Bulletin
2009 / 05 – 21 September 2009
The Financial Reporting Council (FRC) held its 53rd meeting in Melbourne on 21 September 2009. The principal issues considered by the meeting were:
- promotion of International Financial Reporting Standards (IFRS) in the Asia-Pacific region;
- differential financial reporting;
- public sector accounting;
- reports from stakeholder bodies;
- international developments; and
- other matters.
Promotion of IFRS in the Asia-Pacific region
The Chairman reported on the visit from 15 – 18 September 2009 of a high level delegation to Australia from Japan and the value of those meetings for the Japanese authorities in their progress towards possible IFRS adoption. The delegation met a large number of stakeholders in Sydney, Canberra and Melbourne, including many FRC members, heard a range of views and collected a great deal of information. The consensus of the views they heard was that adoption of IFRS in Australia had been a 'soft landing' and had been a net benefit to the economy. The delegation also expressed the view that they were keen to expand cooperation with Australia and the rest of the region in the field of accounting standards and that this would assist in developing a balance in the International Accounting Standards Board (IASB) between the views of Europeans and Americans.
A separate Bulletin, providing additional information about the visit of the Japanese delegation, will be issued shortly.
Differential financial reporting reforms
The FRC held a Differential Reporting Workshop on 17 August 2009 to consider a range of issues, including the appropriateness of Australia's current differential reporting framework, the IASB's release of an international financial reporting standard for small and medium-sized entities and the potential for that standard to play a role in Australia's differential reporting framework.
At that workshop it was agreed that a public discussion paper would be prepared by the AASB, Treasury and the FRC for consultation with stakeholders and other interested parties on any possible reform initiatives. It is envisaged that paper would encompass both the legislative framework, particularly with respect to the Corporations Act and legislative reform initiatives, and the options for differential accounting standards. This paper is currently under development.
Public sector accounting
The FRC considered issues associated with the valuation of long-term liabilities. It was noted that the issue of valuation of long term liabilities, particularly the current standards for fair value measurement and presentation in financial reports is not specifically a public sector issue. Concerns were discussed about the IASB decision regarding valuation using commercial and government bond rates. It was agreed that the FRC would write to the IASB requesting their consideration of the problems and to the AASB requesting them to consider raising the issue with the IASB.
As has previously been reported in these Bulletins, the AASB's GAAP/GFS harmonisation project is taking place in two phases. The first, to harmonise financial reporting by the Australian Government and the State and Territory governments and the sectors therein, has been completed. The second is now underway and involves harmonisation of financial reporting by entities within the General Government Sector (GGS) to include government departments and statutory bodies.
The FRC was informed that the AASB is continuing to consider the issues in relation to Phase 2 to form a position for Board consideration. Consideration is currently being given to the arguments by stakeholders in relation to the usefulness of the financial information for various users which would result from Phase 2 harmonisation.
Reports by stakeholder bodies
The AASB commented on the IASB's recent focus on IAS39 Financial Instruments: Classification and Measurement and its recent submission to the IASB in relation to the changes proposed to the classification and measurement of financial instruments. The AASB also reported on the future work to be done by the IASB in relation to other aspects of IAS39.
The AUASB informed the Council that a new standard had been drafted to apply the ethical requirements in standards issued by Accounting Professional and Ethical Standards Board (APESB). Adoption of this approach means that when APESB amends one of its standards, the AUASB will only have to amend one standard to apply the revised requirements.
The need for an educational/awareness initiative by the AUASB to draw attention to the new clarity standards was discussed. It was noted that audit committees could be made aware of this development through the audit engagement letter or audit plan.
The FRC noted the AUASB's continuing work with the Department of Climate Change in relation to the audit requirements in the National Greenhouse and Energy Reporting Act 2007 and the Carbon Pollution Reduction Scheme, particularly in relation to matters of audit partner work and delegation, framework and nomenclature. The complexity of combining a financial accounting framework with a scientific framework was noted.
International developments
Reports were received from representatives of a number of international and overseas bodies, including the IASB, the Standards Advisory Council (SAC), the New Zealand Accounting Standards Review Board (ASRB) and the Trans-Tasman Accounting and Auditing Standards Advisory Group (TTAASAG).
Mr Warren McGregor, a member of the IASB, reported on the work the IASB is doing in relation to financial reporting and emissions trading schemes and the expected release of an exposure draft in the first quarter of 2010 with a final standard expected in the first half of 2011. Mr McGregor also reported that the IASB's work on the replacement of IAS 39 Financial Instruments: Recognition and Measurement is being progressed in line with the Board's timetable.
The meeting also noted the recent announcement by the Australian and New Zealand Prime Ministers on the Single Economic Market Outcomes Framework and the benefit of this for Trans Tasman harmonisation.
The FRC Chairman also informed the meeting that, in conjunction with his attendance at a meeting of the International Accounting Standards Committee Foundation in New York in early October, he and the FRC Secretary would be meeting with key international stakeholders in Europe and North America.
Other matters
The Council approved a document, Performance of Financial Reporting Council's Statutory Functions, to replace the document currently known as the FRC's Charter of Functions. The need for the revision arose as a consequence of the AASB's and AUASB's transition to the Financial Management and Accountability Act 1997 framework. The consequential changes for the FRC included removal of its responsibility for approving and monitoring the AASB's and AUASB's priorities, business plans, budgets and staffing arrangements. Under the new governance arrangements for the AASB and AUASB, FRC may only give the Boards and their respective Offices advice or feedback on these matters.
FRC members also noted the desirability of amending the FRC's rules of procedure to establish protocols concerning communications between members of the Council and members of the standards setting boards. Draft amendments to the rules will be considered at the Council's December meeting.
The Chair of the Nomination Committee briefed the FRC about the filling of the three AASB and two AUASB positions that become vacant at the end of 2009. The FRC endorsed the Committee's recommendations for the filling of the positions. A separate announcement about the appointments will be made at a later date.
Mr Timothy Flynn, Chairman of KPMG International, will present the next Ken Spencer Memorial Lecture in Sydney on 2 March 2010.
The next meeting of the FRC will be held in Melbourne on Tuesday, 1 December 2009.
About the FRC
The FRC is the peak body responsible for the broad oversight of the accounting and auditing standard setting process for the private and public sectors, as well as monitoring the effectiveness of auditor independence requirements in Australia. It comprises key stakeholders from the business and investing communities, the professional accounting bodies, governments and regulatory agencies. A list of the current FRC membership is on the FRC's website.
The FRC advises the Government on the accounting and auditing standard setting process and on the development of international accounting and auditing standards. It determines the broad strategic direction of the standard setters, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board.