The ASIC Act confers on the FRC specific functions associated with the development of international standards:
- monitoring the development of international accounting and auditing standards as well as the accounting and auditing standards that apply in major international financial centres; and
- furthering the development of a single set of accounting and auditing standards for world-wide use with appropriate regard to international developments.
In addition the FRC has been highly cognisant of the call by the G20 from the Action Plan of 2008 (and subsequent years) that '[the] key global accounting standards bodies should work intensively toward the objective of creating a single high-quality global standard'.
The FRC noted the importance of continuing to seek new ways to influence the development of international standards including developing and maintaining strategic relationships between organisations and individuals. To assist in this process, the Nominations Committee monitors international appointments of Australians to relevant international bodies to ensure that Australia maintains appropriate representation and influence in the development of international standards.
4.2 Monitoring and influencing international and regional convergence
4.2.1 International accounting standards
In accordance with its governing legislation, the FRC seeks to support adoption of a single set of global financial reporting standards. The only internationally accepted set of accounting standards are the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) for use in the preparation of general purpose financial statements. The Australian Government, through the FRC, provided financial support to the work of the IASB through a grant of $1 million to the IFRS Foundation in the period covered by this report. The FRC notes the importance of the AASB maintaining membership on the IASB's prestigious Accounting Standards Advisory Forum (ASAF), working with New Zealand, as a key means of influencing international accounting developments.
IFRS has been adopted by over 110 countries around the world, including all the members of the European Union and increasing numbers of countries in the Asia-Oceania region. Australia was one of the earliest adopters of IFRS, which has had force of law under the Corporations Act since 2005. Fourteen of the G20 countries require or permit the use of IFRS for all or most domestic listed entries and banks.
In a key change during 2014-15, the IASB and US Financial Accounting Standards Board ceased formally working together on convergence as it became clear the US would not be mandatorily or voluntarily permitting the use of IFRS for US domestic entities. The US decision does not detract from Australia's decision to adopt IFRS given the number of countries that have adopted or are in the process of adopting IFRS and those such as Japan where voluntary adoption is steadily increasing. In 2014-15, India commenced converging its accounting standards with IFRS, with limited exceptions. In 2015-16, the AASB will be conducting a post implementation review of Australia's decision to adopt IFRS.
The FRC continues to monitor and influence the appointments of Australian representatives to key international bodies. Ms Lynn Wood, former Chair of the FRC, was appointed as an IFRS Foundation Trustee for an initial period of three years from 1 January 2014. The IFRS Foundation Trustees oversee the work of the IASB. The FRC received regular reports from Ms Lynn Wood and Ms Joanna Perry, from New Zealand, Chair of the IFRS Advisory Council. Mr Charles Macek ended his term as Vice-Chair of the IFRS Advisory Council in December 2014.
4.2.2 International auditing standards
Australia uses the International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) as the basis for Australian Auditing Standards (ASAs). Over 100 jurisdictions now use or are committed to using ISAs, including in our region China, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Philippines, Singapore, Republic of Korea and Thailand.
During 2014-15, the FRC received regular reports on international auditing and assurance activities from the Chair of the AUASB, Ms Merran Kelsall. The Chair is a member of the IAASB and of its Steering Committee and Innovation Working Group and is Chair of the IAASB's Integrated Reporting Working Group and Audit Quality Group. The AUASB also participates in the IAASB's National Standards Setters group providing an annual forum for the AUASB to inform and influence strategic international auditing and assurance developments.
During 2014-15, the key IAASB developments included:
- New and Revised auditor reporting suite of auditing standards issued (15 January 2015). This suite seeks to provide greater transparency about the audit that was performed by significantly enhancing the auditor's report disclosures. Of particular note is the new requirement for auditors of listed entities to disclose 'key audit matters', being matters that the auditor considered most significant in the audit of the financial report, along with an explanation of how the matters were addressed through the audit process. The effective date of the changes is for audits of financial statements for periods ending on or after 15 December 2016; and
- Revised auditing standard issued on the auditor's responsibilities relating to other information (financial and non-financial) included in an entity's annual report (8 April 2015). Of particular note is the new requirement for enhanced disclosure in the auditor's report on the other information. The effective date of the changes is for audits of financial statements for periods ending on or after 15 December 2016.
The AUASB decided to adopt into Australian Auditing Standards changes proposed or issued by the IAASB, including those mentioned above. Consultation is currently occurring with the amendments expected to be issued in 2015-16.
Regionally, the New Zealand Auditing and Assurance Standards Board (NZAuASB) has maintained, wherever possible given legal and regulatory differences, consistent auditing and assurance requirements, through the policy of harmonisation.
The FRC considers Australia's involvement in international accounting and auditing standard setting forums to be appropriate and noted the importance of the continued need to be able to influence international standards development.
4.2.3 Regional relationships
In New Zealand the External Reporting Board's (XRB) structure contains three entities, the Board of the XRB and two standards setting boards − the New Zealand Accounting Standards Board (NZASB) and the New Zealand Auditing and Assurance Standards Board (NZAuASB). The FRC Chair is a member of the XRB as part of the arrangement for cross-appointments between Australia and New Zealand. Mr Graeme Mitchell, Chair of the XRB, was appointed as a member of the FRC in 2014-15.
The New Zealand and Australian Boards work closely together to facilitate harmonisation of Trans-Tasman standard setting. The Chair of the AUASB continues to be a member of the NZAuASB and vice versa. The Chair of NZASB and AASB are also each a member of their counterpart board. The AASB and the NZASB also work closely on the IFRS' ASAF.
Regionally, the AASB also continues to closely work with the Asian Oceania Standard Setters Group (AOSSG).
In 2014-15, ASIC continued to work with audit oversight regulators in other international jurisdictions through the International Forum of Independent Audit Regulators (IFIAR) to encourage the largest global audit firms to improve audit quality.
In March 2015, IFIAR issued overall findings from the risk-based audit inspection programs of its members for the 12 months to 30 June 2015. Reported level and areas of findings were similar to those found in ASIC's inspection program.
Areas of findings in the IFIAR report included the auditing of fair values and impairment of assets, revenue recognition, substantive analytical procedures, group audits and internal control testing. The IFIAR report noted that the areas selected for inspection often are areas inherently more complex to audit. They further noted it would not be appropriate to extrapolate the results presented to broader conclusions about the frequency of deficiencies throughout firms' audit practices.
ASIC also actively participates in the consideration of initiatives to improve audit quality as a member of the Audit Quality Task Force and Auditing Sub-committee of the International Organization of Securities Commissions (IOSCO). The task force has initiatives concerning better communication on audit quality with other international regulatory groups such as IFIAR, the role of audit committees in relation to audit quality, and the public interest involvement in the setting of international auditing, ethical and education standards.
ASIC continued to liaise with the AUASB and the Accounting Professional and Ethical Standards Board in relation to proposed improvements to guidance related to auditing and ethical standards. ASIC also liaised with the IAASB and International Ethical Standards Board for Accountants (IESBA), both directly and through IOSCO and IFIAR, with a view to seeking improvements to international auditing and auditor independence standards due to their impact on Australian standards.