Fifty third Meeting
21 September 2009
Outcomes of the meeting held on 21 September 2009 at the offices of the Australian Accounting Standards Board, Level 7, 600 Bourke Street, Melbourne. The meeting commenced at 9.00 am and concluded at 1.05 pm.
Attendance
FRC Members:
Mr Jeffrey Lucy AM
Mr Bruce Brook
Ms Kathryn Campbell
Mr Michael Coleman
Mr Mark Coughlin
Mr Michael Dwyer
Mr John Gethin-Jones
Ms Merran Kelsall
Mr Kevin Simpkins
Mr John Stanhope
Mr Kevin Stevenson
Mr John Trowbridge
Ms Jan West AM
Mr Stuart Wilson
Mr Klaus Zimmermann
Invitees:
Mr Bede Fraser (Australian Treasury)
Mr Warren McGregor (International Accounting Standards Board)
Ms Judith Downes (Standards Advisory Council) (agenda item 4(c))
FRC Secretariat:
Ms Genevieve Watson (FRC Secretary)
Mr Les Pascoe
Apologies:
Mr Don Challen
Ms Noelle Kelleher
Mr Eric Mayne1
Mr Jim Murphy
Agenda Item 1 – Apologies and welcome
The FRC Chairman, Mr Jeffrey Lucy AM, welcomed FRC members and other attendees to the 53rd meeting of the Council.
The FRC Chairman informed the meeting that the Minister for Financial Services, Superannuation and Corporate Law (the Hon. Chris Bowen MP) had reappointed Mr John Trowbridge as a part-time member of the FRC for a period of three months commencing on 15 September 2009.
The FRC Chairman also indicated that the Minister had written to the nominating bodies of those members whose terms of appointment expire before the end of 2009 inviting each body to either re-nominate the member or to submit a list of names from which a new appointment might be made.
(a) Declarations of interest
The FRC noted the register of interests circulated by the Secretariat.
Mr Simpkins advised that his role as a consultant to the Group of 4 National Standards-setters monitoring the IASB and FASB Conceptual Framework Project from a Public Benefit Entity Perspective has now ended.
(b) Confirmation of the minutes of the last meeting
The Minutes of the 52nd meeting, which was held in Canberra on 10 June 2009, were approved.
(c) Matters arising from the minutes of the last meeting
The Secretariat paper on matters arising from the Minutes of the last meeting was noted.
The FRC Chairman reported on a visit by a high level delegation from Japan (see below). The Chairman also informed the meeting that a proposed visit by a delegation from the Chinese Ministry of Finance is not currently scheduled.
Agenda Item 2 – Stakeholder engagement
(a) Report by FRC Chairman
The FRC 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.
The meeting was informed that there had been a positive reaction from AASB and AUASB members to feedback on their respective peer reviews. It was also noted that each FRC member had been provided with a summary of their individual results and the comments made about them by their peers as part of the peer review of FRC members.
The FRC Chairman also informed the Council that he would be attending a meeting of the IASC Foundation’s trustees in New York on 6-8 October. In conjunction with his attendance at this meeting, he and the FRC Secretary had arranged to meet with relevant international stakeholder bodies in London, Brussels (via telephone from London), Washington DC and New York.
(b) Reports by Stakeholders
(i) Chair of AASB
A report by Mr Stevenson, Chair of the AASB, on the work of the Board since the last FRC meeting was tabled.
In speaking to his report, Mr Stevenson commented on the IASB’s recent focus on IAS39 Financial Instruments: Classification and Measurement and the AASB’s recent submission to the IASB in relation to the changes proposed to the classification and measurement of financial instruments. Mr Stevenson also reported on the future work to be done by the IASB in relation to other aspects of IAS39.
Mr Coleman raised the issue of whether the current funding of the AASB is sufficient to enable the Board to handle its future workload. In response, Mr Fraser said that the Government was aware of the Board’s funding situation and that the Board needed to operate within the current fiscal environment. Mr Fraser noted that opportunities to continue the current tripartite funding arrangements were being explored.
