Financial Reporting Council
FRC Chairman's report
The 1999-2000 financial year has been an important one for accounting standard setting, both within Australia and internationally.
In Australia, revised institutional arrangements for standard setting, developed as part of the Government's Corporate Law Economic Reform Program, came into operation on 1 January 2000. From that date:
- a new body, the Financial Reporting Council (FRC), has been responsible for overseeing the Australian accounting standard setting process and Australia's involvement in international standard setting; and
- the reconstituted Australian Accounting Standards Board has been responsible for making accounting standards for the purposes of the Corporations Law and for the public and not-for-profit sectors.
The new standard setting arrangements are designed to address a number of key objectives:
- ensuring greater stakeholder involvement in the standard setting process;
- ensuring wide consultation by the AASB in the making of standards, and by the FRC in its oversight role; and
- achieving significant convergence of Australian and international accounting standards.
An important objective of the new arrangements is to achieve a greater level of stakeholder involvement in the process than has been possible in the past. Historically, standard setting in Australia was initiated by The Institute of Chartered Accountants in Australia and the then Australian Society of Accountants (now CPA Australia). Initially, the entire cost of the standard setting process was borne by the accounting bodies, although significant funding was subsequently provided by governments.
The establishment of the FRC, with a membership drawn from a range of stakeholder bodies having an interest in the standard setting process, will maintain an important role for the accounting profession while at the same time giving other stakeholders greater opportunity to provide input to the process and greater ownership of the resulting standards.
Australia's standard setters have long had a comprehensive `due process' which sought to give stakeholders an opportunity to comment during the development of proposed accounting standards. The legislative amendments extend this process by requiring the AASB to carry out a cost/benefit analysis of the impact of a proposed accounting standard before it is made or formulated. In addition, the FRC has decided that the AASB should establish a project advisory panel for each new proposed standard. The consultative group arrangements established by the former Board will also be continued. The members of the FRC and AASB will also be seeking to meet with stakeholder bodies on a regular basis to obtain feedback on the standard setting process and on particular standards.
Major progress has been made in the former AASB's program to harmonise Australian accounting standards with the requirements of IASC standards. A logical extension of the harmonisation program, which is being continued by the reconstituted Board, is to move to the adoption of international standards. In accordance with its statutory obligations, the FRC is monitoring developments in the making and use of international accounting standards to assess when international standards have reached a sufficient level of acceptance in key capital markets that they could be adopted by Australia.
Internationally, the first 6 months of 2000 saw a number of significant developments involving the setting or use of international accounting standards. These developments include:
- The announcement by IOSCO in Sydney on 17 May that it has recommended its members allow incoming multinational issuers to use 30 core standards issued by the IASC to prepare financial statements for cross-border offerings and listings, subject to a range of supplementary requirements.
- The IASC membership's unanimous adoption on 24 May of a new constitution restructuring the Committee by, among other things, transferring ownership of it from the 153 professional accounting bodies that were its members to an independent Board of Trustees.
- The appointment of the members of the IASC Trustees Board to oversee the operation of the reconstituted IASC.
There is a growing acceptance within the international community of the importance of sound, transparent and internationally recognised financial reporting standards.
Convergence to internationally accepted standards will bring important benefits. For example, it will provide investors and creditors with greater reliability and comparability of financial information. It will also facilitate international capital flows and deliver efficiency gains, reducing the cost of capital to companies. And it will contribute to international financial stability by enhancing transparency, especially in crisis economies.
The Financial Stability Forum's Task Force on Implementation of Standards has included international accounting standards issued by the IASC among its 12 key standards for a sound financial system.
IOSCO's recommendation that its members permit incoming multinational issuers to use 30 core IASC standards to prepare financial statements for use in cross-border offerings and listings, subject to a range of supplementary requirements, recognises the important role that a single set of high quality, internationally accepted accounting standards can play in facilitating international capital flows. The IOSCO resolution is not binding on members and will need to be approved by each country's securities regulator. On 13 June the European Commission announced its intention to put forward, by the end of 2000, a legislative proposal for consideration by the European Parliament that would require all listed European Union companies to prepare their consolidated accounts in accordance with IASC standards by 2005. The US Securities and Exchange Commission is currently considering its approach to the implementation of the IOSCO decision.
The restructure of the IASC makes it independent of the accounting profession by opening membership to all interested stakeholders, including preparers, users, regulators and national standard setters. It involves the establishment of a Trustees Board that will be responsible for determining the IASC's direction, raising funds, and appointing the members of the IASC Technical Standards Board. Ken Spencer, the Chairman of the previous AASB, has been appointed to the Trustees Board and is also chairing a nominating committee of the Trustees to recommend appointments to the IASC Technical Standards Board which will be responsible for making standards. This appointment is a recognition by the IASC of both Mr Spencer's standing and the key role Australia has played internationally in the standard setting process.
