Fiftieth Meeting
17 Feburary 2009
Outcomes of the meeting held on 17 February 2009 at the offices of the Australian Accounting Standards Board, Level 7, 600 Bourke Street, Melbourne. The meeting commenced at 9:05 am and concluded at 2:00 pm.
FRC Members:
Mr Jeffrey Lucy AM (Chairman)
Ms Kathryn Campbell
Mr Michael Coleman
Mr Mark Coughlin
Mr John Gethin-Jones
Ms Merran Kelsall (by telephone)
Mr John Stanhope
Mr John Trowbridge
Ms Catherine Walter AM
Ms Jan West AM
Mr Stuart Wilson
Mr Klaus Zimmermann
AASB:
Mr Bruce Porter (Acting Chair)
Guest:
Senator the Hon. Nick Sherry
Invitees:
Ms Judith Downes (SAC) (Items 2e and 11)
Mr Peter Levy (Treasury)
Mr Richard Mifsud (AUASB) (Item 7)
Mr Geoff Miller (Treasury)
Mr Doug Niven (ASIC)
Mr Kevin Simpkins (NZ ASRB)
FRC Secretariat:
Ms Suzanne Howarth (FRC Secretary)
Mr Bruce Donald
Mr Les Pascoe
Apologies:
Mr Bruce Brook
Mr Don Challen
Mr Warren McGregor
Mr Eric Mayne
Mr Jim Murphy
Agenda Item 1 – Apologies and Welcome
The FRC Chairman, Jeffrey Lucy AM, welcomed FRC members and other attendees to the 50th meeting of the Council. Noting that it would be her last meeting Mr Lucy thanked Catherine Walter AM for her contribution to the FRC, and wished her the best for the future. Ms Walter thanked Mr Lucy and expressed her gratitude and enthusiasm for having had the privilege of being part of the FRC, and wanted to particularly acknowledge her opportunity to have a role in audit independence work as Chair of the Audit Independence Committee.
(a) Declarations of interest
Members advised the meeting of the following changes to their entries in the register of interests circulated by the Secretariat.
- Michael Coleman advised that: he is no longer the AICD’s representative on the AASB’s consultative group; and as the Business Regulation Advisory Group no longer exists, its name should be removed from his list of interests.
- Mr Lucy advised he is now on the Board of Regis Resources as non-executive chairman.
- John Gethin-Jones amended his entry subsequent to the meeting. He is now: Member, IFSA Investment Board; Member, ASX Corporate Governance Council; Executive Director, Old Mutual Australia Holdings; and Chief Executive Officer, Intech Investments. He is no longer Director Allen & Buckeridge Ltd, nor Member S&P/ASX Index Advisory Panel.
(b) Confirmation of Minutes of Previous Meeting
The minutes of the 49th meeting, which was held in Melbourne on 26 November 2008, were approved.
(c) Matters Arising from previous meeting
The meeting noted the Secretariat paper on matters arising from the minutes of the 49th meeting. The chairman thanked the Treasury for the paper it had prepared regarding agenda item (7), Auditing Standards, Ethical Requirements, APESB and the Public Interest.
Agenda Item 2 – Recent Stakeholder Engagement/international developments
(a) Report by Chairman
The Chairman reported on the results of the recent constitutional changes to the IASB. The European Commission has yet to endorse the new monitoring board for the IASC Foundation (with proposed representation from the US, EU and Japan). This places the new structure in some doubt. The potential rationale of European behaviour could only be speculated upon. The IASB is to be expanded from fourteen to sixteen members by 2012, with guidelines to ensure broad international membership.
(b) International relationships
Apart from the changes to the IASB, there was some discussion of what strategy the FRC should employ to maximise Australia’s international influence. Others reported on their activities, but there was general agreement that Australian standard setters and others in the accounting and auditing community would have to work increasingly closely with our New Zealand colleagues, and also within the wider region to ensure that Asia-Pacific representatives were more prominent and united. The exclusion of New Zealand from the Asia-Oceania Standards Setters Group, meeting in Beijing later in the year, would hopefully be rectified soon. Kevin Simpkins noted the approach of the new government in New Zealand, which sought greater Trans-Tasman cooperation, and improvements to productivity, but which had yet to specifically consider how this should be applied to accounting standards issues. Mr Lucy reported on happenings in the G‑20. Bruce Porter noted there was pushback from the IASB and FASB on introducing prudential requirements into accounting standards. John Trowbridge noted that prudential regulators may have to move away from alignment with accounting standards if there were too much pushback. Mr Coleman noted that while the accounting standards had over the past two decades taken prudential standards out, the Director’s community might welcome their re-inclusion.
(c) Water accounting issues
Mr Porter reported on the conversation Angus Thomson had with Jayne Godfrey regarding water accounting issues, and Merran Kelsall provided a summary of another conversation. It was resolved that Mr Lucy, in consultation with Mr Porter and Ms Kelsall, should write to Professor Godfrey and her group clarifying the FRC’s understanding of the respective roles of the accounting and auditing standards setters and Professor Godfrey’s group.