During consideration of the AASB report, the FRC Chairman also observed that there is a need to alert corporate Australia to the new accounting standards being developed by the IASB. Mr Stevenson agreed with this observation and said that the AASB is already using various forms of communication to alert the business community to upcoming changes to accounting standards.
(ii) Chair of AUASB
A report by Ms Kelsall, Chair of the AUASB, on the work of the Board since the last FRC meeting was tabled.
Ms Kelsall 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.
(iii) Other stakeholders
Mr Fraser (Australian Treasury) reported that the next G-20 leaders’ meeting would be held in Pittsburgh on 24-25 September, with issues of interest to the FRC likely to include executive remuneration and progress with international harmonisation of accounting standards. Mr Fraser also reported that initial approval for the proposed corporate reporting reforms had been received and that drafting instructions had been lodged with the Office of Parliamentary Counsel. It was envisaged that the Bill would be released for public comment later this year.
Mr Gethin-Jones informed the meeting that issues of interest to IFSA included: the valuation of defined benefit liabilities; the calculation of fees for financial services transactions moving from a commission-based structure to a fee for service structure; and the reforms to the supervision of Australia’s financial markets.
Mr Trowbridge observed that APRA is currently considering whether ASIC or APRA should have responsibility for ensuring superannuation funds comply with relevant accounting standards when they are preparing their financial statements.
Mr Dwyer (ASIC) advised that ASIC’s financial reporting surveillance program, covering reports for the period ending 30 June 2009, had commenced and was focusing on areas most affected by the current economic conditions, such as going concern and valuation of assets. Mr Dwyer also indicated that the 2008-09 audit inspection program public report was scheduled to be released during November.
Messrs Coleman (AICD), Coughlin (CPA Australia) and Zimmermann (NIA) each commented that the funding arrangements for the standards setting bodies need to be resolved. As standards have force of law for the purposes of the Corporations Act, there was an underlying sentiment that the Government should be responsible for the funding of the Boards.
Ms West (ICAA) and Mr Coughlin indicated that the ICAA and CPA Australia are interested in the current discussions concerning differential financial reporting by Australia’s small and medium-sized entities. Both bodies are supportive of the IFRS for SMEs standard recently issued by the IASB.
Mr Zimmermann raised the need for improved communications with the business community. He noted that there is not much clear information available to companies that are not listed on the ASX about their financial reporting requirements, causing confusion for directors, preparers and auditors. Mr Zimmermann questioned whether the FRC should seek to address this communication/education gap by publishing guidance materials.
Two ASX documents, providing an analysis of corporate governance disclosures in annual reports for the financial years ended 30 June 2008 and 31 December 2008, were circulated by Mr Eric Mayne for the information of Council members.
(c) Public Sector accounting
(i) Long-term liabilities
Letters from the Victorian Treasurer and Dr Ken Henry (as Chair of the Heads of Treasuries) regarding the impact of accounting standards relating to the valuation of long term liabilities on the public sector were considered by the Council.
The FRC 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 should write to the IASB requesting their consideration of the problems and to the AASB requesting them to consider raising the issue with the IASB.
(ii) GAAP/GFS harmonisation
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.
(d) Internal control over financial reporting
A Treasury paper examining whether internal controls over financial reporting in Australian companies should be subject to greater regulation was considered by the FRC.
During the FRC’s consideration of the paper, Ms Kelsall informed the meeting that the AUASB thought that a voluntary standard on internal controls may not be taken up by the business community. She also indicated that a standard on internal controls is low on the AUASB’s list of priorities at this stage and that it may be better to monitor international developments in this area as a result of the global financial crisis. Ms Kelsall undertook that the board would give further consideration to the issue and she would report back to the FRC in the new year.
