Australian Accounting Standards Board
Australian Accounting Standards Board Chairman's report
Mr Keith Alfredson
Work program
The year to 30 June 2001 was a year of significant challenge for all members of the AASB. The Board finalised and issued two new and five revised standards. However, a number of projects on the 2000-01 work program, as set forth in the 1999-2000 annual report, were not completed. The status of the 2000-01 program is reported in Appendix E. History has shown that the approved program was too optimistic with the main limiting factor being the lack of available Board time to deal with the large range of technical issues covered in the planned new or revised standards and other projects. This was despite the fact that the Board held eight two day meetings, plus an unscheduled one day meeting. This was a heavy commitment for the nine part-time Board members especially in view of the significant preparation time required before Board meetings to study the range of detailed technical papers.
Another significant factor that contributed to the work program shortfall was that most of the projects before the Board during the year were inherited from the former AASB and the former Public Sector Accounting Standards Board in a relatively advanced stage of consideration by those Boards. At the time of preparing the work program I assumed that only limited Board time would be necessary to finalise these projects. This proved not to be the case especially on the more complex projects such as employee benefits and provisions and contingencies. The Board considered it was necessary, in order to appropriately perform its role, to redeliberate many of the complex issues considered by the former Boards, especially where questions of international harmonisation were involved. This proved particularly time consuming.
Nevertheless, I believe the Board's accomplishments are commendable.
Responding to concerns of constituents
The Board responded to concerns of constituents by issuing AASB 1043 Changes to the Application of AASB and AAS Standards and Other Amendments in order to clarify certain issues relating to the scope of disclosures in interim financial reports and Exposure Draft ED 101 Revaluation of Non-Current Assets: Proposed Amendments to AASB 1041/AAS 38. In addition, the Board fast-tracked limited amendments to AASB 1027 Earnings per Share prior to 30 June 2001 to rectify minor technical anomalies relating to the calculation of diluted earnings per share in certain limited situations. While the Board was unable to meet its announced intention to amend AASB 1041/AAS 38 prior to 30 June 2001, the revised standard AASB 1041, which incorporates the former AAS 38, was made at a special meeting of the Board on 17 July 2001. The making of that Standard at that date permits entities to early adopt its requirements, where relevant, in their 30 June 2001 financial reports. Such early adoption provides entities with the opportunity to avoid certain disclosures relating to the reconciliation of non-current assets, other than property, plant and equipment, which were considered by the Board to be unduly onerous.
These three actions are, I believe, examples of the Board's strong desire to consider concerns raised by constituents and to respond accordingly. These projects were all time consuming and contributed, in part, to the Board's inability to act on other planned priorities.
Of course while the Board has a heavy responsibility to listen to the concerns of constituents, it must necessarily independently review and debate the issues raised. This will inevitably cause the Board on occasions to make decisions that may not align with the views of certain of its constituents. This was the case during the year when the Australian Retailers' Association requested the Board to either amend or defer the newly operative requirement of AASB 1018 and AAS 1 Statement of Financial Performance (issued in October 1999) that entities disclosing revenue from the sale of goods disclose the cost of sales relating to the sale of those goods. The Board concluded there were insufficient grounds supporting the requested amendment having regard to the usefulness of the cost of sales information from the perspective of users of financial reports. In the coming months, the Board intends to monitor issues relating to the implementation of AASB 1018 and AAS 1 and also AASB 1034 and AAS 37 Financial Report Presentation and Disclosures and AASB 1040 and AAS 36 Statement of Financial Position.
Survey of constituents
The AASB took an important initiative in February 2001 when it conducted a survey of Consultative Group members, Board members and other constituents to solicit views about work program priorities for the year 2001-02, topics that should be given a high priority by the newly reconstituted IASB on its work program and also the quality of the AASB's communications. The survey was conducted via both hard copy questionnaire and the Board's web site. It was pleasing that there was a high response rate from Consultative Group and Board members and a further forty other respondents from the private and public sectors.
