Under the Australian Securities and Investments Commission Act 2001 (ASIC Act), the FRC's functions are to provide broad 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 2010-11 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 developments in Australia; and
- activities in relation to international developments.
An outline of each of these three areas is provided in this section of the report in conjunction with information about the FRC's performance of its functions in each area.
2.2 Activities in relation to the Boards
The ASIC Act provides the FRC with a number of responsibilities with respect to the two standards setting boards (the Boards), the AASB and the AUASB. These responsibilities include appointing the members of the Boards, giving them certain advice and determining their broad strategic directions.
The ASIC Act provides that the FRC is responsible for appointing the members of the AASB and AUASB (other than the Chairmen, who are appointed by the Minister). In addition, the Act provides that the members of the Boards (other than the Chairmen) hold office on the terms and conditions determined by the FRC.
The FRC is assisted in the performance of these functions by a Nominations Committee which is responsible for seeking expressions of interest from persons interested in being considered for appointment to either the AASB or AUASB and interviewing and evaluating candidates on the basis of merit. The Nominations Committee is also responsible for preparing and conducting the annual members' peer review for the FRC, the AASB and the AUASB. The membership of the Nominations Committee as at 30 June 2011 is listed in the table below.
|Nominations Committee||Jan West AM||Lynn Wood
The FRC would like to thank Klaus Zimmermann for his contribution as the previous Chairman of the Nominations Committee. Mr Zimmermann retired from the position at the end of 2010 and has been succeeded by Ms Jan West.
The following appointments and re-appointments to the Boards for terms commencing on 1 January 2011 and ending on 31 December 2013 (unless otherwise shown) were approved by the FRC on 2 December 2010:
- AASB: appointment of Ms Anna Crawford, Professor Jayne Godfrey and Dr Roger Sexton and re-appointment of Mr Mark Jenkin and Mr Robert Williams; and
- AUASB: appointment of Mr Bernie Szentirmay and Ms Kristen Wydell and re-appointment of Ms Valerie Clifford, Mr John Gavens and Mr Jon Tyers.
The FRC would like to thank the following AASB and AUASB members who left during 2010-11 for their contributions: Mr Frank Palmer, Mr Bruce Porter, Ms Joanna Perry, Mr Chris Hall and Professor Christine Jubb.
As at 30 June 2011, the AASB had 13 members while the AUASB had 11 members.
2.2.2 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).
The FRC monitored the activities of the Boards as part of its regular activities, mainly by asking the Chairmen of the Boards to provide written and oral reports on the Boards' activities at each FRC meeting. The reports provided FRC Members with the opportunity to raise issues and question the Chairmen about the activities of the Boards at each meeting.
2.2.3 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 any strategic directions that are issued to the Boards. The guidelines envisage that, in developing and issuing new and revised strategic directions, the Council 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 directions 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 2001 (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. The FRC, in the course of monitoring the activities of the Boards, did not consider that there was any need to amend the existing directions or issue a new direction.
The FRC has the following specific responsibilities in respect of Australian accounting and auditing standards:
- promoting the continued adoption of international best practice in the Australian accounting and auditing standard setting processes if doing so would be in the best interests of both the private and public sectors in the Australian economy; and
- monitoring the operation of accounting and auditing standards to assess their continued relevance and their effectiveness in achieving their objectives in respect of both the private and public sectors of the Australian economy and monitoring the effectiveness of the consultative arrangements used by the AASB and AUASB.
In addition to the reports presented by the Chairmen of the Boards at FRC meetings, the FRC also monitored the operation of accounting and auditing standards through regular stakeholder reports presented at FRC meetings by Council members and through an ongoing program of visits by the FRC Chairman with stakeholders.
2.3.1 Domestic stakeholder engagement
Over the past year, the FRC has engaged with domestic stakeholders through a variety of means, including regular meetings and other involvement with stakeholders and interest groups, consideration of financial reporting issues in the public and private sectors, and consultation with stakeholders on key strategic issues through the work of the FRC Task Forces.
The work of the FRC Task Forces is expected to be of strong interest to the financial reporting community in Australia, based on the importance and high impact of the strategic issues that they are tackling. As a consequence, the Task Forces have engaged in a variety of ways with stakeholders, including by asking them for information, consulting specific stakeholders on key matters, and in some cases inviting stakeholders to nominate Task Force members.