(e) G100 disclosure principles project
A draft paper Less is More, prepared by the G100 for the IASB on a framework for the development and application of disclosure requirements in financial reports, was noted by the FRC. It was agreed that comments provided by FRC members would be sent to the G100 for consideration.
(f) Water accounting
A Secretariat paper briefing FRC members on developments concerning water accounting since the report provided to the FRC’s May 2009 meeting was noted by the FRC. The principal development during the period was the Water Accounting Standards Board’s (WASB’s) release of a Water Accounting Conceptual Framework for the Preparation and Presentation of General Purpose Water Accounting Reports and a Preliminary Australian Water Accounting Standard and Associated Model Report.
The FRC agreed that further discussions should be held with WASB on the development of water accounting standards at an appropriate time.
(g) Future of auditing
A Treasury paper providing an overview of the report The Future of Auditing: Keeping Capital Markets Efficient prepared by Professor Keith Houghton, Dr Christine Jubb, Dr Michael Kend and Professor Julianna Ng was noted by the FRC.
During consideration of this item, Ms Kelsall informed the Council that the report will be an item on the AUASB’s meeting agenda and that she will bring any issues that are raised to the attention of the FRC. The FRC Chairman also indicated that it may be useful for the professional accounting bodies to similarly bring matters concerning the report to the attention of the FRC.
Agenda Item 3 – Differential Reporting Workshop
The FRC noted a Secretariat report on action taken in respect of differential reporting since the FRC Workshop held on 17 August 2009. The meeting agreed that comments on the draft record of the Workshop should be sought by the Secretariat out-of-session.
Agenda Item 4 – International developments
(a) Report from Chair of NZ ASRB
Mr Simpkins, Chair of the NZ ASRB, briefed the FRC on recent developments affecting the ASRB, including: the appointment of two new members to the Board; the publication of a report in June 2009 detailing the Auditor-General’s views on setting financial reporting standards for the public sector; and the (then) imminent publication of the Ministry of Economic Development’s discussion document on a statutory framework for financial reporting in New Zealand and the ASRB’s companion discussion document on the ‘Proposed Application of Accounting and Assurance Standards under the Proposed New Statutory Framework for Financial Reporting’.
(b) Report from TTAASAG
A report on the TTAASAG meeting held in Wellington NZ on 2 September 2009 was tabled.
In conjunction with the reports from the Chair of the NZ ASRB and TTAASAG, the FRC 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.
(c) Reports on activities of international bodies
Reports on the activities of the IASB’s Standards Advisory Council and the NZ Financial Reporting Standards Board were tabled.
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.
Agenda Item 5 – FRC operations
(a) Annual report for 2008-09
A status report by the Secretariat on the preparation of the FRC’s annual and auditor independence reports was noted. It was agreed that formal approval of the reports would be sought from FRC members through an out-of-session vote.
(b) Performance of FRC’s functions
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.
(c) Auditor independence function report
A Secretariat note concerning the performance of the FRC’s auditor independence function during the period May-September 2009 was tabled.
(d) Nominations Committee report
The Chair of the Nominations Committee briefed the FRC on 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.
(e) 2010 Ken Spencer Memorial Lecture
The FRC noted the Secretariat’s advice that Mr Timothy Flynn, Chairman of KPMG International, had accepted an invitation to present the next Ken Spencer Memorial Lecture in Sydney on 2 March 2010.
Agenda Item 6 – Correspondence
A Secretariat paper listing FRC correspondence for the period from 2 June 2009 to 11 September 2009 was noted.
Agenda Item 7 – Other business
The FRC considered the desirability of amending its rules of procedure to establish protocols concerning communications between members of the Council and members of the standards setting boards. It was agreed that draft amendments to the rules should be prepared for consideration at the Council’s December meeting.
No other matters of other business were raised.
Agenda Item 8 – Next Meeting
The next regular meeting will be held in Melbourne on 1 December 2009.
1 A communications problem prevented Mr Mayne from participating in the meeting by telephone.