The survey provided valuable perspectives about the Board's work program priorities and overall direction as well as suggested changes to improve the effectiveness and usefulness of AASB communications. The Board's approved work program for 2001-02 is in harmony with the results of the survey.
2001-02 Work program
The AASB's standard-setting priorities for the year to 30 June 2002 have been approved by the FRC. These priorities are set out in Appendix F.
Enhancing communications
Various steps have been taken by the Board and AASB staff to enhance communications by the AASB to all constituents.
A significant initiative has been the upgrade of the AASB's web site (www.aasb.com.au). The web site is viewed by the Board as a key communications tool for the timely dissemination of material relating to the activities of the Board and the Urgent Issues Group. The AASB has recently commenced posting project summaries on the web site so as to report the status of projects, including the tentative decisions of the Board on key issues, on a timely basis. Further, key Board papers are posted on the web site prior to each Board meeting. To my knowledge no other major accounting standard setting body has adopted the practice of posting Board papers on its web site. These actions are designed to enhance the transparency of the Board's standard setting processes.
In late June 2001, the AASB issued the first edition of Transparency. The objective of this AASB newsletter, which is to be published periodically, is to enhance communications by the AASB to all constituents. The newsletter will be forwarded to AASB subscribers and will be freely available on the AASB web site. Its articles will not only be technical but will also cover news items relating to the AASB and its staff.
International Activities
Australia has for many years placed a high priority on contributions to international accounting standard setting activities through involvement with the former IASC and its committees, IFAC PSC and the G4+1, a former group of representatives from the accounting standard setting bodies of Australia, Canada, New Zealand, the United Kingdom and the United States of America together with the former IASC.
The current year has seen a continuation of international involvements. The AASB continued participating in G4+1 activities until its disbandment in January 2001. These activities included hosting a meeting of the G4+1 in Sydney in October 2000. Staff of the AASB provided technical support to Australia's representatives on the IASC until its replacement by the IASB on 1 January 2001 and to Australia's representative on the IFAC PSC. Technical support was also provided to representatives on the Extractive Industries and Insurance Steering Committees of the IASC and also the Joint Working Group of standard setters that finalised a Draft Standard on Accounting for Financial Instruments and Similar Items in December 2000.
Transformation of international standard setting
History will, in my view, eventually record 2001 as the year in which international accounting standard setting was transformed into a robust process designed to lead to the establishment of a set of high quality global accounting standards supported by national standard setting bodies around the world. This real possibility results from the reconstitution of the former IASC as the IASB with twelve full-time and two part-time members, under the leadership of Sir David Tweedie, the former chairman of the UK Accounting Standards Board.
I believe the IASB will have more influence over the strong national standard setting bodies such as the US Financial Accounting Standards Board, the Canadian Accounting Standards Board and the UK Accounting Standards Board as Sir David Tweedie has called for an international partnership amongst the eight national standard setting bodies that have been given special liaison status with the IASB. These bodies are the standard setting bodies from Australia, Canada, France, Germany, Japan, New Zealand, United Kingdom and the United States of America. An IASB member has been given special liaison responsibility with each of these standard setting bodies. The AASB liaison IASB member is Mr Warren McGregor, a former Director of the Australian Accounting Research Foundation. He has been given non-voting observer status at all AASB meetings. The aim of the international partnership is to assist in the convergence of national standards so that a single set of high quality standards will eventually be accepted globally.
The liaison standard setting bodies have been asked to align, to the extent possible, their work programs with that of the IASB and to work with the IASB by leading certain projects on the IASB agenda and by supporting others. The ultimate success of this arrangement will, of course, depend on the willingness of the national standard setting bodies to accept the final views of the IASB where such acceptance will lead to high quality international convergence amongst the major standard setting bodies, even though those views may not be the preferred position of a particular body.
Regular meetings of chairmen of the IASB liaison standard setting bodies with the IASB are to be held. I concur with the comment made by Sir David Tweedie in an IASB media release prior to the initial meeting of the IASB and the chairmen of each of the liaison standard setting bodies. Sir David commented `This meeting marks an important launching of the partnership between the new Board and national bodies. Together we have a once-in-a-lifetime opportunity to make rapid progress toward our goal of a single set of high quality global accounting standards.'