(d) Public Sector accounting
Kathryn Campbell raised the issue of the IASCF’s constitutional review and suggested the FRC respond that it had the disposition to include public sector accounting issues in the IASB’s mandate, since the IASCF has asked a specific question (question 3 of the Questions for Consideration in Part 2 of the constitution review) relating to the area. Mr Simpkins supported this approach and suggested the FRC and ASRB compare letters before finalisation. It was agreed that the FRC develop such a letter, taking account of the need to balance the IASB’s immediate priorities with that of taking on important new topics.
(e) SAC and Tokyo Round Table – Judith Downes
Judith Downes reported on the next SAC meeting, to which representatives have been invited, but not formally notified of membership yet, and developments at the SAC. She noted the increased focus on investor representation at SAC, and suggested that Australia and New Zealand should consider suitable nominees to represent our investment community at the various advisory bodies where the IASB seeks investor input. Further, some time earlier the SAC reacted negatively to a briefing by a US investor group, believing it both to represent a narrow (geographic and in terms of representing stakeholders) interest. It was requested this issue be considered at the next TTAASAG meeting. Ms Downes gave her presentation on the Tokyo Round Table during the Minister’s visit.
Agenda Item 3 – FRC operations
(a) Policy-related issues
FRC Charter of Functions
The Council considered a Secretariat paper proposing changes to the Charter of Functions. Following discussion of the document prepared for the meeting it was decided the document should be revised by the FRC Secretariat and circulated for comment to FRC members prior to the next FRC meeting. The meeting agreed to the revised Charter being published on the FRC’s website once approved and noted that the revised Charter will form the basis of the FRC’s 2008‑09 stocktake of operations.
Audit Independence function
Ms Walter presented the report of the Audit Independence Committee to the FRC and commended the appointment of Stuart Wilson to the Committee. The FRC noted the report and approved the appointment. There was some discussion of the role of ASIC, and its MOU with the FRC, and the possibility of the future reference by ASIC to the FRC of the audit of one firm was flagged.
(b) Administrative matters
2008-09 contribution to IASC Foundation
Australia’s contribution of $1 million was approved.
2009 Ken Spencer Memorial Lecture
Details of the arrangements for the lecture were discussed, including the possibility of the proceedings being webcast. Members were encouraged to return their acceptances promptly to facilitate organisation of the proceedings and the Council asked the Secretariat to provide members with a copy of the acceptance list after the RSVP date.
Appointments to AASB and AUASB
The Council noted the Appointment Committee Chair’s report and approved the reappointment of Mr Brett Rix to the AASB Board.
AASB and AUASB Members: review of terms and conditions
The Council noted the recommendation by the Remuneration Tribunal to increase sitting fees by up to 4.3% and approved an increase in sitting fees to AASB and AUASB members from $780 per day to $815, for meetings commencing after 1 January 2009.
Agenda Item 4 – Report from Chair of TTAASAG
The FRC noted the contents of the report. The TTAASAG Chairman Geoff Miller spoke to the report and highlighted the background that there was Trans-Tasman political will to move the single economic market initiative forward, with priority going to large announceables. TTAASAG would meet later in the week and noted that Elizabeth Hickey (Member, New Zealand Securities Commission) would attend on behalf of Jane Diplock who is representing New Zealand/IOSCO at the IASB/FASB Financial Crisis Advisory Group. The 2009 IFRS Regional Policy Forum in Beijing on 16 April gave Australia an opportunity to influence the agenda.
Agenda Item 5 – Report from Chair of AASB
The Chairman of the AASB, Mr Bruce Porter, noted the AASB's report and highlighted the large number of documents issued for comment recently by the IASB and IPSASB on which the AASB had made submissions. He also highlighted the recent release of the Discussion Paper Initial Accounting for Internally Generated Intangible Assets, authored by AASB staff on behalf of the National Standards Setters (NSS) Group, and the likelihood that the IASB Discussion paper on Extractive Activities being prepared by a team led by AASB staff will be released soon. Mr Porter reported steady progress on developing an Exposure Draft on Financial Reporting by Superannuation Plans.
Agenda Item 6 – Report from Chair of AUASB
The Chairman of the AUASB, Ms Merran Kelsall, outlined key matters contained in the AUASB Chairman’s report. In particular, Ms Kelsall reported on the AUASB's progress with the Clarity Redrafting Project, which is on schedule for completion in October 2009, with a view to new standards being operative for reporting periods commencing 1 January 2010. International adoption remained on track, with announcements from the UK and Canada that these countries are to apply ‘Clarity’ standards to take effect in line with the IAASB effective reporting date of reporting periods commencing on or after 15 December 2009. It would appear that China is looking to adopt Clarity standards in due course. Ms Kelsall also spoke about the AUASB's initiatives to provide guidance to auditors on going concern and fair value audit considerations during periods of financial instability, which it expects to issue in late March. Guidance will also be provided to company directors in conjunction with AICD during April. She also reported on work being undertaken in relation to auditing standards for NGERS and CPRS, with some challenges arising from Australia’s adoption prior to the development of an international standard.
