned to it and wanted to minimise the work that will be involved. He also highlighted the Consultative Group meeting held in May 2009, which had been useful, but noted that membership of the group might warrant expansion.
The FRC Chair Mr Lucy noted that this would be the last meeting for Mr Porter in his role as Acting Chair of the AASB, and expressed the FRC's thanks for the energy, professionalism and judgement he had shown in the role. Mr Porter said he had found the role enjoyable and thanked the FRC, the Chairman and the Treasury for their support and assistance.
Mr Trowbridge raised the possibility of actuaries being greatly affected by changes proposed in ED 179. Mr Porter noted that they would be welcome to submit their views and that APRA had been consulted in the development of the exposure draft.
Mr Jim Murphy invited some discussion of whether the AASB had enough resources to deal with G‑20 issues. It was agreed that the onus was on the IASB and that Australia and New Zealand had made a large commitment to support the organisation and Sir David Tweedie. The Council also agreed that while the IASB had responded well to the current crisis the IAS 39 standard had always been intended to be temporary and should have been reworked before the financial crisis forced the changes.
Mr Don Challen noted that the long term liability issue raised with the FRC and the AASB by the Victorian Treasurer was still one that was occupying the attention of public sector stakeholders.
(e) Differential Reporting
The Acting Chair of the AASB gave a presentation on the state of play of the IASB's project on IFRS for SMEs and possible options in Australia for implementing differential reporting for SMEs. It was agreed that the development raised complex issues in the Australian context for accounting standards setters, and that a special FRC meeting would be organised as soon as practical to consider the issues.
(f) 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.
From the report Ms Merran Kelsall highlighted her attendance at a National Standards Setters meeting in Vancouver, Canada during April 2009 where similar issues were being experienced in other jurisdictions. A major issue facing the AUASB is the concept of alternatives to audit, including reviews and compilation engagements, and the nature of assurance being provided in different engagements. An AUASB board member, Ms Diane Azoor-Hughes is a member of a taskforce which will revise the standards on reviews and compilations. The IAASB is also revising IAS to detail in a specific standard such as emissions trading schemes. The AUASB is considering whether further guidance to the profession is needed, and may organise a round table with the profession on emphasis of matter issues particularly refinancing debt.
(g) Internal Control over Financial Reporting
It was agreed that this agenda item would be held over until the next scheduled FRC meeting on 21 September 2009.
(h) IFRS Branding
The paper on this issue was noted and it was agreed that recognition of Australia's adoption of IFRS was now established.
Agenda Item 3 – International developments
(a) FRC international report
It was agreed that the International Report, produced regularly by the FRC Secretariat, would continue and that further work would be pursued to be able to post the report on the FRC's website.
(b) Report from Chair of NZ ASRB
Mr Kevin Simpkins raised some recent issues of importance to the ASRB: it has issued a release that proposes when it considers standards for approval it will expect more modifications for not-for-profit and public benefit entities; the New Zealand Auditor-General will soon report to Parliament, with a report expected to be critical of the impact that IFRS has had on public sector financial reporting; the NZICA which currently has a role developing standards in NZ, is unsure it wishes to continue with this role in the medium term; and some discussion papers on the structure of financial reporting requirements are expected to be published by the end of July 2009. Mr Simpkins mentioned that the timing for the issuing and comment period for responses would be tight, restricting the opportunity for a detailed Trans‑Tasman focus, however the timing of any legislative response would enable full consideration of these issues.
(c) Report from TTAASAG
The report by the Chairman of TTAASAG on the Group's meeting held in Melbourne on 19 May 2009 was taken as read. The meeting noted the very comprehensive report. There was some discussion of the possible implications of Trans‑Tasman registration of auditors for the auditing of superannuation.
(d) Reports on activities of international bodies
The Council noted the reports from representatives on various international bodies.
Agenda Item 4 – FRC operations
Governance and policy-related issues
(a) Appointment of Deputy Chairman
Following a ballot of members Mr Michael Coleman was selected as Deputy Chairman. The Chairman also thanked Mr Mark Coughlin for putting his name forward.
(b) FRC Business Plan for 2009‑10
Subject to a minor change the FRC's business plan for 2009-10 was approved.