The AASB has recently issued an exposure draft of a new International Convergence and Harmonisation Policy that accords with the requested IASB approach. The issue of this exposure draft illustrates the Board's determination to take a leadership position on this new approach. I am delighted to report that Mr Jim Paul, a AASB senior project manager, agreed to a secondment to the IASB staff from August 2001. He has joined an impressive group of technical staff which the IASB has assembled to assist it in its challenging tasks. This staff will include Mr Kevin Stevenson as Director of Technical Activities. Kevin is a current AASB member and served as Executive Director of the Australian Accounting Research Foundation from 1979-86. Kevin's technical expertise will be greatly missed by the AASB. I have no doubt that the IASB will gain much from his appointment, which he will assume on a full-time basis in February 2002.
Board Changes
Mr Ian Mackintosh resigned from the Board on 17 October 2000 following his appointment as Chief Accountant of the Australian Securities and Investments Commission. His contribution to the Board was significant. Fortunately, Mr Mackintosh's expertise has not been lost to the Board as he continues as an observer on the Board in view of his position as Chairman of the IFAC PSC. Mr Kevin Stevenson was appointed to the Board on 20 December 2000.
Because of other commitments, Dr Douglas McTaggart regrettably found it necessary to resign from the Board on 16 March 2001. His business-like style was particularly helpful to the Board. Mr Wayne Cameron, Auditor General of Victoria, was appointed to the Board on 7 June 2001.
Urgent Issues Group
The Urgent Issues Group (UIG) provides a valuable service through its interpretations of the requirements of accounting standards in particular circumstances. The role of the UIG is not easy for the very fact that the issues considered are referred to the UIG by constituents indicates that an obvious answer is not always evident. During the year to 30 June 2001, the UIG issued nine new or revised abstracts.
Appreciation
I have enjoyed serving as Chairman of the AASB and UIG during the past year.
Much has been achieved. However, none of these achievements would have been possible without the effort and contributions made by other Board members, other UIG members, the AASB technical and administrative staff, and by other AASB constituents. I am particularly pleased that there has been a growing renewed interest in the making of submissions in response to exposure drafts and also in the field-testing of new proposals. Such constructive participation is essential, in my view, to successful standard setting. In addition, the input from and smooth overall working relationship with the FRC has been particularly helpful to the operations of the AASB.
I am grateful for all of these efforts and I look forward to this participation continuing.
SIGNED
Keith Alfredson
Chairman of AASB
28 September 2001
AASB Directors' report of operations
The members of the FRC, who are the directors of the AASB for the purposes of the CAC Act, have prepared this report under section 9 of the CAC Act in accordance with the requirements contained in the Commonwealth Authorities and Companies Orders 1998 made by the Minister for Finance and Administration on 17 August 1998, and the requirements of the Commonwealth Authorities and Companies (Financial Statements 2000-01) Orders made by the Minister for Finance and Administration on 24 May 2001.
Establishment, functions and powers
The AASB is a body corporate with perpetual succession established under subsection 226(1) of the Australian Securities and Investments Commission Act 1989, and is continued in existence by section 261 of the Australian Securities and Investments Commission Act 2001 (the ASIC Act). Under subsection 227(1) of the ASIC Act, the AASB's functions are:
- to develop a conceptual framework, not having the force of an accounting standard, for the purpose of evaluating proposed accounting standards and international standards;
- to make accounting standards under section 334 of the Corporations Act for the purposes of the national scheme laws;
- to formulate accounting standards for other purposes;
- to participate in and contribute to the development of a single set of accounting standards for world-wide use; and
- to advance and promote the facilitation of the development of accounting standards that require the provision of financial information that is relevant and reliable, facilitates comparability and is readily understandable to allow users to make and evaluate decisions about allocating scarce resources, and assessing the performance and financial position of entities.
