3.1 Introduction
- addition to providing broad oversight of the process for setting accounting and auditing standards and strategic advice on the quality of audits conducted by Australian Auditors, the FRC is also charged with:
- establishing appropriate consultative mechanisms; and
- promoting the main objectives of Part 12 of the ASIC Act.
- Objectives of Part 12 of the Act are broadly to facilitate the development of high quality accounting standards and auditing and assurance standards and related guidance material in order to facilitate the Australian economy and to maintain investor confidence in the Australian economy.
3.2 Financial Reporting Council activities
3.2.1 Financial Reporting Taskforce
In 2013, the FRC established the Financial Reporting Taskforce to provide policy advice on financial reporting regimes for the various types of reporting entities in Australia and to make recommendations regarding rationalisation (for example, through further deregulation).
In 2014-15, the Taskforce delivered its report to the FRC. The Taskforce identified that legislative requirements for the preparation of financial reports significantly differed between states and different types of organisations. These differences did not appear to be the result of different risk characteristics or due to the public interest in the reports of the entities. This creates complexity. The Taskforce also found that assurance requirements were similarly divergent between entity types.
The Taskforce identified that a very large range of entities are required to lodge financial reports on the public record and there was a lack of clarity or consistency in the reporting requirements that needed to be satisfied.
The Taskforce made a number of recommendations to the FRC to help reduce the complexity in the financial reporting framework. The FRC and the AASB are currently considering how a number of these recommendations can be progressed.
The FRC wishes to thank PricewaterhouseCoopers for the considerable assistance it provided to the Taskforce. The full report is at Appendix C.
3.2.2 Identification of deregulation priorities
To support the Government's deregulation agenda, portfolios established Ministerial Advisory Councils (MACs) to assist ministers to identify and prioritise deregulation opportunities. As the responsibilities of the Treasury portfolio ministers are so diverse, Treasury utilised a number of existing bodies to fulfil the role of MACs – including the FRC.
During 2014-15, the FRC assisted the Treasury with its stocktake of regulation within the Treasury portfolio. The stocktake was divided into two stages. The first stage grouped regulatory obligations which were then rated for intensity of burden and reform potential. The second stage selected a sample of these groups, costing the sample to estimate the total cost of Treasury portfolio regulation.
The FRC provided advice on the structure and ratings of Treasury financial reporting regulation, particularly in relation to the different populations to which obligations of different levels of intensity applied. The Treasury was able to make changes based on the FRC's advice.
The FRC also contributed ideas and assisted with priorities for future deregulation initiatives within the financial reporting framework. These discussions took place at the FRC meetings as well as out of session consideration of the regulation stocktake in November 2014.
The AUASB has put forward 34 standards for repeal in the October 2015 bulk repeal.
3.2.3 Memorandum of Understanding
The FRC agreed to enter into Memoranda of Understanding (MoU) with the key accounting professional bodies (CPA Australia, IPA and Chartered Accountants ANZ). These updated and replaced previous MoUs.
The purpose of the MoUs is to recognise respective roles in promoting a robust framework for accounting and audit quality in Australia. The MOUs provide for the parties to collaborate to support audit quality initiatives and promote open discussion. In general, the professional accounting bodies will provide the FRC with information about quality assurance reviews, investigation and disciplinary processes, training, professional requirements and other issues relating to audit quality. The FRC will consult with the professional bodies and share information on changes to the audit quality framework, issues related to audit systems and processes used by the professional bodies and ongoing steps to enhance audit quality.
3.2.4 Regulatory impact statements
The FRC formed a Sub-committee on Regulatory Impact Statements to discuss the application of best practice regulation requirements in regard to the adoption of international standards.
During the year the sub-committee, together with the AASB, AUASB and Treasury, met with the Office of Best Practice Regulation (OBPR) to discuss the application of the regulatory impact statement (RIS) process to accounting and auditing standards. The FRC had been concerned that the adoption of international standards should not be delayed unnecessarily by the application of government processes.
In discussions with the OBPR, it was identified that RIS requirements could be satisfied without duplication or causing delay to the adoption of international standards in Australia. The discussions were able to confirm that the proper scrutiny of the regulatory costs of any standard could be undertaken largely as part of the extensive consultation process in the development of international standards and their adoption in Australia.
3.2.5 Other issues
The FRC also discussed a number of other matters during the year.
The FRC discussed regular reports received from the Association of Superannuation Funds of Australia (ASFA), Australian Institute of Company Directors (AICD), Australian Prudential Regulation Authority (APRA), Australian Securities and Investments Commission (ASIC), Australian Securities Exchange (ASX), Business Council of Australia (BCA), Chartered Accountants Australia and New Zealand (Chartered Accountants ANZ), CPA Australia, the Department of Finance, External Reporting Board of New Zealand (XRB), Financial Services Council, Group of 100 (G100), Institute of Public Accountants (IPA), and the Treasury.
The FRC appreciates the receipt of these reports as a way of understanding any connections between market regulatory or other changes and the financial reporting framework in Australia.
Among matters discussed, the FRC noted the latest results of the ASIC web-based financial reporting quiz. The quiz was developed in response to the FRC's survey on director financial literacy and it continues to be a valuable tool for directors. The FRC noted the significant number of respondents to the quiz and the very positive assessment of its usefulness.
The FRC also considered a report prepared by the G100 on a Benchmark Corporate Bond Discount Rate.