Home > Reports > FRC, AASB & AAUSB Annual Report 2004-2005 - Overview

 

Part 1: Annual Reports

2004-05

Financial Reporting Council

Australian Accounting Standards Board

Auditing and Assurance Standards Board

 

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 the Auditing and Assurance Standards Board (AUASB), to provide broad oversight of the processes for setting accounting and auditing standards in Australia, and 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 Australian Securities and Investments Commission Act 2001 (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 in the Australian economy (including its capital markets).

Activities of the Financial Reporting Council

During 2004-05 the FRC:

• commenced its new roles under the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (CLERP 9 Act), to provide oversight of the financing and operations of the AUASB, and monitoring the effectiveness of auditor independence requirements in Australia;
• established an Audit Independence Subcommittee to assist it with its tasks in this area;
• established a number of Memoranda of Understanding with the professional accounting bodies and a number of bodies performing regulatory functions, to facilitate co-operation and the sharing of information on auditor independence between the FRC and those other bodies;
• provided a strategic direction to the AUASB on the development of auditing standards;
• made appointments to both the AASB and AUASB;
• considered a number of key issues that have been raised by various stakeholders in Australia regarding the transition to the use of International Financial Reporting Standards (IFRS), and continued to monitor developments in the implementation of IFRS internationally;
• enhanced its co-operative arrangements with New Zealand's Accounting Standards Review Board (ASRB) and the Financial Reporting Standards Board (FRSB);
• reviewed a number of aspects of its own operations; and
• secured funding for international and Australian accounting and auditing standard setting, from the professional accounting bodies, the Commonwealth and the States and Territories;

Accounting standard setting

The AASB held 10 meetings, including a one-day strategy meeting, in 2004-05 for a total of 20 meeting days, at which it addressed significant standard setting and administrative issues.

The AASB implemented the FRC’s strategic directive regarding the adoption of International Accounting Standards Board (IASB) Standards in 2005, with the issue of 44 new and revised accounting standards (comprising 37 Australian equivalents to IASB Standards, six revised Australian Standards and one new Australian standard), and 28 Urgent Issues Group (UIG) Interpretations (comprising 17 Australian equivalents to International Financial Reporting Interpretations Committee (IFRIC) Interpretations and 11 revised Australian UIG Interpretations). The AASB also issued 11 Accounting Standards which incorporated subsequent amendments made by the IASB to its Standards and refinements made by the AASB.

The UIG met eight times in 2004-05. The UIG completed the process of reviewing IFRIC Interpretations for adoption in Australia and existing UIG Abstracts for consistency with Australian equivalents to IASB Standards. The UIG also continued to review IFRIC Interpretations for adoption in Australia as they were issued during the year.

The AASB’s liaison relationship with the IASB continued with the AASB leading three joint research projects on accounting for intangible assets, joint ventures and the extractive industries and having direct involvement in the project on insurance contracts.

A major step was achieved in respect of meeting the FRC’s broad strategic direction regarding harmonisation of requirements of Generally Accepted Accounting Principles (GAAP) and Government Finance Statistics (GFS) with the issue of an exposure draft in July 2005. The AASB also made significant progress in reviewing accounting standards relating to accounting by government departments and local governments.

Auditing standard setting

The year commenced with the reconstitution of the AUASB as an independent statutory authority on 1 July 2004 under the CLERP 9 Act and subsequent appointment of the Chairman and the Board members.

The reconstituted AUASB submitted a Strategic Directions Paper in September 2004 for consideration by the FRC, outlining the strategies for setting auditing and assurance standards and guidance, for public comment. In April 2005, this process culminated in the FRC’s approval of an appropriate Strategic Direction for the AUASB in relation to its work programme and its approach to setting Auditing and Assurance Standards in Australia.

During the year, the AUASB conducted an analysis of the suitability of the structure and content of existing Auditing Standards for re-issuance as legal instruments and approved the work programme for the review and reissue of Auditing Standards.

In view of the 30 June 2006 deadline for having enforceable Auditing Standards in place, the AUASB adopted a two-phase approach for the review and reissue of statutory Auditing Standards. Phase 1 of the review and revision of Auditing Standards will focus on enforceability of (‘black letter’) mandatory obligations, clarifying implied obligations and inclusion of improvements originating from other standard setting bodies. Phase 2 of the review and revision of the Auditing Standards will be an on-going project dependent on the ‘Clarity of IAASB Standards’ project developments by the International Auditing and Assurance Standards Board (IAASB) s well as other international standard setters.