The IASC restructure offers a major opportunity for the further convergence of accounting standard setting and a potential vehicle for eventual agreement on internationally accepted accounting standards.
In concluding, I would like to acknowledge the financial support given to the standard setting process by stakeholder bodies. This support has enabled satisfactory arrangements to be put in place for the funding of the standard setting process over the next 3 years.
I would also like to take this opportunity to acknowledge the significant contributions to accounting standard setting - especially in the area of international harmonisation - made by the previous AASB under the Chairmanship of Ken Spencer and the former PSASB under the Chairmanship of Ian Mackintosh.
The FRC is actively performing its statutory functions and the reconstituted AASB is making significant in-roads into its demanding 2000-01 work program. We look forward to the challenges and opportunities that developments in international standard setting will provide.
SIGNED
Paul J Rizzo
Chairman
FRC governance
Establishment, functions and powers
The FRC is a statutory body established under subsection 225(1) of the ASIC Act. Under subsection 225(2) of that Act, it is responsible for providing broad oversight of the process for setting accounting standards in Australia and giving the Minister reports and advice on that process.
Specific matters for which the FRC is responsible include:
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overseeing the operations of the AASB, including:
- appointing its members (other than the Chair, who is appointed by the Treasurer);
- approving and monitoring its priorities, business plan, budget and staffing arrangements;
- determining its broad strategic direction;
- giving it directions, advice or feedback on matters of general policy and its procedures; and
- monitoring the effectiveness of its consultative arrangements;
- monitoring the development of international accounting standards and accounting standards that apply in major international financial centres;
- promoting the adoption of international best practice accounting standards in the Australian accounting standard setting process if doing so would be in the best interests of the Australian economy;
- monitoring the operation of Australian accounting standards to assess their continued relevance and effectiveness in achieving their objectives; and
- seeking contributions towards the costs of the Australian accounting standard setting process.
The legislation expressly limits the FRC's ability to become involved in the technical deliberations of the AASB. It provides that the FRC does not have power to direct the AASB in relation to the development, or making, of a particular standard, or to veto a standard formulated or recommended by the AASB. This provision is designed to ensure the independence of the standard setter.
Membership and meetings
Under section 235A of the ASIC Act, the members of the FRC are appointed by the Treasurer and hold office on terms and conditions determined by the Treasurer. The Treasurer appointed FRC members from nominations put forward by key stakeholder groups.
The membership of the FRC was announced by the Treasurer on 20 September 1999. The appointments were formalised in January 2000 following the commencement of the amendments to the ASIC Act.
Mr Paul Rizzo, Group Managing Director, Finance and Administration, Telstra Corporation Ltd, was appointed Chairman. The FRC's other 12 members represent a range of stakeholder interests, including the accounting profession, the business community, users and preparers of financial reports, regulators and Commonwealth, State and Territory Governments. A full list of members, their qualifications and the stakeholders who nominated them, is in Appendix A. In addition, 4 alternate members have been appointed to participate in FRC meetings when the members for whom they are appointed are unable to attend. Their details also appear in Appendix A.
On 10 April 2000, members of the FRC appointed Mr Michael Ullmer as Deputy Chairman of the FRC in accordance with subsection 235A(3) of the ASIC Act.
The FRC met on a total of 5 occasions during 1999-2000. To enable planning for the establishment of the reconstituted AASB to be progressed, the first 2 meetings were held prior to the commencement of the legislative amendments establishing the FRC. Decisions taken at these meetings were confirmed at a meeting held after the appointments of FRC members had been formalised. Particulars of FRC members' attendance at the 5 meetings are set out in Appendix D.
Operations and activities
Since the Treasurer's announcement of the FRC's members on 20 September 1999, the activities of the FRC have been primarily focussed on the establishment of the reconstituted AASB and the performance of its functions under section 225 of the ASIC Act.
Establishing reconstituted AASB
The establishment of the reconstituted AASB involved finding appropriate accommodation in Melbourne's central business district, obtaining commitments from stakeholder bodies to fund the standard setting arrangements, the appointment of members of the AASB and the employment of experienced staff to provide technical and administrative support for the work of the Board.
Accommodation for the reconstituted AASB has been provided by the Australian Stock Exchange Ltd on a rent-free basis for a period of 4 years from 1 March 2000 as part of its financial commitment to the standard setting process. The cost of fitting out the accommodation to meet the requirements of the AASB was met by the Commonwealth Government.
