Overview
Oversight by the Financial Reporting Council
The key functions of the Financial Reporting Council (FRC) are to determine the broad strategic direction of the Australian Accounting Standards Board (AASB) and to provide broad oversight of the processes for setting accounting standards in Australia. As a result of the passage of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 in June 2004, the FRC’s functions have been expanded to include determining the broad strategic direction of the Auditing and Assurance Standards Board (AUASB) and to provide broad oversight of the processes for setting auditing standards in Australia. The Act also gave the FRC responsibility for monitoring the effectiveness of auditor independence requirements in Australia.
In performing its functions the FRC takes into account the objectives of standard setting specified in the ASIC Act — to facilitate the Australian economy by reducing the cost of capital, enabling Australian entities to compete effectively overseas, having accounting and auditing standards that are clearly stated and easy to understand, and maintaining investor confidence.
Direction-setting activities of the FRC
During 2003-04 the FRC:
- re-affirmed the timetable for adopting accounting standards issued by the International Accounting Standards Board (IASB) as Australian accounting standards by 1 January 2005;
- provided a submission on the draft CLERP 9 Bill in relation to the role and functions of the Council;
- prepared for the enhanced role that the FRC will undertake from 2004-05 as a result of the CLERP 9 reforms, in terms of monitoring the effectiveness of auditor independence and providing the broad strategic direction for the setting of auditing and assurance standards, including oversight of the AUASB;
- worked to secure funding for international and Australian accounting standard setting, as well as funding for auditing standard setting for 2004-05, from the business sector, the professional accounting bodies, the Commonwealth and the States and Territories;
- reviewed and reaffirmed the AASB’s broad strategic direction, and approved the AASB's proposed budget and business plan for both 2003-04 and 2004-05; and
- enhanced the transparency of the Council’s processes by providing regular bulletins on the FRC website summarising the main decisions made.
Other activities of the FRC
The FRC made 2 appointments to the AASB, including the reappointment of a retiring member.
The FRC’s work on international accounting standards is outlined separately below.
Standard setting
The AASB held 13 meetings in 2003-04 for a total of 23 meeting days, at which it addressed significant standard setting and administrative issues.
The AASB implemented the FRC’s strategic directive regarding the adoption of IASB Standards in 2005 with the issue of 40 new and revised accounting standards (comprising 35 AASB equivalents to IASB Standards, four revised Australian Standards, one new Australian standard), and 14 Urgent Issues Group (UIG) Interpretations, including 12 UIG equivalents to IASB Interpretations published as Pending Standards and UIG Interpretations. The AASB also issued two new accounting standards during the year.
The UIG met eight times in 2003-04 and completed two new Abstracts, one revised Abstract, and 14 UIG Interpretations for application in 2005.
The AASB’s liaison relationship with the IASB was enhanced with the AASB leading three joint research projects on accounting for intangible assets, joint ventures and the extractive industries.
Significant progress was made in respect of meeting the FRC’s broad strategic direction regarding convergence of requirements of Generally Accepted Accounting Principles (GAAP) and Government Finance Statistics (GFS).
Consultation
The FRC and AASB jointly and individually seek to ensure maximum consultation with, and input from, stakeholders on particular standards and the standard setting process.
In 2003-04, the FRC:
- continued consultation with key private sector representatives as well as with government agencies;
- liaised closely with international standard setting stakeholders;
- issued nine bulletins about decisions taken at its meetings and other important developments in the accounting standard setting process;
- maintained a close liaison with Australians who are members of relevant international bodies, including: the IASB (Mr Warren McGregor), the IASB Standards Advisory Council (Mr Peter Day), the IASB International Financial Reporting Interpretations Committee (Mr Wayne Lonergan), and the International Federation of Accountants Public Sector Committee (Mr Wayne Cameron);
- participated in the establishment of the Trans-Tasman Accounting Standards Advisory Group which seeks to minimise differences in standards between Australia and New Zealand, and promote the influence of the two countries in international standard-setting fora; and
- used the <www.frc.gov.au> website to facilitate consultation.
In 2003-04, the AASB:
- used its website <www.aasb.com.au> to provide information about the Board, its meetings, activities and work programme and those of the UIG;
- issued media releases to announce when new or revised accounting standards had been made; and
- issued an AASB Action Alert after AASB meetings and an UIG Action Alert after UIG meetings to summarise the proceedings of the meetings.
International
The FRC has a statutory obligation to:
- monitor the development of international accounting standards and accounting standards that apply in major international financial centres;
- further the development of a single set of accounting standards for world-wide use with appropriate regard to international developments; and
- promote 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 both the private and public sectors in the Australian economy.
In 2003-04, the FRC continued to monitor the adoption of international accounting standards both in Australia and overseas, following from the strategic direction in 2002 to the AASB to work toward the adoption of international accounting standards in Australia.
The FRC also continued to monitor the work of the European Commission, IFAC PSC and national accounting standard setting bodies in Canada, France, Germany, Japan, New Zealand, the United Kingdom and the United States.
Accountability
The FRC Chairman appeared before the Parliamentary Joint Committee on Corporations and Financial Services on 29 April 2004 in relation to their inquiry into the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Bill.
Australian accounting standard setting in 2003-04
Figure 1: Structure of institutional arrangements to 30 June 2004
Figure 2: Structure of institutional arrangements from 1 July 2004
The arrangements from 1 July 2004 follow the passage of the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004.
In addition to the oversight of the two Boards, the FRC has direct responsibility for monitoring the effectiveness of auditor independence requirements in Australia.