Both the former and current FRC Chairman regularly met with key stakeholders to discuss financial reporting matters of general interest, obtain feedback on the work of the FRC, explain the activities of the FRC, especially in relation to the Strategic Plan, or discuss matters of particular interest to the stakeholder.
Both the former and the current Chairman accepted invitations from the Australian Public Policy Committee (APPC) to participate in their meetings. The APPC has a membership consisting of representatives of key accounting firms and bodies, and meets regularly to discuss key financial reporting matters. Mr Lucy gave an update on the latest developments with respect to IFRS and the convergence program between the IASB and the Financial Accounting Standards Board (FASB) of the USA. Ms Wood presented the FRC Strategic Plan 2011-14 and discussed its contents with APPC members. A range of ideas were put forward for the FRC to consider for inclusion in its work agenda.
The current Chairman had an initial meeting with the Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP, taking the opportunity to update him on the work of the FRC and on the Strategic Plan in particular. The Parliamentary Secretary, who is responsible for the FRC, expressed strong interest in the work of the FRC, and indicated that he would like to be kept updated on its progress. The FRC Chairman intends to meet the Minister regularly to provide him with updates on the activities of the FRC.
2.3.2 Integrated Reporting
Integrated Reporting is a term that refers to a reporting model that goes beyond purely financial statements and includes other key information relating to the entity. There is no standard definition of the term, and it may refer to reporting that includes environmental, social, governance or business risk-related information and also consideration of sustainability issues.
Integrated Reporting is one of the most widely discussed new concepts related to the financial reporting field, both within and outside Australia. It was identified as one of the key strategic issues that ought to be considered by the FRC in the Strategic Plan, and a Task Force has been established to address it.
The International Integrated Reporting Committee (IIRC), established in 2010, seeks to create a globally accepted integrated reporting framework which brings together related information in a clear, concise, consistent and comparable format. The IIRC includes many key stakeholders including from companies, investors, regulators and standard-setters, intergovernmental organizations, the accounting profession, civil society and academia. The IIRC has recently published a discussion paper and aims to have this paper discussed by the G20.
An integrated reporting Task Force was created by the FRC following its 18 May meeting. Its initial task will be to recommend an appropriate course of action for the FRC given there is already a significant level of activity in this area. A related issue is the question of how the FRC should position itself relative to other organisations already active in Australia.
The Task Force had its first meeting in early June 2011, and decided to consult FRC stakeholders on their current views and activities relating to integrated reporting, and to gather other information regarding integrated reporting and Australian participation in international processes. Once it has examined all the information, including the IIRCs discussion paper, it will decide its future work program.
Financial reports are widely criticised for being too voluminous and complex. The FRC has been discussing this issue for some time, and it was identified as a strategic issue in the Strategic Plan, with a Task Force established to suggest improvements.
The Reducing Complexity Task Force is to consider the information needs of current and future users of financial reports and recommend changes to the reporting regime for financial reporting disclosures. The project is to be divided into two phases:
- a short to medium term objective of achieving a significant reduction in the level of complexity and volume when compared with the current requirements. It is intended that this change should be achieved through an evolutionary process; and
- a long term objective of furthering the debate around a conceptual framework for financial reporting so as to deliver optimised financial reporting for the future.
In undertaking the project, the Task Force will:
- consider Australian and overseas publications that examine ways of reducing complexity in financial reports;
- examine surveys of the information needs of users and preparers of financial statements; and
- consult the FRCs stakeholders to obtain their views on financial reporting-related issues for preparers of financial reports and the information needs of informed investors.
The FRC has also been monitoring a number of other initiatives that are designed to reduce complexity. These include the reforms in the not-for-profit sector announced by the Government as part of the 2011 Budget, which have the objective of simplifying the regulatory requirements applying to not-for-profit entities and reducing red tape. The main measures include the establishment of an independent statutory office — the Australian Charities and Not-for-profits Commission — by 1 July 2012 and discussions to progress national regulation and a national regulator for the not-for-profit sector through the Council of Australian Governments. The FRC intends to monitor the Governments work in this area, and to participate in and influence the debate to the extent it concerns financial reporting matters.
