Under Part 12 of the ASIC Act the FRC’s key functions include:
- determining the broad strategic direction of the AASB and AUASB
- appointing members of the AASB and AUASB (other than the Chairs)
- monitoring the development of international standards
- giving advice or feedback to the Boards and their offices on priorities, business plans and procedures, and on budgets and staffing arrangements.
Determining strategic direction
Since its establishment, the FRC has made three determinations concerning the broad strategic direction of the AASB and AUASB:
- to require the AASB to work towards the adoption of accounting standards that are the same as those issued by the IASB (Direction approved 5 September 2002)
- to require the AASB to pursue the harmonisation of Government Financial Statistics (GFS) and Generally Accepted Accounting Principles (GAAP) reporting (Direction approved 12 December 2002)
- to require the AUASB to use auditing standards issued by the International Auditing and Assurance Standards Board (IAASB) as a base from which to develop the Australian standards.(Direction approved 4 April 2005).
Each of these directions is still current and the FRC is satisfied that the Boards have implemented these directions to the extent possible.
Appointment of members to the Boards
The FRC has approved a reduction in the size of the AASB to 11-12 members, to take effect in 2016–17, and the reduction in the size of the AUASB with effect last year.
During 2015–16 the FRC approved the following appointments and re-appointments to the Boards for the terms commencing 1 January 2016:
- re-appointment of Mr Peter Carlson and Mr Peter Gibson.
- appointment of Ms Carolyn Ralph, Mr Ashley Wood and Mr Robert Buchanan, and re-appointment of Ms Jo Cain, Mr Chris George and Ms Jane Meade.
The FRC was supported by the FRC Nominations Committee in this process.
The FRC acknowledges the contributions of retiring AUASB members Ms Valerie Clifford, Mr John Gavens, Mr Bernie Szentirmay and Mr Neil Cherry.
As at 30 June 2016, the AASB has 14 members and the AUASB has 11 members. The FRC has approved a reduction in the size of the AASB to 11-12 members, to take effect in 2016–17, and the reduction in the size of the AUASB with effect last year.
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.
Monitoring and influencing Australian standards
The AASB are commencing a review of the implementation of IFRS in Australia
Australian accounting standards
Key achievements of the AASB during the year included:
- implementing significant change to broaden the AASB’s focus and profile, improve international influence and stakeholder engagement and refocus operations to better meet the needs of the Australian community
- issuing the new Leases standard, AASB 16, providing much needed transparency for lessee lease obligations, bringing all leases onto the balance sheet
- influencing international views through reappointment to the IASB’s premier advisory body, the Accounting Standards Advisory Forum (ASAF), in conjunction with the New Zealand Accounting Standards Board (NZASB) for a period of three years. The AASB has also had significant influence regarding the key topics of insurance, leases and the conceptual framework
- conducting research on the Australian Financial Reporting Framework to inform policy makers of cost beneficial reforms, including reviewing criteria and thresholds for preparing and lodging financial reports
- progressing domestic projects on Income of Not-for-profit Entities and Grantor Accounting for Service Concession Arrangements. Redeliberations on Service Performance Reporting have been deferred pending further Australian feedback and the results of the NZASB consultation on a similar exposure draft
- increasing engagement with stakeholders to improve the amount and quality of feedback provided to the AASB to maintain and improve its ability to influence the IASB and other key international standard setting bodies
- issuing the AASB’s first domestic agenda Invitation To Comment to obtain specific advice on the work plan for the next three years.
Australian auditing standards
Key achievements of the AUASB during the year included:
- issuing the auditor reporting suite of standards that enhance the relevance and usefulness of auditors’ reports and auditor reporting more broadly
- influencing international views through a detailed submission to the IAASB’s Invitation To Comment ‘Enhancing Audit Quality in the Public Interest: A Focus on Professional Scepticism, Quality Control and Group Audits’. The AUASB’s submission was informed by extensive consultation with Australian constituents
- maintaining influence internationally through the Chair’s membership of the IAASB and participation on its Steering Committee, chairing the Integrated Reporting Working Group and membership of the Innovation Working Group
- continuing evaluation of the implementation of the current suite of Australian Auditing Standards in Australia by continued extensive stakeholder outreach including round table meetings and project advisory groups
- progressing the key domestic projects of revising standards on compliance and performance engagements.
