The Australian Securities and Investments Commission Act 2001 (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 worldwide use with appropriate regard to international developments.
During the 2011-12 year, the FRC has continued to monitor and contribute to a range of activities associated with, or that have the potential to impact on, international accounting and auditing standards setting. These activities include engaging with Australian representatives of key international bodies such as the International Financial Reporting Standards Foundation (IFRS Foundation), the International Accounting Standards Board (IASB), the International Auditing and Assurance Standards Board (IAASB), and the International Public Sector Accounting Standards Board (IPSASB); maintaining contacts with relevant overseas persons and bodies; and by cooperating with the Treasury in contributing to the ongoing global discussions on financial reporting and its role in maintaining stability in the global financial system.
3.2 Stakeholder engagement
During the 2011-12 year, Australian representatives on key international bodies, including Mr Ian Mackintosh, Vice-Chairman of the IASB; Mr Warren McGregor, past member of the IASB; Mr Jeffrey Lucy AM, Trustee of the IFRS Foundation; and Ms Judith Downes, member of the International Financial Reporting Standards Advisory Board (IFRS Advisory Board), were invited to attend one or more FRC meetings to provide updates on international developments and to contribute to FRC discussions at the meeting from the international perspective. A number of FRC members are also represented on, or actively involved with, key international bodies, and provide regular updates to the FRC. In October 2011, the FRC Chairman and Secretary visited a range of overseas stakeholders in Hong Kong, Paris, Brussels, London, New York and Washington. They met with senior representatives from a broad range of stakeholders, including the Federation of European Accountants, the UK Financial Reporting Council, the European Financial Reporting Advisory Group, the US Securities and Exchange Commission, the Public Company Accounting Oversight Board, the International Federation of Accountants, and the US Financial Accounting Standards Board. The FRC Chairman and Secretary also had the opportunity to attend a meeting of the IFRS Foundation Trustees. The FRC Chairman also met with representatives from key international bodies on their visits to Australia, including Professor Mervyn King from the International Integrated Reporting Council, Professor Andreas Bergmann, Chairman of the International Public Sector Accounting Standards Board (IPSASB), Mr Stephen Haddrill from the UK Financial Reporting Council, and Mr Ian Mackintosh.
3.3 Monitoring and influencing global convergence
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 is the International Financial Reporting Standards (IFRS) issued by the IASB for use in the preparation of general purpose financial statements. IFRS has been adopted by over 100 countries around the world, including the members of the European Union and an increasing number of countries in the Asia-Oceania region. Australia was one of the earliest adopters of IFRS, which have been legally enforceable under the Corporations Act 2001 since 2005, and continues to be a strong advocate of IFRS. The Australian Government, through the FRC, also provided financial support to the work of the IASB through a grant of $1 million during the 2011-12 year. The FRC has continued to monitor the work of the IASB, which has continued to focus on the convergence between the accounting standards issued by the IASB and the US Financial Accounting Standards Board (FASB) in the priority areas. During the year, the FRC made submissions to the IASB's agenda consultation, and the IFRS Foundation Trustee's strategy review. Two G20 summits were held during the year. The Final Declaration from the Cannes Summit, held on 3-4 November 2011, reaffirmed the Group's objective to achieve a single set of high quality accounting standards and called on the IASB and FASB to complete their convergence project. The Declaration also indicated that the Group looks forward to the completion of proposals to reform the IASB governance framework. The Declaration from the Mexico Summit, held on 18-19 June 2012, indicated that the Group supported continuing work to achieve convergence to a single set of high‑quality accounting standards. Convergence issues were discussed with US stakeholders, in particular during the October 2011 overseas trip. The FRC made a submission in December 2011 to the International Integrated Reporting Council's (IIRC's) Discussion Paper Integrated Reporting - Communicating Value in the 21st Century, advocating the need to distinguish financial statements and other issues in an integrated report, and the need for a conceptual framework to underpin future IIRC work.