The FRC is monitoring a range of issues arising from the Governments Corporate Reporting Reform Act in 2010, including in relation to the dividends test and parent entity reporting, as well as the implementation of the AASBs Reduced Disclosure Requirements (RDR) standard and the second stage of the AASBs work on this project.
The nature and extent of understanding of financial reporting matters amongst company board members is an issue that has gained prominence in todays corporate landscape. The FRC has also been discussing this issue, and it was identified as a strategic issue in the Strategic Plan, with an FRC Task Force established to consider the issue more closely.
In the FRCs view, the delivery of the Centro court case (ASIC v Healey & Ors  FCA 717) on 27 June 2011 has added impetus to the importance and timeliness of the Task Forces work. This case concerned the roles and responsibilities of directors in relation to financial reporting. Middleton J found that directors have a duty and responsibility to read and understand the contents of financial statements before approving them to ensure, as far as possible and reasonable, that the information included in them is accurate. Directors are expected to be familiar with the fundamental business of the company and be financially literate to understand basic accounting conventions.
The Task Force has met on three occasions to discuss its objectives and strategy. It plans to conduct a fact-finding exercise, through the use of targeted questionnaires to directors and to accounting, auditing and actuarial professionals, to elicit views about the extent of understanding of financial reporting amongst company boards. The questionnaires will seek to identify the possible causes and cures for any gaps in that regard.
The FRC wrote to the European Commission (EC) on 14 December 2010 advising the EC of the considerable interest among a wide range of stakeholders in Australia, including government, regulators, audit firms, professional accounting bodies and standard setters, in the ECs Green Paper Audit Policy: Lessons from the Crisis. The FRC drew the ECs attention to the Treasurys consultation paper Audit Quality in Australia: Strategic Review which the former FRC Chairman released in March 2010.
The FRC is monitoring progress on the Governments proposed reforms in response to Treasurys audit quality paper, particularly as one of the measures may include changes to the FRCs existing auditor independence functions. The FRC was represented at the roundtable meetings which Treasury conducted with stakeholders in November 2010 to discuss possible reform proposals arising from Treasurys audit quality paper.
In 2011 the FRC decided that audit quality is a strategic issue for the FRC and the Audit Quality Task Force was established to focus on this issue. The Task Force identified recent key publications, reports and other initiatives in relation to audit quality in Australia, in other jurisdictions and at the international level for the purpose of formulating its work program for 2011-12.
The FRC discussed the issue of public sector financial reporting standards, including the role of the international public sector accounting standards (IPSAS) issued by the International Public Sector Accounting Standards Board (IPSASB) in Australia. It was decided in the FRC meeting of 2 December 2010 that the AASB and the Department of Finance and Deregulation should monitor developments over the next year and that it would be desirable to have a state representative involved in the work.
In 2011 the FRC decided that public sector financial reporting was a strategic issue for the FRC and the Public Sector Task Force was established to focus on this issue. The Task Force initially focused on drafting a response to a consultation paper issued by the International Federation of Accountants (IFAC) about the governance of the IPSASB. Two meetings of the Task Force were held in May and June 2011 and a draft submission was provided for discussion and approval by the FRC. The final FRC submission was provided to IFAC on 30 June 2011, and is available on the FRC website.
The FRC is monitoring the Government response to the recommendations of the Super System Review (Cooper Review), especially in relation to new requirements proposed for auditors of Self Managed Super Funds.
The FRC discussed the Consultation Paper 150 'Disclosing Financial Information other than in accordance with Accounting Standards' issued by ASIC in March 2011 and decided to prepare a submission to the paper. The submission was sent to ASIC on 11 May 2011 and is available on the FRC website.
2.4 Monitoring and influencing international developments
The ASIC Act confers on the FRC the following 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 single sets of accounting and auditing standards for world-wide use with appropriate regard to international developments.
Much of the work of the IASB continued to focus on convergence between the IASB's accounting standards (IFRS), as adopted in Australia and the European Union (EU), and those of the FASB and the Accounting Standards Board of Japan. The convergence process, which is targeted at facilitating an eventual decision by the USA to adopt IFRS, has been progressing much as expected, although not strictly to the original timeline.
The SEC is expected to announce a decision on eventual adoption of IFRS by the USA later this year, while the Japanese Financial Services Agency (FSA-J) is expected to make a decision on Japanese adoption in 2012. Australia has a strong interest in both countries adopting IFRS.
