Financial Reporting Council
Financial Reporting Council chairman's report
Mr Jeffrey Lucy, AM
2000-01 was a significant year for accounting standard setting in Australia and internationally. It marked the first full year of operation of the FRC and the restructured AASB. It also marked the establishment of the IASB and the beginning of a partnership between the IASB, AASB and other national standard setters aimed at the eventual adoption world-wide of a single set of high quality accounting standards.
I think on both counts it was a successful year and certainly one on which very positive outcomes can be built.
During the year, the FRC met its statutory duties under the ASIC Act. These included providing broad oversight of the process of setting accounting standards in Australia, approving and monitoring the AASB's priorities, business plan, budget and staffing arrangements, determining the AASB's broad strategic direction, and appointing new members to the AASB. The FRC was also active in monitoring international standard setting developments and the operation of accounting standards in Australia.
A further ongoing task of the FRC is to seek contributions towards the costs of the Australian accounting standard setting process. Whilst preserving the independence of the standard setting process, we have obtained contributions from key stakeholders and in this regard I would like to acknowledge the continued substantial contributions from selected stakeholders towards the costs of the new arrangements, and in particular the increased contribution committed by the National Institute of Accountants for 2001-02. Since becoming Chairman in July 2001, I have concluded a round of discussions with all key stakeholders in which the funding question was canvassed - in particular, a greater contribution from the business sector, as was envisaged when the FRC framework was established. I am confident that sufficient funding will be available on an ongoing basis to meet the resource needs of the AASB, including to support its important liaison role with the IASB.
I was struck during these discussions by the high level of support apparent among stakeholders for Australia's new standard setting arrangements. There is a clear sense that the structures are right and are capable of producing standard setting outcomes of a consistently high quality. Importantly, the scope for stakeholder consultation and input has been significantly broadened while safeguarding the technical independence of the AASB.
I would like to pay tribute to the work of the Board, particularly its full-time Chairman, Keith Alfredson, and the AASB staff. They have successfully made a difficult transition from the old standard setting regime and are operating effectively and with a high degree of professionalism. The AASB is conscious that its 2000-01 work program proved to be optimistic and has made some changes aimed at streamlining its policies and procedures. The FRC will continue to do all it can to assist the Board in this regard.
During the year the FRC was also active in strengthening its own procedures. In particular, it established a Nominations Committee, chaired by the Deputy Chairman, Michael Ullmer, to make recommendations to the FRC on future appointments to the AASB. Drawing partly on responses to a recent national press advertisement, the Committee will maintain a list of qualified people interested in future appointment to the Board, significantly streamlining appointment processes.
The FRC also extended its consultation processes through meetings with business representatives and other stakeholders. I intend as Chairman to continue the formal consultations with key stakeholders initiated in August 2001, supplementing other more regular contacts.
Internationally, the restructuring of the IASB was largely completed during the year. The new body assumed accounting standard setting responsibilities from its predecessor on 1 April 2001 and has announced its initial work program.
Australians are very well represented on the various forums of the restructured body: Mr Ken Spencer is a Trustee of the IASC Foundation; Mr Warren McGregor is a liaison member of the IASB; and Mr Peter Day and Mr Ian Mackintosh are members of the Standards Advisory Council. Mr Kevin Stevenson, currently a member of the AASB, was appointed Director of Technical Activities at the IASB in June 2001 and will take up this position in February 2002. The FRC is working in close consultation with Australia's international representatives.
The AASB will now be working closely with the IASB, aligning its work program (to the extent possible) with the IASB's, leading certain projects on the IASB agenda and providing support on others. We should begin to see within a few years whether the work of the IASB, in collaboration with national standard setters, is producing quality international standards capable of wide acceptance in major international capital markets and eventual adoption for world-wide use. The FRC and AASB are committed to the international effort to assist this outcome.
This is an important issue for Australia. The rapid expansion of international capital flows has increased pressures for - and the benefits available from - a common accounting language. A single set of high quality accounting standards will greatly facilitate cross-border comparisons by investors and assist Australian companies wishing to raise capital or list overseas.
In line with the convergence objective, it is important that, in setting standards, the AASB take full account of standards issued or being developed by the IASB or IFAC PSC other than in exceptional circumstances. This approach has been developed and carried into the AASB's proposed revised policy statement on international convergence and harmonisation. The FRC recognises that this approach may give rise to a situation where there is an international intent to develop a standard but where in the interim there is no Australian standard. We will of course need to be satisfied that the adoption of a particular set of best practice international accounting standards is in the best interests of the Australian private and public sectors.
I wish to acknowledge the valuable contributions made to the work of the FRC by all of its members, including Ms Jan McCahey and Dr Diana Wright, who left the Council during the year.
