Fifty Seventh Meeting
21 September 2010
Outcomes of the meeting held on 21 September 2010 at the offices of the Australian Securities Exchange, 20 Bridge Street, Sydney. The meeting commenced at 9.00 am and concluded at 1.00 pm.
Attendance
Mr Jeffrey Lucy AM (Chairman)
Mr Bruce Brook
Mr Don Challen
Mr Mark Coughlin
Mr Michael Dwyer
Dr Stein Helgeby
Ms Noelle Kelleher
Mr Ian Laughlin
Mr Jim Murphy
Mr Kevin Simpkins
Mr John Stanhope
Ms Jan West AM
Mr Stuart Wilson
Invitees:
Mr James Beecher (Deputy Chairman, AICD Reporting Committee)
Ms Merran Kelsall (Chairman, AUASB)
Mr Kevin Lewis (ASX)
Mr Ian McPhee (Deputy Chairman, AASB)
Mr Paul Madden (Australian Treasury – agenda item 2(b))
Mr Mark Sewell (Australian Treasury)
Mr Angus Thomson (Technical Director, AASB)
FRC Secretariat:
Mr Michael Lim (FRC Secretary)
Mr Les Pascoe
Apologies:
Mr Michael Coleman
Mr John Gethin-Jones
Mr Warren McGregor
Mr Kevin Stevenson
Mr Klaus Zimmermann
Agenda Item 1 – Introduction
(a) Apologies and welcome
The FRC Chairman, Mr Lucy, welcomed FRC members and other attendees to the 57th meeting of the Council. In particular, the FRC Chairman welcomed Mr Laughlin, who has been appointed to the FRC on the nomination of the Australian Prudential Regulation Authority, to his first meeting of the Council. The FRC Chairman also welcomed Mr Lewis, Chief Compliance Officer of the ASX, to the meeting.
The FRC Chairman briefed FRC members on the Ministerial, FRC Membership and FRC staffing changes that had occurred since the Council's May meeting. Particulars of these changes are:
- Ministerial: Following the August election, Treasury Portfolio Ministers are the Hon Wayne Swan MP (Deputy Prime Minister and Treasurer), the Hon Bill Shorten MP (Assistant Treasurer and Minister for Financial Services and Superannuation) and the Hon David Bradbury MP (Parliamentary Secretary to the Treasurer). Mr Bradbury, whose responsibility includes the design of law and regulations and its implementation in relation to corporate governance, insolvency, accounting and audit regulations, also has responsibility for the FRC. Council members expressed the hope that Mr Bradbury would find the time to attend a future FRC meeting.
- FRC Membership: The terms of appointment of two members expired during the period – Mr Trowbridge on 30 June and Ms Kelsall on 9 August1. In addition, Mr Mayne resigned from the Council with effect from 27 August. Mr Laughlin was appointed to the FRC from 1 July (as replacement for Mr Trowbridge).
- FRC Secretariat: Mr Lim has replaced Ms Watson as FRC Secretary.
(b) Declaration of interest
The FRC noted the register of interests circulated by the Secretariat.
The following amendments to entries in the register were advised by Messrs Brook and Stanhope:
- Mr Brook: has been appointed a director of Programmed Maintenance Services Ltd and has ceased to be a director of Lihir Gold Ltd.
- Mr Stanhope: is no longer Chairman of Hong Kong CSL Limited (he remains a director) and has ceased to be a director of SouFun Holdings Limited.
(c) Confirmation of Minutes of last meeting
The Minutes of the 56th meeting, which was held in Melbourne on 18 May 2010, were approved.
(d) Matters arising from the Minutes of the last meeting
The Secretariat paper on matters arising from the Minutes of the 56th meeting was noted.
Mr Beecher inquired whether there had been any developments concerning the survey being conducted by the Australian Shareholders' Association (ASA) to gauge members' opinions about auditing. At the FRC Chairman's invitation, Mr Wilson informed the meeting that the survey, which was conducted in conjunction with the University of New South Wales and CPA Australia, had been completed. Mr Wilson undertook to make a copy of the research outcomes report available to the FRC.