A significant change occurred at the end of June 2011 when Sir David Tweedie retired as Chairman of the IASB after 10 years in the position. Over that period the IASB has succeeded in establishing IFRS as the accepted set of financial reporting standards in more than 100 countries. The new IASB chair, Hans Hoogervorst, is a former Dutch Finance Minister, and the Vice-Chairman, Ian Mackintosh, is a former chief accountant of ASIC, and has more than 30 years experience of national and international accounting standard-setting in Australia and the United Kingdom (UK). Australia was previously represented on the IASB by Warren McGregor, whose ten year term ended on 30 June 2011.
The FRC monitors international developments on an ongoing basis through a variety of mechanisms, including by receiving reports from Australian representatives on key international bodies such as the IFRS Foundation and the IAASB, maintaining contacts with important overseas persons and entities, and by cooperating with the Australian Treasury in participating in the ongoing global debate on financial reporting and its appropriate role in maintaining stability in the global financial system.
Between 1 and 16 July 2010, the former FRC Chairman and the then FRC Secretary conducted meetings with a range of bodies from the accounting and auditing communities of the UK, mainland Europe and the United States. Key entities visited included the EC, the IASB in London, the Financial Services Authority and the Financial Reporting Council in the UK (FRC-UK), and the SEC and the Public Company Accounting Oversight Board (PCAOB) in the USA. The main topics for discussion were the convergence agenda between the IASB and the FASB in the USA, the likelihood of the SEC deciding to adopt IFRS and possible improvements to the current approach for setting international auditing standards.
In February 2011 the former FRC Chairman and the FRC Secretary visited a number of key stakeholders in Tokyo, Japan. Talks with the FSA-J covered the IASB Chair search, the strategic reviews of the IFRS Foundation by the Trustees and the Monitoring Board, and the introduction of IFRS in Japan. Mr Lucy informed the FSA-J about the IFRS seminar held in Tokyo with the support and participation of the FRC (for details see below) and discussed the importance of the decision proposed to be made by the FSA-J in 2012 on IFRS adoption. FSA-J Commissioner Mikuniya expressed his gratitude to Jeffrey Lucy for his support for the establishment of the IASB satellite office in Japan. A meeting was also held with the Certified Public Accountants and Auditing Oversight Board (CPAAOB), which oversights the accounting and auditing profession in Japan. The CPAAOB was particularly interested in Australia's experiences following the adoption of International Standards on Auditing (ISAs), and whether their principles-based nature had caused interpretation problems between preparers and their auditors. Mr Lucy informed the CPAAOB that the Australian auditing standards, which are based on ISAs, are well accepted and have not caused problems of the kind mentioned.
The CEO of the FRC-UK, Stephen Haddrill, visited Australia in March 2011. The FRC assisted his office in arranging a suitable program of visits in Sydney and Melbourne, and arranged a program of stakeholder visits in Canberra which included meetings with Treasury, the Department of Finance and Deregulation and the Australian National Audit Office (ANAO). The opportunity was taken to exchange views on a range of topics of common interest, including public sector financial reporting and the proposals for audit reforms being discussed in the European Union. Mr Haddrill pointed out that there was a long process to go through following the release of the EC Green Paper on Audit Policy, and that the proposals in the paper could undergo some changes before being implemented.
In May 2011 the FRC Chairman, together with senior officials from Treasury and the Department of Finance and Deregulation, held a meeting in Canberra with Dr Andreas Bergmann, the Chair of the IPSASB. The main part of the discussion focused on the governance of the IPSASB, and the forthcoming review conducted by IFAC on this topic. The importance of having adequate governance arrangements in place was emphasised including, in the case of the IPSASB, an appropriate level of involvement of key public sector entities.
In accordance with its governing legislation, the FRC seeks to support and further the adoption of a single set of global financial reporting standards. The most widely adopted set of accounting standards globally are the IFRS issued by the IASB for use in the preparation of general purpose financial statements. IFRS have been adopted by over 100 countries around the world, including the all 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 have had force of law under the Corporations Act since 2005. The Australian Government, through the FRC, provided financial support to the work of the IASB through a grant of $1 million in the period covered by this report.