I would especially like to thank our inaugural Chairman, Paul Rizzo, for his contribution to the establishment of the new accounting standard setting arrangements in Australia, and the FRC Deputy Chairman, Michael Ullmer, for ably filling the Chairman's role in the period following Paul Rizzo's departure in February. The high level of commitment and support provided by our secretariat through Mr Michael Kooymans has been critical in helping the FRC meet its objectives.
The year ahead promises to be challenging, especially now that the new IASB is open for business. We look forward to that challenge.
SIGNED
Jeffrey Lucy, AM
Chairman of FRC
28 September 2001
Financial Reporting Council governance
Establishment, functions and powers
The FRC is a statutory body which was established under subsection 225(1) of the Australian Securities and Investments Commission Act 1989, and which is continued in existence by section 261 of the Australian Securities and Investments Commission Act 2001 (the ASIC Act). Under subsection 225(2) of the ASIC Act, the FRC 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:
- 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 on technical matters.
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 in the past has appointed FRC members from nominations put forward by key stakeholder groups.
A full list of members during 2000-01, their qualifications and the stakeholders who nominated them, is in Appendix A. In addition, 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.
Operations and activities
Appointments to the AASB
In the second half of 2000-01, the FRC established a Nominations Committee to make recommendations to the FRC on the composition of, and criteria for appointment to, the AASB.
The Chairman of the Nominations Committee is FRC Deputy Chairman Mr Michael Ullmer. The other members of the Committee are the AASB Chairman, Mr Keith Alfredson, and FRC members Mr Don Challen and Mr Robert Nottle, CBE.
The Nominations Committee held one formal meeting in 2000-01, on 21 May 2001. At this meeting it agreed to recommend for the FRC's approval a proposed Charter of the Committee and a draft Framework for Appointments to the AASB. The Charter and Framework for Appointments, as approved by the FRC, were released publicly on 18 June 2001. The Committee also considered candidates for appointment to the AASB, to fill a vacancy caused by the resignation of Dr Doug McTaggart. Mr Wayne Cameron, Auditor-General of Victoria, was recommended to the FRC and appointed to the AASB on 7 June 2001 for a three year term. Since the end of the year, the FRC has advertised in the national press seeking expressions of interest from people wishing to be considered for appointment to the AASB.
Overseeing the AASB
The FRC's responsibilities include approving the AASB's priorities, business plan, budget and staffing arrangements.
On 8 September 2000, the FRC approved the AASB's revised budget for 2000-01, the AASB's proposed policy on publications and subscriptions, a Charter for the UIG, and also recommended to the AASB that the approval required to make an accounting standard should formally require the affirmative votes of seven out of ten members of the AASB. Further, at this meeting the FRC established an Audit Committee to assist the AASB and its directors to comply with statutory obligations.
On 4 June 2001, the FRC approved the AASB's proposed standard setting priorities for 2001-02 without change. These work program priorities are set out at Appendix F. The FRC also considered the AASB's broad strategic direction and proposed budget and staffing arrangements for 2001-02, and endorsed the broad shape of the AASB's proposed business plan for 2001-02. In addition, the FRC approved guidelines proposed by the AASB, which collate and codify the AASB's governance arrangements, and approved a risk management program for the AASB as proposed by the Board.
International accounting standards
The FRC is monitoring and assessing developments in international accounting standard setting, including the work of the IASB, national accounting standard setting bodies in Canada, France, Germany, Japan, New Zealand, the United Kingdom and the United States. It is also monitoring the work of the European Commission, the International Federation of Accountants Public Sector Committee, and the pronouncements of national securities market regulators in major capital markets.
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 for inclusion on the distribution list for future issues, should be sent to the FRC's Secretary (see address below).
During the financial year, representatives of a number of corporations, business organisations and other stakeholder bodies met with members of the FRC to discuss issues relating to accounting standard setting.
On 16 November 2000, then FRC member Dr Diana Wright presented a speech on the new accounting standard setting arrangements at the 2000 Public Sector Congress.
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.
During 2000-01, FRC members did not receive remuneration or allowances, their expenses of attending meetings being met by nominating stakeholder bodies. Since the end of the year, the FRC has determined that out of pocket expenses incurred by members after 30 June 2001 in enabling them to fulfil their roles, including attendance at meetings, will be met by the AASB where not otherwise 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; and
- 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.
One application under the Freedom of Information Act 1982 was received by the FRC during the year.
Contacting the Financial Reporting Council
The FRC can be contacted as follows:
Post: Mr Michael Kooymans
Secretary
Financial Reporting Council
c/- The Treasury
Langton Crescent
PARKES ACT 2600
Telephone: (02) 6263 3984
Facsimile: (02) 6263 2770
E-mail: mkooymans@treasury.gov.au