(e) Votes by Circular Resolution
A Secretariat paper on the outcome of the one vote conducted by circular resolution since the FRC meeting on 18 May 2010 was noted by the FRC. Particulars of the vote were:
- On 8 June, the FRC's 19 members were invited to approve the FRC/AASB/AUASB peer review templates. Thirteen votes approving the peer review templates were received prior to the voting deadline of cob Friday, 11 June.
(f) Report by FRC Chairman
In his report, the FRC Chairman provided members with a summary of insights gained during a number of visits in early July to key international bodies in North America and Europe. In North America, he noted that there was strong support from industry stakeholders for the adoption of international standards. The SEC continues to adhere to its timetable of making a decision on this issue in 2011. While the FRC Chairman himself believed that the SEC could consider allowing (rather than mandating) the use of IFRS, he noted that others did not agree with this view, holding that the SEC would either mandate or entirely reject the use of IFRS.
Related concerns had also been expressed in Europe, based on a general desire to strengthen the public accountability of the IASB through a heightened governance role for political stakeholders representing the public interest. The FRC Chairman noted that the representative of the European Commission had expressed particular appreciation for Australia's active role in the development and propagation of IFRS, as well as strong interest in the growing importance of the Asia Oceania region. Finally, the FRC Chairman reported on some uncertainty in the United Kingdom about possible changes to the roles of regulators, oversight bodies and standard-setters under the structural changes being considered by the new coalition government.
With respect to the meeting of the IASB trustees, the FRC Chairman said that the focus of the IASB in the current situation is almost exclusively centred on achieving convergence with the USA by 2011. While FRC members generally thought that this was understandable, they noted that it had unfortunately resulted in a neglect of wider issues affecting the quality of international financial reporting standards.
Agenda Item 2 – Strategic Matters
(a) Follow-up from May strategy meeting
The Council considered three papers analysing in further detail some of the key priorities identified in the planning session. FRC members generally confirmed that these priorities were well worth pursuing, but noted that the work involved was of an extent that would stretch the FRC's own resources.
During consideration of this item, members noted that there was considerable interest in these issues among the FRC's stakeholders and that a number of forums and interest groups had been established to discuss the issues and formulate action plans. Members felt that it would be useful for the FRC to engage with interested stakeholders and organised interest groups in order to benefit from existing work and the resources available to these entities and, perhaps, to play a coordination role.
The FRC agreed that the approach outlined above should be examined in further detail and discussed again at the FRC's December meeting.
Accounting
(b) SBR/XBRL – Presentation by Mr Paul Madden
Mr Madden, Executive Director of the Standard Business Reporting (SBR) Program within the Australian Treasury, provided FRC members with an update on the SBR Program, the use of the IASB's IFRS Taxonomy, the Large Business SBR Implementation Methodology and the impact of the Reduced Disclosure Requirements on the SBR Taxonomy.
Mr Madden informed the meeting that:
- issues concerning the interface with the IFRS Taxonomy had been largely resolved;
- regional interest was beginning to emerge, and discussions were taking place with partners in Singapore, Taiwan, Korea and Japan; and
- work was being done jointly with the IASB on extending the current Taxonomy to include common accounting terms that were not prescribed in standards but were, nevertheless, widely used.
The FRC Chairman asked Mr Madden to continue to keep the FRC informed of progress in this and other areas of interest.
(c) Differential reporting
A Secretariat paper providing a status report on progress with the differential reporting reform proposals was circulated for the information of FRC members.
The Secretariat paper indicated that, on 30 June 2010, the AASB approved AASB 1053 Application of Tiers of Australian Accounting Standards, which will reduce the disclosure burden and reduce the costs of preparing and auditing financial reports for most entities that currently apply full IFRSs as adopted in Australia. These entities – called Tier 2 entities – include large proprietary companies in the for-profit sector, all not-for-profit private sector entities and the majority of public sector entities. The differential reporting framework will be operative for annual reporting periods beginning on or after 1 July 2013, although early adoption will be possible for organisations with annual reporting periods beginning on or after 1 July 2009.
