Home > Reports > FRC, AASB & AAUSB Annual Report 2007-2008 - Overview

Overview

Oversight by the Financial Reporting Council

The key functions of the FRC are to determine the broad strategic direction of the AASB and the 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 (ASIC Act) — to facilitate the Australian economy by reducing the cost of capital, enabling Australian entities to compete effectively overseas; the need to have 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

The key highlights for 2007-08 included:

1. oversight of the work by the AUASB in relation to ASAs that will be further revised and reissued based on the new Clarity format versions of the International Standards on Auditing (ISAs);
2. work undertaken by the AASB on accounting issues for the public sector, superannuation entities and in relation to the application of the International Financial Reporting Standards (IFRS) for small and medium enterprises (SMEs) in Australia;
3. the consideration of recommendations made to the FRC by consultants in 2006 and 2007 in relation to auditor independence;
4. the first phase of a review of Australia's IFRS implementation experience in conjunction with G100;
5. the introduction of a revised governance structure for the AASB and AUASB;
6. continuation of the Trans-Tasman harmonisation of accounting standards between the AASB (Australian) and the Financial Reporting Standards Board (New Zealand);
7. performance assessments of AASB and AUASB members and appointments to the respective bodies;
8. organisation and co-hosting of the Ken Spencer Memorial Lecture;
9. dialogue with key international stakeholders involved with similar oversight roles; and
10. national stakeholder meetings on a range of issues pertaining to accounting and auditing standards, ethics, and auditor independence.

Accounting standard setting

The AASB held 10 meetings in 2007-08 for a total of 18 meeting days, at which it addressed significant standard setting and administrative issues.

During 2007-08, the AASB issued 15 accounting standards and 4 interpretations. Apart from the adoption of new and revised IFRSs and interpretations issued by the International Accounting Standards Board (IASB), the AASB issued several Australian Accounting Standards arising from its review of existing requirements relating to not-for-profit entities in the public sector, and continued work on the generally accepted accounting principles (GAAP)/government finance statistics (GFS) Harmonisation project, completing work on whole of government and the general government sector (GGS) aspects and initiating work on aspects relating to entities within the GGS.

At an international level, the AASB is continuing its work on the application of the IASB's proposed SMEs standard in Australia and its implications for differential reporting. The AASB maintained its active involvement in IASB projects on accounting for extractive activities and insurance. The AASB also continued its close liaison with the work of the New Zealand Financial Reporting Standards Board (FRSB) including holding a joint meeting in Sydney in October 2007.

Auditing standard setting

The AUASB held 7 meetings in 2007-08 for a total of 11 sitting days, at which it addressed a range of matters on its 2007-08 work program, dealing with the development of Australian Auditing and Assurance Standards and guidance, including consideration of significant local and international developments affecting pronouncements of the AUASB.

In October 2007, the AUASB announced a major project to revise and reissue the ASAs in a Clarity format, on the same basis as the equivalent ISAs. The project needs to be undertaken to maintain conformity between the ASAs with the ISAs so as to ensure that ASAs continue to be aligned to international standards, thus enabling ongoing user confidence in Australian audited financial reports. The Clarity redrafting project is scheduled for completion by October 2009. The AUASB's present intention is that the revised ASAs will be operative for reporting periods commencing on or after 1 January 2010.

The AUASB has continued to maintain a strong working relationship with the International Auditing and Assurance Standards Board (IAASB) through regular representation at the IAASB meetings, and providing technical support for the revision of particular ISAs under the IAASB's own Clarity project, which is due for completion by the end of 2008.

Auditor independence function

During 2007-08, the FRC continued to perform the auditor independence functions in a manner broadly similar to the way in which the functions were performed in 2005-06 and 2006-07. In 2007-08, the FRC's work addressed each of the core issues that comprise these functions: systems and processes of audit firms, quality review programs and disciplinary procedures of the professional accounting bodies; the teaching of ethics by, or on behalf of, those bodies; and compliance by companies with audit-related disclosure requirements.

The FRC also examined the reports and recommendations made by consultants engaged in 2006 and 2007. These reports examined issues associated with disciplinary procedures of the professional accounting bodies, the teaching of professional and business ethics by the professional accounting bodies, the application of professional and business ethics by accounting firms, and the quality review programs of the professional accounting bodies. As part of the FRC's 2007-08 work program, the FRC reviewed these reports collectively, and sought to consolidate the Council's action plans and progress to the recommendations contained therein.

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 2007-08, the FRC:

• continued consultation with key private sector representatives and government agencies (see Appendix I);
• liaised closely with international standard setting stakeholders;
• issued five bulletins about decisions taken at and between meetings;
• participated in the Trans-Tasman Accounting and Auditing Standards Advisory Group (TTAASAG) 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 IASB (Mr Warren McGregor), the IASB Standards Advisory Council (Ms Judith Downes), IASB working groups (Ms Leanne Leong, Mr Tony Coleman and Mr Richard Richards), the International Financial Reporting Interpretation Committee (Ms Ruth Picker), the International Federation of Accountants (Ms Joycelyn Morton), the International Public Sector Accounting Standards Board (Mr Peter Batten), the International Accounting Education Standards Board (Ms Kim Langfield Smith), the IAASB (Mr Ian McPhee and Ms Caithlin McCabe) and the International Ethics Standards Board for Accountants (Ms Alice McCleary).

In 2007-08, the AASB:

• used its website www.aasb.gov.au to provide information about the meetings, activities and work program of the Board;
• issued an action alert immediately after each Board meeting;
• 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 2007-08, 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 and auditing standards and accounting and auditing standards that apply in major international financial centres;
• further the development of a single set of accounting and auditing standards for world-wide use with appropriate regard to international developments;
• promote the adoption of international best practice accounting and auditing standards in the Australian accounting and auditing standard setting process if doing so would be in the best interests of both the private and public sectors in the Australian economy; and
• monitor international developments in auditor independence.

In 2007-08, the FRC continued to monitor the adoption of international accounting and auditing standards both in Australia and overseas, as well as international developments in auditor independence-related issues.

FRC members were provided with regular updates on key developments in international standard setting and audit independence in various jurisdictions in Europe, North America and Asia-Oceania. During the latter part of the year, the FRC Secretariat commenced the provision of monthly email updates to FRC members to ensure that they are abreast of the latest developments.

Accountability

AASB Chairman Professor David Boymal and Technical Director Angus Thomson appeared before the Senate Economics Committee on 5 June 2008. In addition, the FRC, AASB and AUASB Chairmen each met with Senator the Hon Nick Sherry, Minister for Superannuation and Corporate Law during the year.

Australian accounting and auditing standard setting in 2007-08

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.