(c)2009‑10 priorities, business plans, budgets and staffing arrangements of the AASB and AUASB and their Offices
The FRC noted the business plans of the AASB and AUASB without comment.
(d)Performance of FRC's Functions
Consideration of the paper on this issue was deferred until the next regular meeting of the FRC.
(e)Annual Report for 2008‑09: content and timetable for preparation
The meeting noted that the use of pictures in the Annual Report is to be in accordance with guidelines and procedures issued by the Department of Prime Minister and Cabinet.
With respect to the content of the report, it was suggested that more emphasis should be given to: international activities, particularly the establishment of the Asian-Oceania Standards Setters Group (AOSSG); key government agencies visited during the recent Chairman's trip; and a specific reference to developments in New Zealand.
Administrative matters
(f)Ken Spencer Memorial Lecture
It was agreed that Mr Tim Flynn of KPMG would be invited to present next year's Ken Spencer Memorial Lecture. Professor Arnold Schilder would be encouraged to give a presentation in Australia at a time that suits him later, including possibly the 2011 Lecture, if he were not able to schedule a visit during 2010.
Agenda Item 5 – Presentations
(a)Tim Youngberry
Mr Tim Youngberry (DoFD) gave a presentation on some of the current financial reporting issues facing the public sector. In particular, he discussed the benefits of applying IFRS, noting that the current AASB approach of including "AUS" paragraphs in Australian standards allowed issues that are specific to the public sector to be addressed. In addition, Mr Youngberry spoke about the current work by the IASB and the International Public Sector Accounting Standards Board in developing their respective conceptual frameworks, noting that any inconsistency between the frameworks may affect financial reporting standards for the public sector in Australia. Mr Youngberry also noted the importance of maintaining alignment between the Government Finance Statistics (GFS) framework and AEIFRS as well as the importance of the proposed standard being developed by the AASB on GFS/GAAP harmonisation at the entity level.
(b)Paul Madden
Mr Lucy introduced Mr Paul Madden to the meeting noting that last time he had given a presentation to the FRC it had given them a clear view of where XBRL was going in Australia. He hoped the presentation would now be able to give the FRC a clearer view of XBRL and the IFRS taxonomy, and where the two have moved closer and where they still differ.
Mr Paul Madden (Treasury) briefed the FRC on progress towards implementing Standard Business Reporting (SBR) in Australia with the headline that the SBR deliverables are on track for delivery for March 2010, with the SBR Taxonomy publicly available. He also outlined possible steps that could be taken to ensure that IFRS, a key element in the taxonomy, retains its usability in that role. This will entail discussions with the IASB's technical team in late June 2009 to consider the issues including: the development of an appropriate non-technical oversight structure for the IASCF Trustees; a modification of the existing disclaimer; and the need to ensure that version changes are able to be implemented readily in new software, where the current processes preclude backwards compatibility. Australia will coordinate with other countries with advanced XBRL projects, such as the Netherlands, US and UK.
Mr Madden and the FRC discussed key issues from his presentation noting that at present XBRL is not mandated in Australia, and concerns with the IFRS disclaimer were an impediment to mandating XBRL. It was agreed that the Chairman would contact the IASB regarding the three key areas of concern for the Australian community, and attempt to ensure that the forthcoming meeting would address and start to resolve some of these issues. It was also agreed that with the timing of the implementation of SBR, the issues with the IFRS Taxonomy would ideally be resolved and enacted in the lead up to the release of the 2010 IFRS Taxonomy. Given these issues had been raised nearly twelve months ago, and little recognition had be given to them by the IASB, Mr Madden advised that he would also brief the new Minister so that issues (if they persist) can be quickly escalated.
Agenda Item 6 – Correspondence
A Secretariat paper listing FRC correspondence for the period from 30 April 2009 to 2 June 2009 was noted.
Agenda Item 7 – Other Business
No other business was raised.
Agenda Item 8 – Next Meeting
The next regular meeting will be held in Melbourne on 21 September 2009. However, a special meeting of the FRC to discuss differential reporting for SMEs will be held in Melbourne on 17 August 2009.