Subsection 227(3) of the ASIC Act provides the AASB with the following powers:
- to engage staff and consultants;
- to establish committees, advisory panels and consultative groups;
- to receive money contributed towards its operating costs; and
- to do anything else that is necessary for, or reasonably incidental to, the performance of its functions.
Consistent with the functions and powers conferred on it by section 227 of the ASIC Act, the reconstituted AASB seeks to meet its objectives by developing and issuing Accounting Standards and Statements of Accounting Concepts.
Directors
The names of FRC members during the period covered by this report, and their qualifications, are listed in Appendix A. Details of their attendance at FRC meetings are contained in Appendix D. All FRC members are non-executive directors of the AASB.
Technical activities of AASB during 2000-01
Membership and meetings of AASB
Under the revised standard setting arrangements, the Chairman and members of the AASB are appointed under section 236B of the ASIC Act. The Chairman is appointed by the Treasurer while other members are appointed by the FRC. To be eligible for appointment, a person must have knowledge of, or experience in, business, accounting, law or government. The Chairman and members hold office on the terms and conditions that are determined by the Treasurer and FRC respectively. Appointments may be made for a period of up to 5 years and retiring members are eligible for reappointment.
The members of the AASB during 2000-01 are listed in Appendix B. The Board held 9 meetings for a total of 17 meeting days during the year, and attendance of members at these meetings is set out in Appendix D.
Standard setting
The AASB has responsibility for accounting standard setting.
During the year, the Board issued or reissued the following standards and other documents:
New standards
AASB 1042 Discontinuing Operations (issued August 2000).
AASB 1043 Changes to the Application of AASB and AAS Standards and Other Amendments (issued December 2000).
Revised standards
AASB 1005 Segment Reporting (revised August 2000).
AASB 1012 Foreign Currency Translation (revised November 2000).
AASB 1027 Earnings per Share (revised October 2000 and June 2001).
AASB 1028 Employee Benefits (revised June 2001).
AASB 1029 Interim Financial Reporting (revised October 2000).
Policy statements
PS 2 The AASB Consultative Group (revised June 2001).
PS 4 AASB Project Advisory Panels (revised June 2001).
Exposure drafts
ED 101 Revaluation of Non-Current Assets: Proposed Amendments to AASB 1041/AAS 38 (issued March 2001).
Invitations to comment
The AASB posted Invitations to Comment on its web site in respect of:
- Changes to the Application of AASB and AAS Standards and Other Amendments (November 2000).
- Proposed revisions to AASB 1027 Earnings per Share (April 2001).
In addition, the AASB, as a member of the Financial Instruments Joint Working Group of Standards Setters, issued an Invitation to Comment Accounting for Financial Instruments and Similar Items (December 2000) in conjunction with the IASC and other national standard setters.
Urgent Issues Group
The UIG's purpose is to review on a timely basis in the context of existing Accounting Standards and Statements of Accounting Concepts, accounting issues that are likely to receive divergent or unacceptable treatment in the absence of authoritative guidance, with a view to reaching a consensus as to the appropriate accounting treatment. The UIG comprises 16 members drawn from a wide range of constituent groups. A consensus of the UIG requires that 11 or more members vote in favour of, and no more than 3 members vote against, the proposed treatment for the issue in question. The AASB has a reserve power of veto over UIG consensus views and at its 27-28 June 2001 meeting, vetoed the UIG's proposed consensus view on Subscriber Acquisition Costs for the Telecommunication Industry. A UIG consensus view is published in an Abstract. A full list of UIG Abstracts and their issue dates is at Appendix G.
The following abstracts were issued during the financial year:
New
Abstract 35 Disclosure of Contingent Liabilities (issued August 2000).
Abstract 36 Non-Monetary Contributions Establishing a Joint Venture Entity (issued December 2000).
Abstract 37 Accounting for Web Site Costs (issued January 2001).
Abstract 38 Contributions by Owners Made to Wholly-Owned Public Sector Entities (issued January 2001).
Revised
Abstract 15 Early Termination of Foreign Currency Hedges (revised August 2000).
