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 to monitor 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 — to facilitate the Australian economy by reducing the cost of capital, enabling Australian entities to compete effectively overseas; to have having accounting and auditing standards that are clearly stated and easy to understand; and to maintain investor confidence in the Australian economy (including its capital markets).
Activities of the Financial Reporting Council
Key highlights during 2006-07:
- amendments to the auditing standards by the AUASB to reflect the auditor’s extra requirements to form an opinion and report on IFRS compliance;
- work undertaken by the AASB on accounting issues for the public sector and the not-for-profit sector in line with IFRS;
- work undertaken by the AASB in relation to the application of IFRS’s standard for Small and Medium Size Entities (SMEs) in Australia;
- continuation of the trans-Tasman harmonisation of accounting standards between the AASB (Australian) and the Financial Reporting Standards Board (New Zealand);
- performance assessments of AASB and AUASB members and appointments to the the respective bodies; and
- organisation and co-hosting of the Ken Spencer Memorial Lecture.
Accounting standard setting
The AASB held 10 meetings in 2006-07 for a total of 19 meeting days, at which it addressed significant standard setting and administrative issues.
During 2006-07 the AASB adopted a new interpretation model for Australian Accounting Standards including IFRS; this model has replaced the activities undertaken by the Urgent Issues Group (UIG). In addition, the AASB undertook the interpretations function and the local uptake of IFRIC interpretations, with the assistance of expert advisory panels. The adoption of this model is as a result of the new principles-based accounting standards.
The FRC monitored the AASB’s work on the harmonisation of GFS and GAAP accounting standards project, to ensure that it continued to comply with the direction and requirements of the public sector strategy.
At an international level, the AASB is working on the application of the IASB’s proposed SMEs standard in Australia.
Auditing standard setting
The AUASB held 11 meetings in 2006-07 for a total of 15 meeting days, at which it addressed drafting principles for the legally enforceable Auditing Standards, which are set out in ASA 100 Preamble to AUASB Standards, and provided technical oversight throughout the redrafting process.
A highlight for the AUASB in 2006-07 was the release of amendments to the auditing standards to require auditors to report on IFRS compliance by Australian companies. The FRC and AUASB believe that this requirement will further enhance the international recognition of compliance with IFRS by Australian companies in their financial reports.
The AUASB has continued to maintain a strong relationship with the IAASB through regular representation at IAASB meetings.
Audit independence function
During 2006-07, three consultants who were engaged in 2005-06 presented their reports to the FRC. These reports examined issues associated with quality review programmes and disciplinary procedures of the professional accounting bodies and the teaching of professional and business ethics by, or on behalf of, those bodies. Subsequently, as part of the FRC’s 2006-07 work programme, two additional consultants were engaged to examine issues arising from the work of the earlier consultants.
Consultation and communication
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 2006-07, the FRC:
- continued consultation with key private sector representatives and government agencies;
- liaised closely with international standard setting stakeholders;
- issued nine Bulletins about decisions taken at and between meetings;
- participated in the Trans-Tasman Accounting and Auditing 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 forums;
- used the www.frc.gov.au website to incorporate communication; 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), the IASB (Mr Warren McGregor), the IASB Standards Advisory Council (Ms Judith Downes), the International Federation of Accountants International Public Sector Accounting Standards Board (Mr Wayne Cameron), and the International Auditing and Assurance Standards Board (Mr Ian McPhee).
In 2006-07, the AASB:
- used its website www.aasb.com.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
- met with a number of stakeholders in relation to these activities and conducted executive briefings and other seminars.
In 2006-07, the AUASB:
- used its website www.auasb.gov.au to provide information about the Board, its meetings and activities;
- issued media releases to announce the issue of pronouncements and the release of other publications; and
- met with a number of stakeholders in relation to these activities and conducted executive briefings and other seminars.
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 2006-07, 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.
FRC members were provided with regular updates on work carried out by international standard setting and oversight bodies and the national standard setting bodies of various jurisdictions in Europe, North America and Asia‑Oceania.
Accountability
The FRC Chairman, Mr Charles Macek, appeared before Senate Estimates in February 2007.
AASB Chairman Professor David Boymal and Technical Director Angus Thomson appeared before the Senate Standing Committee on Economics on 31 May 2007 during hearings on the Budget estimates.
Australian accounting and auditing standard setting in 2006-07
Figure 1: Structure of institutional arrangements of accounting and auditing standard setting and auditor independence
In addition to the oversight of the two Boards, the FRC has direct responsibility for monitoring the effectiveness of auditor independence requirements in Australia.