Mr Thomson informed the meeting that the AASB is now working on Phase 2 of the differential reporting reform proposals, which involves further research into the accounting policies adopted by entities that prepare special purpose financial statements. This phase of the work will, among other things, involve analysis of financial reports lodged with ASIC by such entities.
During the Council's consideration of this item, the FRC Chairman asked the representatives of the accounting bodies to consult with the bodies and confirm that they support the AASB's Reduced Disclosure Regime and not the IASB's IFRS for SMEs.
(d) Corporate Reporting – update on legislative amendments
The FRC noted a Secretariat paper advising that the Bill to implement the corporate reporting reform proposals was introduced into Parliament on 26 May 2010 and passed on 24 June 2010. The meeting noted that the main provisions of the newly enacted legislation came into effect on 30 June 2010 and applied to financial years ending on or after that date.
The meeting also noted that the Australian Treasury is aware of issues raised by some stakeholders concerning some aspects of the recent amendments to the legislation, and would be providing a relevant briefing to the new Parliamentary Secretary.
Auditing
(e) Regulator review of superannuation fund compliance with financial reporting requirements
The FRC considered an update about regulator reviews of compliance by superannuation funds with accounting standards. The FRC was informed that it is likely that this issue will be considered as part of the Government's response to the recommendations of the Super System Review (also known as the Cooper Review).
(f) PCAOB's new auditing standards on risk assessment
The FRC Chairman informed the meeting that, following a decision by the PCAOB to adopt a suite of eight auditing standards related to the auditor's assessment of – and response to – risk in an audit, he had written to the Chairman of the AUASB proposing that the Board conduct a detailed analysis of the new standards and, in particular, consider whether there would be merit in incorporating some or all of them in the Australian standards.
On 20 September 2010, the Chairman of the AUASB advised the FRC Chairman that the AUASB had discussed his proposal at its 13 September meeting, and agreed to conduct an analysis of any differences between the PCAOB's risk related auditing standards and the AUASB's auditing standards.
(g) CALDB disciplinary hearings
The FRC Chairman also informed the meeting that, following a separate decision by the PCAOB to make a submission to Congress asking for a change to the Sarbanes-Oxley Act to enable its disciplinary hearings to be conducted in public, he had written to Mr Donald Magarey, Chairman of the Companies Auditors and Liquidators Disciplinary Board (CALDB), proposing that the Board consider whether the current arrangements in Australia are appropriate or whether they should be changed. It was noted that, as at the date of the FRC meeting, no reply had been received from the CALDB.
Nominations
(h) IASB Chairmanship
The FRC Chairman briefed the Council about action by the IFRS Foundation to find a replacement for Sir David Tweedie, Chair of the IASB. The FRC Chairman said that the Foundation is still waiting for the Monitoring Board's advice about the person nominated by the Trustees as Sir David's replacement.
Agenda Item 3 – Stakeholder engagement
(a) Report by Chairman of AASB
Mr McPhee, Deputy Chairman of the AASB, presented a report to the FRC on behalf of the AASB's Chairman concerning the work of the Board during the period since the FRC meeting on 18 May.
In his report, Mr McPhee discussed a number of matters that are currently the focus of the AASB's work, including: on-going cooperation with New Zealand in areas such as the issuance of joint exposure drafts for proposed accounting standards; and GAAP/GFS harmonisation with the purpose of finalising an exposure draft on this issue.
(b) Report by Chairman of AUASB
FRC members noted a report by Ms Kelsall, Chairman of the AUASB, on the work of the Board during the period since the last FRC meeting.
In her report, Ms Kelsall discussed a number of matters that are currently the focus of the AUASB's work, including: appointments to the Board, a new international emissions standard and its applicability in Australia; and work on a new standard in relation to agreed upon assurance engagement procedures.