Abstract 18 Early Termination of Gold Hedges (revised December 2000).
Abstract 25 Redesignation of Hedges (revised December 2000).
Abstract 29 Early Termination of Interest Rate Swaps (revised December 2000).
Abstract 32 Designation as Hedges - Rollover Strategies (revised December 2000).
Due process
The AASB adopts a comprehensive 'due process` (outlined in PS 1 The Development of Statements of Accounting Concepts and Accounting Standards) when developing its pronouncements, and encourages the preparers and users of financial reports to participate actively in the standard-setting process by:
- communicating its views and policies to a broad range of interested parties via Discussion Papers, Accounting Theory Monographs, Invitations to Comment and Exposure Drafts;
- meeting with representatives of interested parties and organisations;
- inviting public comment on its policies, procedures, priorities and standards under consideration;
- issuing media releases related to its activities; and
- maintaining a web site (www.aasb.com.au).
In addition, the AASB publishes an AASB Action Alert to keep interested parties informed of the AASB's deliberations at each of its meetings.
Consultative group
During the year the AASB established a Consultative Group which brought together the interest groups represented on the consultative groups of the previous AASB and former PSASB. The purpose and operation of the Consultative Group is set out in Policy Statement PS 2 `The AASB Consultative Group' as revised and reissued in June 2001.
The Consultative Group held 2 meetings during the year, in October 2000 and May 2001. In February 2001, the AASB surveyed this group's members to ascertain their views on the AASB's 2001-02 work program priorities.
Liaison with constituents
The AASB meets with a wide range of people to discuss matters of interest both generally and in relation to specific projects.
Use of web site
The AASB maintains a web site (www.aasb.com.au). The web site is used to provide information about the AASB, its activities and work program to its constituents and other interested parties. The AASB has also taken the decision to post copies of key AASB Board papers on its website, prior to meetings. The AASB publishes brief summaries of key projects on the Board's web site outlining the background to each project and recent progress and Board decisions and has indicated its intention to investigate ways of further developing its web site to seek comments and feedback from constituents via electronic means. The AASB also uses the web site to seek comments on exposure drafts in order to facilitate urgent action on projects and to make selected agenda papers available to the public.
Seminars
Members of the AASB and its staff are available to present papers on matters relating to the AASB's work program at seminars, congresses and conferences held throughout Australia.
International activities
Standard-setting must keep pace with the constant changes in the reporting environment and a `once-off' program to harmonise is unlikely to remove all of the incompatibilities between Australian standards and those of other major standard-setters. For this reason, the AASB has an ongoing broader element to its International Harmonisation Program which is designed to ensure that Australian standards keep pace with world's best practice and continue to enhance the credibility and efficiency of the Australian capital markets and assist Australian business' participation in overseas capital markets. This broader element of the AASB's International Harmonisation Program involves closely monitoring the activities of other relevant national accounting standard-setting bodies, particularly those in the United States of America, Canada, New Zealand, and the United Kingdom, in addition to those of the IASB. The AASB uses the work of these standard-setting bodies in the development of Australian pronouncements and endeavours to ensure that, where possible, the pronouncements are consistent with those of its international counterparts.
Prior to the restructuring of the IASC, the AASB was involved with the G4+1 group of standard setters. The G4+1 comprised Australia, Canada, New Zealand, the United States of America, and the United Kingdom, with an observer from the IASC. Through close working relations with this group, the AASB was able to contribute directly to the international development of accounting standards. As a result of the restructuring of the IASC, the G4+1 disbanded and cancelled its activities in January 2001.
Under arrangements applying to the end of 2000 the Australian members of the IASC Board were appointed by the CPAA and the ICAA. AASB staff provided technical assistance to these members and attended meetings of the IASC. During the year, Australia was also represented by a former AASB member on the International Joint Working Group on Financial Instruments; by a former UIG member on the IASC's Standing Interpretations Committee; by a former AARF staff member who was Chairman of the IASC Steering Committee on Insurance; and by a former AASB member who was Chairman of the IASC's Steering Committee on Extractive Industries.
