1.1 Introduction

The Financial Reporting Council (FRC) is the peak body responsible for overseeing the effectiveness of the financial reporting framework in Australia. Under Part 12 of the Australian Securities and Investments Commission Act 2001 (ASIC Act) one of the FRC's key functions is to provide oversight of the processes for setting accounting and auditing standards in Australia and to give the Minister reports and advice about these processes. Specific accounting and auditing standard setting functions for which the FRC was responsible in 2014-15 are contained in subsections 225(2) and (2A) of the ASIC Act. The activities of the FRC in executing these functions and responsibilities can be grouped as follows:

  • activities in relation to the standards setting boards in Australia;
  • activities in relation to audit quality;
  • activities in relation to developments in Australia; and
  • activities in relation to international developments.

These areas are discussed in the following chapters in conjunction with information about the FRC's performance of its functions.

The board members of the FRC as at 30 June 2015 are listed in Appendix A. This report is also available at www.frc.gov.au.

1.2 Activities in relation to the Boards

Under the ASIC Act the FRC has specific functions with respect to the two standards setting boards (the Boards) — the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB). The FRC responsibilities include appointing the members of the Boards (other than the Chairs, who are appointed by the Minister) giving them advice on certain areas and determining their broad strategic direction.

1.2.1 Appointment of members to the Boards

The ASIC Act provides that the members of the Boards (other than the Chairs) hold office on the terms and conditions determined by the FRC.

The Nominations Committee of the FRC is responsible for managing the appointments processes to the AASB and AUASB including interviewing and evaluating candidates. The Nominations Committee makes recommendations to the FRC on final appointments. In coming to these recommendations the Committee considers the mix of skills and expertise required on the Boards to perform its functions now and going forward. The membership of the Nominations Committee as at 30 June 2015 is at Appendix B.

The Nominations Committee is also responsible for preparing and conducting the annual members' peer review for the AASB and the AUASB. These reviews assist the FRC's appointment processes and inform the assessment of Board performance.

During 2014-15, the FRC approved the following appointments and re-appointments to the Boards for terms commencing on 1 January 2015 and ending on 31 December 2017:

  • AASB: appointment of Mr Michael Blake, Mr Andrew Kearnan and Ms Megan Wilson; and the re-appointment of Ms Carmen Ridley.
  • AUASB: re-appointment of Ms Nonna Martinov-Bennie and Mr Colin Murphy.

The FRC acknowledged the contributions of retiring AASB members Mr Ian McPhee, Mr John O'Grady and Mr Brett Rix. The FRC also noted the valuable contribution made by the acting AASB Chair, Mr Angus Thomson and welcomed the incoming AASB Chair, Ms Kris Peach.

As at 30 June 2015, the AASB had 14 members while the AUASB had 12 members.

1.2.2 Giving advice or feedback to the Boards and their offices

The FRC's functions include giving the AASB and AUASB advice or feedback on their priorities, business plans and procedures and giving the offices of the AASB and AUASB advice or feedback on their budgets and staffing arrangements (including level, structure and composition of staffing).

In 2014-15, the Chairs of the Boards provided regular written and oral reports on their activities to the FRC, providing members the opportunity to raise issues and questions about the activities of the Boards. The FRC provided comments on the Boards' respective corporate and strategic planning documents and acknowledged their efforts in comprehensive consultation with industry and other stakeholders.

1.2.3 Broad strategic directions of the Boards

The FRC's functions include determining the broad strategic directions of the AASB and AUASB. The FRC has developed guidelines to be applied in the development
of strategic directions (www.frc.gov.au). The guidelines state that, in developing and issuing new and revised strategic directions, the FRC will take into account:

  • the Australian Government's stated policies and priorities;
  • relevant international and domestic considerations impacting on the setting of accounting or auditing standards; and
  • the public interest in the context of the Australian economy.

Since its establishment, the FRC has made three determinations concerning the broad strategic directions of the AASB and AUASB. These determinations sought to achieve the following key outcomes:

  • to require the AASB to work towards the adoption in Australia of accounting standards that are the same as those issued by the IASB, to ensure their applicability to Corporations Act entities for accounting periods beginning on or after 1 January 2005 (Direction approved 5 September 2002);
  • to require the AASB to pursue as an urgent priority the harmonisation of Government Finance Statistics (GFS) and Generally Accepted Accounting Principles (GAAP) reporting (Direction approved 12 December 2002); and
  • to require the AUASB to develop Australian auditing standards that have a clear public interest focus and are of the highest quality and to use, as appropriate, International Standards on Auditing issued by the IAASB as a base from which to develop the Australian standards (Direction approved 4 April 2005).

Each of these directions is still current. At the March 2013 meeting the FRC agreed to an AASB proposal to not proceed with issuing a standard to implement the previously agreed Phase 2 of GAAP GFS harmonisation, given the likely costs and benefits of the measure.

The FRC is satisfied that the Boards have implemented these directions to the extent possible.