(c) Report by Chairman of NZ ASRB
Mr Simpkins, Chairman of the NZ ASRB, provided FRC members with an update on the NZ Government's reforms to the regulation of financial markets, including changes to the financial reporting framework.
Mr Simpkins advised that two Bills had been introduced into Parliament which, among other things, would establish a new Financial Markets Authority and the External Reporting Board (XRB), which will be a reconstitution of the ASRB. It is his expectation that the XRB will establish two sub-Boards, one for accounting standards, the other for auditing standards, with the Chairs of the two bodies being appointed by the XRB. It is also expected that the new structure, including any cross-appointment arrangements with corresponding Australian bodies, will be in place by 1 July 2011.
Mr Simpkins also reported on: the recent visit by the IASB Chairman, Sir David Tweedie, to New Zealand; discussions around the establishment of a differential reporting regime for New Zealand; and the XRB's proposed approach to professional and ethical standards.
(d) Reports by other Council members
Council members were also briefed on the current activities and issues of interest to other stakeholder bodies. These matters included:
- ASIC has recently issued a media release outlining matters that will be the subject of focus as part of its 2010 financial reporting surveillance program. These matters include going concern, asset impairment, fair value determination, non-statutory profit measures, the quality of the operating and financial review and segment reporting. In addition, ASIC has made a class order allowing companies, registered schemes and disclosing entities that present consolidated financial statements to also present parent entity financial statements.
- ASX is reviewing its disclosure requirements under the Listing Rules for mining and oil and gas companies.
(1) For mining company reporting, ASX will work jointly with the Australasian Joint Ore Reserves Committee (JORC) to undertake a review of reporting requirements under the JORC Code (which forms part of ASX's Listing Rules) to ensure the Code reflects recent developments in international reporting requirements and to respond to emerging reporting issues that have been identified in the Australian market. It is envisaged that any proposed amendments to the Code/Rules arising out of this review will be submitted for regulatory clearance by the end of 2011.
(2) In relation to reporting by oil and gas companies, ASX will review recent international and industry developments in hydrocarbon reporting with a view to comprehensively updating the Listing Rules. This will include the introduction of a new requirement to report resources and reserves in accordance with an internationally recognised set of hydrocarbon reporting standards.
- ICAA has been developing a series of ‘thought pieces' on a range of topics including continuous assurance, rethinking the quality review process and improving audit quality. The ICAA has also established closer ties with the New Zealand Institute of Chartered Accountants.
- Other Council members raised a wide range of issues that were of interest to their respective nominating bodies, including: the Government's proposed legislation on executive remuneration; possible amendments to aspects of the Government's corporate law reform legislation (such as the new requirements applying to the payment of dividends); recommendations made by the Cooper Review of the superannuation system; the complexity of the current financial reporting requirements and possible ways to achieve simplification; and the difficulty of coping with the number of exposure drafts and proposed standards for which stakeholder comments are being sought.
Agenda Item 4 – FRC operations
(a) FRC 2009-10 Annual Report
The meeting was informed that a first draft of the FRC's annual report for 2009-10 had been distributed to members for comment on 20 September. The deadline for comments was close of business on 27 September.
The meeting was also informed that, following receipt and consideration of comments, members would be invited to participate in an out-of-session vote to approve the report.
(b) Nominations Committee
Ms West, a member of the Nominations Committee, presented a report on behalf of the Committee's Chairman about the Committee's work since the last FRC meeting. Matters mentioned in the report, which was noted by the FRC, included that: the advertisement seeking expressions of interest for appointment to the AASB and AUASB appeared in the Weekend Australia on 11 September (with applications due to close on 5 October 2010); the Committee will meet on 22 October to consider the applications; and interviews will be conducted at the AASB Offices in Melbourne on 12 November.
(c) Ken Spencer Memorial Lecture
A Secretariat paper canvassing possible speakers for the 2011 Ken Spencer Memorial Lecture and possible venues for the lecture was considered by the FRC. Following consideration of the issues mentioned in the paper, the FRC:
- identified a preferred speaker and asked the Secretariat to ascertain whether the preferred speaker would be interested in presenting the lecture; and
- agreed that the lecture should be held in Sydney.