Agenda Item 7 – Other audit-related matters
The paper prepared by Treasury was spoken to by Peter Levy. It addressed the impact of the AUASB version of the International Auditing and Assurance Standards Board’s (IAASB) International Standard on Quality Control (ISQC) 1 and the roles of the AUASB as statutory auditing and assurance standards setter and APESB, by examining the legislative framework for the AUASB. There was engaged discussion of the Treasury paper and the issues.
The FRC took note of Treasury’s view that the audit regulation framework is appropriate and that it would not be in the public interest to reconstitute APESB as a statutory body. The FRC concluded that no further action on the issue was required.
The FRC agreed with Treasury’s conclusion that it would be necessary for the AUASB to ensure that the Australian Auditing Standards are amended on an ongoing basis to incorporate references to the current set of ethical standards issued by the APESB. The FRC noted this would not affect or change the status of the APESB.
The FRC agreed with Treasury’s suggestion that it would be appropriate for the AUASB to ensure that the references in the Auditing Standards to relevant ethical requirements should apply to overseas auditors who were not members of one of the Australian professional accounting bodies, in particular New Zealand auditors having regard to current mutual recognition proposals in relation to Australian and New Zealand auditors. The FRC also agreed that it would be appropriate for the AUASB to consider whether the Auditing Standards should be amended to ensure that the relevant ethical requirements should apply to a registered company auditor who was not a member of a professional accounting body. An option discussed by the FRC for the AUASB’s consideration was to amend the Auditing Standards to ensure that an auditor that fell into this category should be required to comply with APES 110 but noted that the detailed drafting of relevant amendments was a matter for the AUASB.
The FRC noted that Treasury supported the AUASB’s proposal to make a Standard which would adopt the IAASB’s ‘Clarity’ version of ISQC 1 on public interest grounds set out in Treasury’s paper. APESB and the AUASB will need to work together to ensure no issues arise from firms being required to comply with ISQC 1 and APES 320.
Agenda Item 8 ‑ Correspondence
A Secretariat paper listing FRC correspondence for the period from 17 November – 6 February 2009 was noted.
Agenda Item 9 – Other Business
No other business was raised.
Agenda Item 10 – Next Meeting
The next meeting will be held at the offices of the ASX, Bridge Street, Sydney on 5 May 2009.
Visit by Minister Sherry
Mr Lucy welcomed Senator the Hon. Nick Sherry to the meeting.
Minister Sherry gave a short talk to the FRC, noting he was keen to hear members’ views and thanking members for their efforts and continued commitment in the current climate. He noted that many in the community might not understand or appreciate the role of the FRC, but that he did. He stated that he did not think that accounting standards and auditing issues had been at the heart of what caused the GFC, but that they were important issues in the current climate, especially regarding valuation in markets, transparency and the identification of issues for the G‑20. He noted that international work in accounting standards and auditing was of increased importance, and that the level of international coordination and supervision was likely to rise, and that regulation might increase as well. He noted that in accounting standards and auditing there are much more robust international oversight practices in place than for other areas. He concluded that this was a very interesting time to be involved with these policy issues.
He indicated that the Pacific Finance Ministers had told him that they want Australian and New Zealand cooperation in improving their financial regulation and also accounting standards. He also noted that his involvement with the ADB gave him some opportunity to have international influence. He invited the FRC to contribute issues they thought could be fruitfully raised by him on his scheduled overseas trips. This was a period when Australia was being listened to with some interest as it was seen to have weathered the current crisis quite well. The Minister also noted the domestic pressures for increased regulations in his portfolio.
Mr Lucy noted that the Boards in Australia were working well, but that there was a tendency for Australia to have declining influence in the international arena of accounting standards and auditing. While Australia had key people on key boards, it had no representation on the proposed monitoring board for the IASCF.
Ms Downes gave her report on the Tokyo Round Table of 3 December 2008. Her presentation had focussed on a number of difficulties facing Australian bankers in the existing international accounting standards:
- provisioning – the difference between what was required in prudential standards and accounting standards caused difficulties, as did the past focus of the accounting standard as opposed to the forward looking (expectations) orientation of the banking community.
- hedging – as a bank one would want to hedge a gap (for example in the expected time distribution of returns) but this is not the approach taken by accounting standards, where banks must take a tortuous route not reflective of economic reality.
- securities for sale – the mark to market standard, and impairment were unaligned at the global and US levels, and this caused problems for the banking community.
The difficulties were causing unprecedented interest in accounting standards.
The subsequent discussion focussed on how best to maximise Australia’s international influence. There was some support for the Minister attending the policy makers’ forum in Beijing later in the year. There was also some discussion of possible market reactions should there be a large number of emphasis of matter opinions from auditors (in situations where there is uncertainty about an entity’s ability to continue as a going concern).