3.4 Monitoring and influencing regional convergence
IFRS Regional Policy Forum
The sixth IFRS Regional Policy Forum was held in Kuala Lumpur, Malaysia, from 26 to 27 March 2012. The Conference was hosted by the Malaysian Accounting Standards Board, and was attended by about 140 participants from 22 jurisdictions and 10 international organisations. Mr Ian Mackintosh, Mr Jeffrey Lucy, and Mr Charles Macek, Vice Chairman of the IFRS Advisory Board, also attended the Forum. In addition, the FRC Chairman, the AASB Chairman, senior Treasury officials and members of the Australian accounting profession were in attendance. Speakers included the FRC Chairman, the AASB Chairman, and a senior representative from Treasury. The theme of the conference was ‘Convergence and Beyond, Navigating Change', and the three focus areas of the Forum were the future of financial reporting standards, the transition to IFRS and the framework for standard setters, regulators and auditors. Attendees discussed the broad strategic direction of the IASB and its future agenda; how market and banking regulators can work together with the IASB to deal with changes in IFRSs to ensure consistent application and interpretation of IFRS, and the broad framework for standard setters and the auditing profession. The need to establish an effective and efficient financial reporting framework for Small and Medium Enterprises were also discussed. The key outcomes from the Forum were:
- the participants reaffirmed their commitment to the adoption of IFRS recognising that for some jurisdictions this is achieved via a process of convergence;
- participants expressed their appreciation to IASB for its efforts in conducting a thorough and comprehensive consultation on its future agenda. The output from the agenda consultation process is crucial in formulating the strategic direction of IASB and its post convergence work program;
- participants agreed that in working towards a set of globally accepted accounting standards, regulators have to work together not only with IASB but also with their national standard setters and regional standard setting bodies, to better align local policies with these international standards and to integrate the requirements of the standards into the domestic legal framework; and
- it was also acknowledged that for IFRS to be accepted globally, the standards have to be enforced, implemented, audited and enforced on a consistent basis.
It was agreed that the next IFRS Regional Policy Forum will be hosted in Hong Kong in 2013.
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
- co-operate with governments and regulators and other regional and international organisations to improve the quality of financial reporting in the region.
AOSSG is currently chaired by the Chairman of the AASB, and is comprised of 25 member organisations from different jurisdictions within the region. The AASB is one of the most active members of the AOSSG, and makes an important contribution to many of its key projects. 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, and for assisting countries within the region to adopt and transition towards IFRS. AOSSG is increasingly seen as providing a valuable balance in IFRS issues to the views of the US and Europe. The FRC Chairman delivered the opening address to the third annual AOSSG Conference held in Melbourne in November 2011.
3.5 Trans-Tasman harmonisation
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. The key outcomes relating to the financial reporting and audit matters which have been high priority for this year include:
- facilitating the ability of for-profit entities to prepare only one set of financial statements in Australia and New Zealand;
- facilitating the ability of not-for profit entities to use a single set of accounting standards and prepare only one set of financial statements in Australia and New Zealand;
- ensuring that the financial reporting oversight and standards-setting bodies in Australia and New Zealand have functional equivalence; and
- opening up the trans-Tasman market for audit services by allowing auditors registered in one country to operate as though they are registered in the other country.
On 1 July 2011, the outcome relating to ensuring that the financial reporting oversight and standard-setting bodies in Australia and New Zealand have functional equivalence was achieved when the new institutional arrangements for standard-setting in New Zealand came into force. This involved the establishment of the External Reporting Board (XRB), which contains three entities: the XRB Board and two standard 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). This structure is similar to the structure in Australia, with the Financial Reporting Council, and the two standards setting boards ‑ the AASB and the AUASB. The External Reporting Board (XRB) is tasked 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 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.
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. The FRC Chairman continues to work with other members of TTAASAG to further its objectives.
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. Cross-appointments for this financial year include:
- The FRC Chairman has been a member of the XRB during the 2011-12 period. Mr Kevin Simpkins, Chairman 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 NZASB, while Ms Michele Embling (Chairman of the NZASB) was a member of the AASB.
- Ms Merran Kelsall, Chairman of the AUASB and FRC member, was a member of the NZAUASB, while Mr Neil Cherry (Chairman of the NZAUASB) was a member of the AUASB.