Mr Beecher informed the meeting that Mr Coleman had advised him that KPMG would be happy to continue to provide the venue for the lecture.
The meeting also agreed that the invitation to the preferred speaker should provide background information about the context for the lecture, including that it is intended to be a well thought-out, serious lecture.
Agenda Item 5 – Other reports and matters
(a) Report from TTAASAG
The FRC noted the Secretariat report about the issues considered at the TTAASAG meetings held on 25 February 2010 in Wellington NZ and 11 June 2010 in Melbourne. The approved minutes of the TTAASAG meeting held in February were also noted.
(b) Reports on activities of international bodies
Reports on recent meetings of the following international bodies were noted:
- Ms Ruth Picker's reports on the meetings of the IFRS Interpretations Committee held on 8‑9 July and 2-3 September 2010;
- Mr Ken Warren's report on the meeting of the International Public Sector Accounting Standards Board held on 28 June-1 July 2010; and
- Ms Judith Downes' report on the meeting of the Standards Advisory Council held on 21‑22 June 2010.
The meeting noted, with appreciation, the level of effort Ms Picker puts into the preparation of her report. However, to facilitate the FRC's consideration of the report, the Secretariat was asked to prepare a brief summary of the key issues dealt with in the report.
(c) G20 and FSB developments
A Secretariat paper outlining G-20 and Financial Stability Board developments between May and September 2010 was noted by the FRC.
(d) Treasury's audit quality paper
The meeting noted an Australian Treasury paper providing a status report on Treasury's consultation paper Audit Quality in Australia: A Strategic Review. The meeting was informed that Treasury would in the near future brief the new Parliamentary Secretary to the Treasurer on the paper and the responses received in submissions about the paper. The meeting decided that this item should remain on the agenda for the FRC's December meeting and proposed that Treasury be asked to brief the Council on the recommendations flowing from the Treasury paper and the subsequent consultative process.
(e) FRC's auditor independence function
A Secretariat paper concerning action taken in respect of the FRC's Auditor Independence function since the Council meeting on 18 May 2010 was noted. The paper informed the FRC that the work on the auditor independence function has continued to focus on gathering the information needed to facilitate the preparation of the FRC's 2009-10 auditor independence report.
(f) UK FRC's 2009-10 audit inspection reports
The meeting also noted a media report (Financial Times, 14 September 2010) on the findings of the UK FRC's Audit Inspection Unit's (AIU's) 2009-10 inspections of the four largest audit firms. According to the media report, the AIU told the four biggest auditors to do more to avoid conflicts of interest and to be more sceptical of management claims. The media report also identified a number of deficiencies noted by the AIU during its inspections of the firms. Further information about these inspections is available in the AIU's 2009-10 annual report and its public report on each of the firms (see the UK FRC's website: www.frc.org.uk).
Agenda Item 6 – FRC correspondence
A Secretariat paper listing FRC correspondence for the period from 15 May 2010 to 3 September 2010 was noted.
Agenda Item 7 – Other business
The FRC Chairman informed the meeting that Mr Challen, one of the Council's founding members, had advised that he would be retiring from the Council prior to the December meeting. The FRC Chairman thanked Mr Challen for his invaluable contribution to all aspects of the Council's work over a period of almost 11 years and wished him well for the future. All other attendees endorsed the FRC Chairman's remarks.
The FRC Chairman also took the opportunity to thank Mr Mayne, who retired from the FRC in late August, for his contribution to the work of the Council.
No other matters of other business were raised.
Agenda Item 8 – Next meeting
The next regular meeting of the FRC will be held in Melbourne on 2 December 2010.
1 Ms Kelsall has been reappointed Chairman of the AUASB for a further term of three years commencing on 10 August 2010. However, an extension of her appointment to the FRC was not considered by the Government prior to the calling of the 2010 election.