The Foundation has 22 Trustees, who have senior executive experience and who come from diverse geographical and professional backgrounds in both the private and public sectors. The former FRC Chairman, Jeffrey Lucy, is one of the Trustees. In this capacity he attended a number of Trustees' meetings during the year. Costs associated with Mr Lucy's attendance at these meetings were met by the Foundation.
The FRC Secretary accompanied Mr Lucy to two of the Trustees' meetings. The first was the meeting of the Trustees of the IFRS Foundation held in Washington on 4-6 July 2010. The meeting mainly discussed the forthcoming strategic review by the Trustees to consider the scope and mission of the IFRS Foundation, its governance arrangements, the effectiveness of the standard-setting process and financing arrangements. During the meeting Mr Lucy organised and led a separate meeting of the Asia-Oceania trustees which discussed ways to strengthen regional cooperation and increase the influence of the region in global standards setting.
The second meeting attended by Mr Lucy and the FRC Secretary was held in Tokyo on 9-11 February 2011. Key matters discussed included the search for a new IASB chairman, status of the convergence projects between the IASB and the FASB, ensuring the consistent application of IFRS around the world, and the strategic reviews being conducted by the Trustees and separately by the Monitoring Board, which is the supervisory organ overseeing the activities of the IFRS Foundation. Masamichi Kono, the chair of the working group conducting the Monitoring Board review, made a presentation at the meeting emphasising the willingness of the Monitoring Board to work with the Trustees to ensure that the two reviews do not produce contradictory findings.
The Trustees also made a formal decision to establish an Asia-Oceania liaison office in Tokyo to facilitate communications between the IFRS Foundation and stakeholders in the region. The office is expected to open in the second half of 2012. This is an important announcement which reflects the growing importance of the region as a key influence on the work of the IFRS Foundation and the IASB.
The FRC made submissions on both the IFRS Foundation Trustees' Strategy Review and the Monitoring Board Consultative Report. Key points in the submissions included:
- the urgent need to coordinate the work of the two reviews;
- the desirability for the IASB to broaden the scope of its standards, especially to include public sector financial reporting;
- the need to improve the governance of the IFRS Foundation and the Monitoring Board, in particular to clarify the respective responsibilities of the two entities, and to ensure proper accountability for the Monitoring Board; and
- the need to establish a solid funding base for the IFRS Foundation, based on a model of public funding contributed by adopting countries in proportion to their Gross Domestic Product.
In March 2011, when Sir David Tweedie paid his last official visit to Australia, the FRC organised a visit to Canberra which included a meeting with the Parliamentary Secretary to the Treasurer, the Hon David Bradbury MP, and a roundtable discussion with key stakeholders such as the Department of Finance and Deregulation and the ANAO. In addition, a special FRC meeting was held in Sydney on 4 March 2011 in which the former FRC Chairman, on behalf of the members, expressed his thanks for Sir David's contribution to financial reporting and the realisation of the goal of a single set of high quality global accounting standards. He also expressed his thanks to Mr McGregor for his ten years of service on the IASB. Sir David responded by emphasising the importance of Australia's contribution to financial reporting in general, and particularly of its early decision to adopt IFRS, which had been an crucial factor driving the subsequent rapid spread of IFRS around the world. In his discussion of the current work of the IASB he talked about the importance of Asia-Oceania in general and made special reference to the contributions of the Asian-Oceanian Standard-Setters Group (AOSSG). The AOSSG is a grouping of regional accounting standard setters which is becoming increasingly influential in international standard-setting (see section 2.4.3 below).
Merran Kelsall, Chairman of the AUASB and FRC Member, was appointed as a member of the IAASB for a term of three years from 1 January 2011. The IAASB is responsible for setting international standards on auditing and assurance. The Australian Auditing Standards released by the AUASB are generally based on the IAASB's international standards. Ms Kelsall's appointment gives Australia an ideal opportunity to influence international thinking and the development of appropriate standards and guidance on audit and assurance for the global environment. She will also be in an excellent position to keep the FRC updated on key developments.
The FRC during the year monitored significant activities by the G20 and the FSB relevant for the financial reporting community, primarily through briefings provided by Treasury. The main issues considered by the G20 and the FSB were the convergence projects pursued by the IASB and FASB. The G20 has also closely monitored the development of the replacement financial instruments standards by the IASB and FASB, and the improvement of the IASB's governance. The FSB is considering whether to do some work on the possible role of audit reports in promoting financial stability.