Post implementation reviews
Australian accounting standards
The AASB are commencing a review of the implementation of IFRS in Australia, considering how transaction neutrality has been applied across the three sectors (for profit, not-for-profit private and not-for-profit public sectors) and whether a third tier of general purpose reporting might be required. This project will inform the AASB’s future directions.
Australian auditing standards
The current suite of Australian Standards on Auditing (ASAs) became operative for financial reporting periods that commenced on or after 1 January 2010. These auditing standards conform with the International Standards on Auditing (ISAs), issued by the IAASB.
In 2015, the AUASB adopted a number of methods that provided a broad review of the results of implementing the current suite of ASAs.
Based on its assessments, the AUASB continued to conclude that the AUASB’s suite of ASAs:
- had been properly incorporated into legislation;
- conform to the ISAs
- are used by auditors and other assurance practitioners, where required;
- contribute positively to promoting relevant and reliable auditor reporting, as well as to the quality of audit generally.
Monitoring and influencing international standards
The FRC continues to monitor and influence the appointments of Australian representatives to key international bodies.
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 international accounting standards with the most widespread acceptance are the International Financial Reporting Standards (IFRS) issued by the IASB.
In addition, the FRC has been highly cognisant of the call by the Group of Twenty (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’.
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, as over 100 countries, including China, European Union, India, Korea and New Zealand, use IFRS.
The FRC continues to monitor and influence the appointments of Australian representatives to key international bodies, in particular,
Ms Lynn Wood was re-appointed as an IFRS Foundation Trustee for a second term.
Ms Kris Peach, working with the NZASB representative, Ms Kimberley Crook, was appointed to the IASB Accounting Standards Advisory Forum (ASAF).
Ms Merran Kelsall, Chair AUASB is also a member of the IAASB.
Mr Ian McPhee was appointed to the International Ethics Standards Board for Accountants (IESBA).
Mr Mike Blake was appointed to the International Public Sector Accounting Standards Board (IPSASB).
The FRC acknowledges the contribution of Mr Ian Mackintosh, Vice Chairman of the IASB, whose term ended on 30 June 2016.
The Australian and New Zealand Boards work closely together to facilitate harmonisation of Trans-Tasman standard setting.
In New Zealand the External Reporting Board’s (XRB) structure contains three entities, the Board of the XRB and two standard 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.
The Australian and New Zealand Boards work closely together to facilitate harmonisation of Trans-Tasman standard setting. The Chair of the AASB and the NZASB are also each a member of their counterpart board. The Chair of the AUASB is a member of the NZAuASB and vice versa. The AASB and NZASB also work closely on the IASB’s ASAF.
Regionally, the AASB also continues to closely work with the Asian Oceania Standard Setters Group (AOSSG).
Giving advice or feedback to the Boards and their offices
The AASB and AUASB are moving to a shared support model where both Boards are supported by a single National Director and combined administrative staff.
In 2015–16 the Chairs of the Boards provided regular written and oral reports on their activities to the FRC, in particular the Boards’ respective corporate and strategic planning documents and reported progress against their respective plans. The FRC notes that the Chairs of the Boards have undertaken a major restructure in order to focus more effectively and efficiently on their core standard setting activities.
The Chairs of the Boards conducted a benchmarking and consultation exercise with stakeholders, and then decided that further opportunities existed to improve the efficiency and effectiveness of setting standards, and enable a move closer to the National Commission of Audit (2014) recommendation for combining the back offices.
The AASB and AUASB are moving to a shared support model where both Boards are supported by a single National Director and combined administrative staff. The Boards are also adopting a more flexible, ‘program management’ approach to standard setting, and will bring in critical resources on a project basis, as needed, to enable the Boards to collaborate and influence more effectively, and more cost-effectively set standards.
Further details are provided in the AASB and AUASB annual reports.