The restructuring of the IASC significantly progressed in 2000-01. The restructured organisation, renamed the IASB, has 2 main bodies, a Board of Trustees and a Standards Board, as well as a Standards Interpretation Committee and Standards Advisory Council. The Trustees appoint the Board members, exercise oversight and raise funds needed, whereas the Board has sole responsibility for setting accounting standards. The Board comprises 12 full-time members including a full-time Chairman and 2 part-time members appointed by the Trustees.
Australia also has representation on the IFAC PSC. Australia's representative on the IFAC PSC is appointed by the ICAA and the CPAA. Australia's current representative and Chairman of the IFAC PSC is Mr Ian Mackintosh. AASB staff provide technical support for Australia's involvement in this committee as part of the AASB's commitment to international activities that impact on public sector reporting in Australia.
Indemnities and insurance premiums for directors and officers
No indemnities have been given or agreements made in respect of any current or former officer of the AASB. The AASB has arranged professional indemnity insurance with COMCOVER, to a value of $20 million and at a cost of $11,000.
Audit committee
Three FRC members comprise the AASB's Audit Committee. They are Ms Elizabeth Alexander, AM (Chair), Mr Graeme McGregor, AO and Mr Robert Nottle, CBE. Mr Jeffrey Lucy and Ms Jan McCahey were members of the Audit Committee, but resigned and were replaced by Mr McGregor and Mr Nottle.
Two meetings of the Audit Committee were held during 2000-01, with Ms Alexander, Mr Lucy and Ms McCahey attending both meetings, where members considered the financial statements of the AASB and assessed the risk management plan for the AASB.
Ministerial responsibility
The Treasurer, the Hon. Peter Costello MP, and, in matters determined by him, the Minister for Financial Services and Regulation, the Hon. Joe Hockey MP, are the Ministers responsible for the AASB under the ASIC Act.
Preparation of report
The report is made in accordance with a resolution of the directors passed on 28 September 2001 and is signed in accordance with that resolution.
SIGNED
Jeffrey Lucy, AM
Chairman of the FRC
28 September 2001
AASB Publications
All authoritative pronoucements issued by the AASB and UIG, including Statements of Accounting Concepts, Policy Statements, Accounting Standards (AASB and AAS series), Accounting Interpretations and UIG Abstracts, are available for purchase from the AASB. A full list of pronouncements currently on issue is at Appendix G.
The AASB also publishes a range of other documents, including:
- an AASB Action Alert to keep interested parties informed of the AASB's deliberations at each of its meetings;
- exposure drafts of proposed new and revised accounting standards;
- invitations to comment (often concerning significant revisions to proposals previously issued as exposure drafts);
- Accounting Theory Monographs;
- consultative and discussion papers issued in conjunction with the IASB and other national accounting standard setters; and
- Transparency, a periodical newsletter on the activities of the AASB.
The AASB provides subscription services in respect of most of these documents. In addition, individual copies are available for sale. Further information can be obtained from the AASB using the contact details set out below.
Freedom of information
The AASB maintains possession of the following documents:
- copies of Accounting Standards;
- copies of Exposure Drafts and Invitations to Comment;
- copies of Media Releases;
- AASB and UIG meeting agenda papers;
- correspondence with constituents, including responses to Exposure Drafts and Invitations to Comment; and
- internal technical and administrative papers, including project proposals, key decisions questionnaires, issues papers, draft Exposure Drafts and draft Accounting Standards.
Requests under the Freedom of Information Act 1982 for access to other documents in the possession of the AASB can be directed to the AASB Secretary using the contact details set out below.
No applications under the Freedom of Information Act 1982 were received by the AASB during the year.
Contacting the Australian Accounting Standards Board
The AASB can be contacted as follows:
Post: The Secretary
Australian Accounting Standards Board
Level 3, 530 Collins Street
MELBOURNE VIC 3000
Telephone: (03) 9617 7600
Facsimile: (03) 9617 7608
Document Exchange DX 30897 Document Exchange
E-mail: standard@aasb.com.au