IFRS Regional Policy Forum
The 5th IFRS Regional Policy Forum was held in Bali, Indonesia from 23 -24 May 2011. The conference was hosted by the Indonesian Institute of Accountants and was attended by over 300 participants from 21 jurisdictions in the Asia-Oceania region. The IFRS Foundation was represented by Jeffrey Lucy, Trustee, Sir David Tweedie, Chairman of the IASB, and IASB board members including Warren McGregor. In addition to Mr Lucy and Mr McGregor, Australia was represented by the FRC Chairman and Secretary, the Chairman of the AASB, senior Australian Treasury officials and members of the accounting profession. Speakers included representatives of ASIC and the Australian Taxation Office.
The conference focused on the challenges and opportunities of IFRS adoption, which was held to be the topic of most relevance in the region given that many countries represented at the conference are at some point of progression towards IFRS adoption. Progress reports were given by a number of key regional jurisdictions, together with accounts of particular problems and challenges that had been encountered, such as conflicts with existing taxation treatments or corporations law requirements. Other presentations and discussions focused on issues such as opportunities and challenges faced by auditors, preparers of financial statements and regulators.
Key outcomes included agreement among participants that outright adoption of IFRS must be the ultimate objective in order to achieve a single set of high quality global accounting standards, even if a process of convergence may have a role to play in achieving this objective. Participants were also keen to promote more cooperation among jurisdictions to increase the region's influence on global accounting standard setting, and agreed that AOSSG was the ideal forum in which to foster such cooperation.
It was agreed that the next IFRS Regional Policy Forum will be held in Malaysia in 2012.
Asian-Oceanian Standards Setters Group (AOSSG)
AOSSG was established in 2009 as a forum to:
- promote the adoption of, and convergence with, IFRSs by jurisdictions in the region;
- promote consistent application of IFRSs by jurisdictions in the region;
- coordinate input from the region to the technical activities of the IASB; and
- Cooperate with governments and regulators and other regional and international organisations to improve the quality of financial reporting in the region.
AOSSG currently has 25 members. The current Chair is the Chairman of the Accounting Standards Board of Japan, while the Vice-chair is the Chairman of the Australian Accounting Standards Board. The AASB is one of the most active members of the AOSSG, and makes an important contribution to many of its key projects.
Since its establishment in 2009 the AOSSG has continued to expand its membership and its activities. It is widely regarded as an outstanding success and an example of how regional cooperation in international accounting standard setting should operate. AOSSG has now established itself as one of the most important stakeholders of the IASB and the IFRS Foundation, which is illustrated by the fact that the Foundation's first regional liaison office is being established in this region (in Tokyo — see section 2.4.2).
The FRC fully supports AOSSG and its activities, and considers that it is a key instrument in increasing Australia and the region's influence in international accounting standard setting. The next AOSSG Annual Meeting will be held in Melbourne in November 2011.
IFRS Seminar in Japan
The former FRC Chairman and FRC Member Bruce Brook participated in a seminar organised by the Japanese Institute of CPAs with the title 'IFRS Practical Implementation — Learning from Australia'. The main focus of the presentations and discussions was the cost implications for preparers in adopting IFRS. Both Mr Lucy and Mr Brook gave presentations outlining Australia's experience in adopting IFRS. The main message communicated by the Australian speakers was that, while there were costs in adopting IFRS for preparers, they were (in Australia's case) outweighed by significant benefits, for example in facilitating access by domestic companies to the global capital markets. The seminar was an outstanding success, and attracted over 800 participants.
In November 2010, Treasury hosted the visit of an Indian delegation led by the Secretary of the Ministry of Corporate Affairs and also including a number of representatives of the Institute of Chartered Accountants of India. A meeting was held in Canberra for the delegation to meet the former FRC Chairman and a representative of the AASB and hear a presentation on Australia's experience in adopting IFRS. The Indian delegation in return gave an account of India's efforts to converge to IFRS and the problems they were encountering during this process. Significant issues in this respect include problems with tax treatments and corporations law requirements. The delegation also met with other units within Treasury, and with regulatory and quasi-regulatory bodies such as ASIC and the Australian Securities Exchange (ASX).