The AUASB held eight meetings in 2004-05 for a total of eight meeting days, at which it addressed it strategies for setting Auditing and Assurance Standards and related guidance and administrative issues.

During the year, the AUASB recruited a number of new technical and support staff to assist with the implementation the FRC’s Strategic Direction.

The reconstituted AUASB has continued to maintain a strong relationship with the IAASB through regular representation at IAASB meetings.

Audit independence function

From 1 July 2004, the FRC became responsible for monitoring the effectiveness of auditor independence requirements in Australia and giving the Minister reports and advice about those requirements.

In 2004-05, the FRC finalised its preparations for the performance of this function and commenced substantive work. As this is the first year of operation of the CLERP 9 Act, the Council focussed on gaining an understanding of the roles of various stakeholders, their attitudes and monitoring systems and processes in relation to independence and quality control as it relates to the CLERP 9 Act.

The work conducted by the FRC revealed that there is an open approach to the significant changes required of all stakeholders by CLERP 9. As outlined in the separate report on auditor independence presented in conjunction with this report, a number of issues have been identified that warrant attention in the upcoming year, but no systemic deficiencies have been identified.

Consultation

The FRC, AASB and AUASB jointly and individually seek to ensure maximum consultation with, and input from, stakeholders on particular standards and the standard setting process.

In 2004-05, the FRC:

• continued consultation with key private sector representatives as well as with government agencies;
• liaised closely with international standard setting stakeholders;
• issued eight Bulletins about decisions taken at and between meetings;
• participated in the Trans-Tasman Accounting Standards Advisory Group which seeks to minimise differences in financial reporting standards between Australia and New Zealand, and promote the influence of the two countries in international standard-setting fora;
• used the www.frc.gov.au website to facilitate consultation, including in relation to the development of the strategic direction to the AUASB; and
• in conjunction with the AASB and AUASB, maintained liaison with Australians who are members of relevant international bodies, including: the International Accounting Standards Committee Foundation (IASCF) (Mr Richard Humphry AO), IASB (Mr Warren McGregor), the IASB Standards Advisory Council (Mr Peter Day), the International Federation of Accountants International Public Sector Accounting Standards Board (Mr Wayne Cameron), the International Auditing and Assurance Standards Board (Mr Ian McPhee and Professor Roger Simnett).

In 2004-05, the AASB:

• used its website www.aasb.gov.au to provide information about the meetings, activities and work programme of the Board and 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.

In 2004-05 the AUASB:

• used its website www.auasb.gov.au to provide information about the Board, its meetings (agendas prior to meetings and highlights to summarise the proceedings at each meeting) and activities;
• issued media releases to announce the release of publications; and
• met with a number of stakeholders in relation to these activities.

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 2004-05, 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, the International Public Sector Accounting Standards Board (IPSASB) and national accounting standard setting bodies in Canada, France, Germany, Japan, New Zealand, the United Kingdom and the United States.

Furthermore, the FRC has a statutory obligation to:

• monitor the development of international auditing standards and auditing standards that apply in major international financial centres;
• further the development of a single set of auditing standards for world-wide use with appropriate regard to international developments; and
• promote the adoption of international best practice auditing standards in the Australian auditing standard setting process if doing so would be in the best interests of both the private and public sectors in the Australian economy.

In 2004-05, the FRC monitored the adoption of international auditing standards both in Australia and overseas. In April 2005, the FRC issued a strategic direction to the AUASB requiring it to develop Australian auditing standards of the highest quality and with a clear public interest focus.

The FRC also monitored the work of the European Commission, the IAASB and national auditing standard setting bodies in Canada, France, Germany, Japan, New Zealand, the United Kingdom and the United States.

Accountability

The AASB Chairman Professor David Boymal appeared before the Parliamentary Joint Committee on Corporations and Financial Services on 7 February 2005, in relation to their inquiry into the Australian Accounting Standards tabled in compliance with the Corporations Act 2001 on 30 August and 16 November 2004.

Australian accounting and auditing standard
setting in 2004-05

Figure 1: 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.