In 2014-15, the Financial Reporting Council (FRC) continued to contribute to investor confidence in the Australian economy by overseeing the effectiveness of the financial reporting framework and thus being satisfied that financial information available to public and private investors was required to meet high quality accounting and auditing standards. The FRC was cognisant of the work being done internationally on a range of issues related to financial reporting and audit. The FRC will keep a watching brief on these broader issues as they are further developed so that the Australian financial reporting framework is robust and appropriate for businesses operating within Australia and also competing overseas.

Based on the activities outlined in this Annual Report, the FRC is satisfied that the current accounting and audit standards, and their respective standard-setting processes, are relevant and appropriate and that no specific action needs to be taken by the Minister at this time.

Managing complexity

The FRC is aware of the constantly changing operating environment for Australian businesses and the importance of managing the complexity of the financial reporting framework. In response, the FRC's Financial Report Taskforce delivered a major piece of work this year, examining the diversity of financial reporting requirements for a wide range of entities. Among its findings were the significant divergences in reporting obligations between government jurisdictions, as well as many overlapping requirements. The Taskforce found these requirements were often not related to risk profile or accountability and should be the focus of sustained reform efforts over the coming years.

The FRC is considering the implementation of the Taskforce recommendations and will continue to work with the Australian Accounting Standards Board, regulators and governments to improve clarity and consistency in the financial reporting framework. I would like to thank the FRC members on the Taskforce as well as Mr Kevin Neville (Moore Stephens), Ms Susan Pascoe (Australian Charities and Not-for-profits Commission), and senior executives from PricewaterhouseCoopers who assisted the review.

Continuing its work on managing complexity, FRC members also provided advice to the Australian Government in determining deregulation priorities and identified future deregulation initiatives in relation to financial reporting.

Standards oversight

One of the FRC's key functions is to oversee the processes for setting accounting and auditing standards in Australia. The FRC acknowledges the considerable work undertaken by the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) during 2014-15. Their specific achievements and ongoing work are reported separately in their respective annual reports.

The FRC together with the AUASB is supporting the implementation of new international standards in Australia in response to the need for more useful and communicative auditor reporting. These standards are expected to be adopted into Australian use next year. The AUASB, with significant cooperation from the professional accounting and auditing bodies, has conducted extensive consultation on these changes. The FRC will continue to facilitate engagement and promote the benefits of these changes with industry.

The AASB continued to demonstrate Australia's influence in the development of international standards through its membership of the International Accounting Standards Board's prestigious Accounting Standards Advisory Forum. This engagement is critical to ensuring Australian standards are relevant, introduced in a timely manner and appropriate for our entities.

During the year we also welcomed to the FRC the new Chair and Chief Executive Officer of the AASB, Ms Kris Peach. Kris brings substantial knowledge of accounting standards setting and practical senior executive-level experience in major accounting firms. She is a highly valued member of the Council and we look forward to continuing to work effectively with the AASB and its board members.

Stakeholder collaboration

The FRC worked collaboratively with the key accounting and regulatory bodies this year to achieve some significant improvements to the overall financial reporting framework. The FRC supported and promoted work to encourage directors and audit committees to make use of transparency reports that are prepared by accounting firms as a means to assess the quality of their company's audit. In another joint project, the financial literacy of directors was enhanced by an on-line financial reporting quiz, which was overwhelmingly supported by participants as a useful tool to improve their understanding of their financial reporting obligations.

Members also continued their oversight of rigorous auditor inspection and review processes delivered by the Australian Securities and Investments Commission and the major accounting bodies.

Looking forward

Next year, the FRC will be considering the update of our Strategic Plan 2013-2016 (www.frc.gov.au). It will be important for members to take stock of our objectives, activities and legislative obligations to ensure that our strategic direction continues to meet the needs of government, industry and other stakeholders. The Strategic Planning Committee has begun consideration of these issues and will provide further advice to the FRC next year.

Acknowledgements

The FRC is very grateful to the wide range of stakeholders who regularly provided reports to our meetings, assisting us to understand the changing demands on the financial reporting framework. The Council is grateful to: the Association of Superannuation Funds of Australia, the Australian Institute of Company Directors, the Australian Prudential Regulation Authority, the Australian Securities and Investments Commission, the Australian Securities Exchange, the Business Council of Australia, Chartered Accountants Australia and New Zealand, CPA Australia, the Department of Finance, the External Reporting Board of New Zealand, the Financial Services Council, the Group of 100, the Institute of Public Accountants and The Treasury.

I wish to warmly acknowledge the contributions of my fellow Council members, particularly Ms Jan West, Mr John Price, Mr Ian Purchas, Ms Jan Harris and Mr Ian Laughlin who ended their terms during this period, and to welcome new members, Mr William Edge, Mr David Nicol and Mr Graeme Mitchell, as well as Ms Kris Peach. All members discharged their duties in a highly professional and collaborative manner, including providing personal support to me in my leadership role.

Finally, I wish to acknowledge the sad passing earlier this year of Mr Tony Dale, Chief Executive of the External Reporting Board (XRB) of New Zealand. Tony was a highly valued contributor to the Council, driving significant financial reporting reform in New Zealand through his leadership role at the XRB and in Australia through his contributions to the FRC. His professionalism and friendship will be missed.

SIGNED

Michael Coleman
Deputy Chair of the Financial Reporting Council
29 September 2015