The FRC notes that Treasury's designated representative in India, Matt Crooke, held a meeting with the Institute of Chartered Accountants in March 2011 in New Delhi during which he discussed India's IFRS convergence program and possible assistance that Australia could offer. A number of ideas were mentioned and follow-up discussions are taking place. Mr Crooke is now stationed at the High Commission in New Delhi and has expressed his willingness to assist the FRC in serving as a useful point of contact with the Indian authorities and other counterparts in the subcontinent.
New financial reporting framework
The legislation establishing new institutional arrangements for standard setting in New Zealand, the Financial Reporting Amendment Act 2011, was passed and came into force on 1 July 2011. On that day the External Reporting Board (XRB), was established with the following functions:
- developing and implementing an overall strategy for financial reporting standards and auditing and assurance standards (including developing and implementing tiers of financial reporting and assurance);
- preparing and issuing accounting standards;
- preparing and issuing auditing and assurance standards, including the professional and ethical standards that will govern the professional conduct of auditors; and
- liaising with national and international organisations that exercise functions that correspond with, or are similar to, those conferred on the XRB.
The XRB's structure contains three entities, the XRB Board and two standards setting boards, the New Zealand Accounting Standards Board (NZASB) and the New Zealand Auditing and Assurance Standards Board (NZAuASB). It replaces the former Accounting Standards Review Board (ASRB) and the two former standards setting entities, the Financial Reporting Standards Board (FRSB) and the Professional Standards Board (PSB), both of which were entities established by the New Zealand Institute of Chartered Accountants (NZICA). The FRC Chairman and the Secretary attended the inaugural meeting of the XRB Board in Wellington on 1 July 2011. The FRC Chairman was appointed a member of the XRB from that date.
Single Economic Market outcomes framework
On 29 August 2009, the Prime Ministers of Australia and New Zealand agreed on a framework of principles and a range of shared medium term practical outcomes for developing cross border initiatives. A key element within the framework is a deliberate move from consideration of purely national benefits in policy development, to consideration of the net trans-Tasman benefit.
Trans-Tasman Accounting and Auditing Standards Advisory Group (TTAASAG)
Successive FRC Chairmen have been members of TTAASAG, which was established in 2004 to advise the Australian and New Zealand Governments and accounting and auditing standards setters on ways to reduce costs and improve efficiency by aiming for single sets of accounting and auditing standards to apply in both jurisdictions. TTAASAG also seeks to maximise the influence of Australia and New Zealand in the development of international accounting standards and international auditing and assurance standards, including the international standards setting processes supporting the development of those standards.
In 2010-11, TTAASAG progressed work in a number of areas, including by providing guidance on proposed regulatory and legislative reforms in both Australia and New Zealand, pursuing opportunities for collaboration between the standards-setting bodies in both countries, and promoting and facilitating greater engagement with the Asia-Pacific region particularly through the IFRS Regional Policy Forum held in Indonesia in May 2011.
Cross-memberships with NZ bodies
Following its establishment in 2004, TTAASAG proposed that cross-memberships between relevant standard setting and oversight bodies of Australia and New Zealand would be a desirable step in the process of reducing costs and improving efficiency of businesses operating in both jurisdictions. In 2008-09, TTAASAG reviewed the role of cross-appointees and concluded that they are contributing to the standard setting process by facilitating cooperation and communication.
The FRC Chairmen who held office during 2010-11, attended the ASRB meetings throughout the periods covered by their respective memberships of the FRC.
Kevin Simpkins, Chairman of the ASRB (and now of the XRB), has been a member of the FRC since June 2009.
Kevin Stevenson, Chairman of the AASB and FRC Member, was a member of the FRSB, while Joanna Perry, Chairman of the FRSB, was a member of the AASB in 2010-2011.
Similar cross-appointment arrangements have been implemented under the new framework in New Zealand. Lynn Wood, Chairman of the FRC, is a member of the XRB Board, Kevin Stevenson, Chairman of the AASB, of the NZASB, and Merran Kelsall, Chairman of the AUASB, is a member of the NZAuASB. The respective cross-appointments from New Zealand are Kevin Simpkins, Michelle Embling, the Chair of the NZASB, and Neil Cherry, the Chair of the NZAuASB.