Including the provision of accommodation by the Australian Stock Exchange, 6 stakeholders had, by 30 June 2000, either committed or offered to provide funding for the standard setting process. The total funding available for standard setting under these commitments and offers is $2.88 million in 2000-01 and $2.81 million in 2001-02.
The appointment of 9 part-time members to the reconstituted AASB was announced by the FRC on 14 February 2000. The appointment of a 10th member, the AASB's full-time Chairman, was announced by the Treasurer on 19 April 2000. Particulars of all AASB members, including their qualifications and terms of appointment, are set out in Appendix B.
Under the revised standard setting arrangements, the AASB became responsible for employing its own technical and administrative support staff. Technical and administrative support for the previous AASB (and also the accounting profession's Public Sector Accounting Standards Board and Urgent Issues Group) was provided by staff of the Australian Accounting Research Foundation (AARF), a joint venture of the ICAA and CPAA. All AARF staff employed on projects associated with accounting standard setting, and their associated support staff, were offered employment with the reconstituted AASB and transferred to the new organisation with effect from 1 July 2000.
Overseeing the AASB
As noted above, the FRC's responsibilities include approving the AASB's priorities, business plan, budget and staffing arrangements.
Following the formal appointment of the AASB's Chairman on 8 May and the AASB's first meeting on 29 May, the AASB provided an interim business plan and budget for consideration at the FRC meeting on 3 July 2000. The FRC approved the standard setting priorities proposed by the AASB. These are set out at Appendix E.
No changes have been made to the AASB's priorities or business plan as a result of FRC action during the financial year.
In addition, in accordance with its statutory functions, the FRC has considered the proposed AASB budget for 2000-01 and proposals from the AASB relating to the conduct of AASB meetings (including quorum, voting, agenda papers and dissenting views) and consultation with stakeholders.
International accounting standards
Under paragraph 225(2)(f) of the ASIC Act, the FRC is required to monitor the development of international accounting standards and accounting standards that apply in major international financial centres, to further the development of a single set of accounting standards for world-wide use with appropriate regard to international developments; and to promote the adoption of international best practice accounting standards in Australia if doing so would be in the best interests of both the private and public sectors in the Australian economy.
The FRC is monitoring and assessing developments in international standard setting, including the work of the IASC, national accounting standard setting bodies in Canada, France, Germany, Japan, New Zealand, the United Kingdom and the United States of America. It is also monitoring the work of the European Commission.
Consultation
The FRC regularly issues a Bulletin about decisions taken at its meetings and other important developments in accounting standard setting. The Bulletin, which is available in both paper and electronic versions, is distributed to the media and stakeholders. Requests for past issues, and inclusion on the distribution list for future issues, should be sent to the FRC's Secretary (see address on page 15).
During the financial year representatives of a number of corporations and business organisations met with members of the FRC to discuss technical issues associated with accounting standard setting. The FRC has noted these issues in the context of giving the AASB feedback on matters of general policy.
In addition, the FRC's Chairman has presented a number of speeches about the establishment of the new standard setting arrangements and the role of the FRC in those arrangements.
Consideration has also been given to the establishment of a consultative group to support the FRC's own work. Although the FRC has decided not to proceed with the establishment of a group at this time, it will continue to assess the need for such a group to support its own work.
A new AASB consultative group, which brings together the interest groups represented on the consultative groups of the old AASB and the former PSASB, is being established.
Finances
Section 238 of the ASIC Act provides that the moneys of the AASB may be applied in meeting the administrative expenses of the FRC and the payment of any remuneration and allowances payable to a person appointed under Part 12 of the ASIC Act.
FRC members do not receive remuneration or allowances. Their expenses of attending meetings are met by nominating stakeholder bodies.
During the period 1 January 2000 - 30 June 2000 any administrative expenses associated with the operation of the FRC were also met by stakeholder bodies.
Freedom of information
The FRC maintains possession of the following documents:
- FRC meeting agenda papers;
- administrative and technical papers concerning the FRC's functions and its performance of those functions;
- copies of Bulletins issued by the FRC;
- correspondence with stakeholder groups and members of the public.
Requests under the Freedom of Information Act 1982 for access to documents in the possession of the FRC can be directed to the FRC Secretariat using the contact details set out below.
No applications under the Freedom of Information Act 1982 were received by the FRC during the year.
Contacting the FRC
The FRC can be contacted as follows:
Post: Mr M Kooymans
Secretary
Financial Reporting Council
c/o The Treasury
Parkes Place,
CANBERRA ACT 2600
Telephone:
(02) 6263 3984
Facsimile:
(02) 6263 2770
E-mail: mkooymans@treasury.gov.au