Appendix D - Summary of the FRC’s functions

FRC's functions

Subsection 225(1) of the ASIC Act provides that the FRC's functions are:

  • to provide broad oversight of the processes for setting accounting and auditing standards in Australia (paragraphs 225(1)(a) and (b));
  • to monitor the effectiveness of auditor independence requirements in Australia (paragraph 225(1)(c));
  • to give the Minister reports and advice about the matters referred to above (paragraph 225(1)(d));
  • to establish appropriate consultative mechanisms (paragraph 225(1)(f)); and
  • to advance and promote the main objects of Part 12 of the ASIC Act (paragraph 225(1)(g)).

In addition, paragraph 225(1)(h) of the ASIC Act provides that the FRC has any other functions that the Minister confers on it by written notice to the FRC Chairman.

Specific accounting and auditing standards setting functions

The FRC has the following specific accounting and auditing standard setting functions conferred on it under subsections 225(2) and (2A) of the ASIC Act:

  • appointing the members of the AASB and AUASB (other than the Chairs, who are appointed by the Minister) (paragraphs 225(2)(a) and (2B)(a));
  • giving the AASB and AUASB advice or feedback on their priorities, business plans and procedures (paragraphs 225(2)(b) and (2A)(b));
  • giving the Offices of the AASB and AUASB advice or feedback on their budgets and staffing arrangements (including level, structure and composition of staffing) (paragraphs 225(2)(ba) and (2A)(ba));
  • determining the AASB's and AUASB's broad strategic directions (paragraphs 225(2)(c) and (2A)(c));
  • monitoring the development of international accounting and auditing standards and the accounting and auditing standards that apply in major international financial centres (paragraphs 225(2)(e) and (2A)(e));
  • furthering the development of single sets of accounting and auditing standards for world-wide use with appropriate regard to international developments (paragraphs 225(2)(f) and (2A)(f));
  • 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 (paragraphs 225(2)(g) and (2A)(g)); 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 the effectiveness of the consultative arrangements used by the AASB and AUASB (paragraphs 225(2)(h) and (2A)(h)).

Specific auditor independence functions

The FRC has the following specific auditor independence functions conferred on it under subsection 225(2B) of the ASIC Act:

  • monitoring and assessing the nature, overall adequacy and effectiveness of:
    • the systems and processes used by Australian auditors to ensure compliance with auditor independence requirements (subparagraph 225(2B)(a)(i));
    • the systems and processes used by professional accounting bodies for planning and performing quality assurance reviews of audit work undertaken by Australian auditors to the extent to which those reviews relate to auditor independence requirements (subparagraph 225(2B)(a)(ii));
    • the action that Australian auditors who have been subject to such quality assurance reviews have taken in response to the reports prepared as a result of those reviews (subparagraph 225(2B)(a)(iii));
    • the action taken by professional accounting bodies to ensure that Australian auditors who have been subject to such quality assurance reviews respond appropriately to the reports prepared as a result of those reviews (subparagraph 225(2B)(a)(iv)); and
    • the investigation and disciplinary procedures of professional accounting bodies as those procedures apply to Australian auditors (subparagraph 225(2B)(a)(v));
  • monitoring the overall compliance by companies, registered schemes and disclosing entities with the audit-related disclosure requirements of the Corporations Act and the accounting standards (paragraph 225(2B)(b));
  • giving the Minister reports and advice about the matters referred to in the above paragraphs (paragraph 225(2B)(c));
  • giving the professional accounting bodies reports and advice about matters related to their quality assurance reviews and disciplinary procedures as detailed in the above paragraphs (paragraph 225(2B)(d));
  • monitoring international developments in auditor independence, assessing the adequacy of the Australian auditor independence requirements provided for in the Corporations Act and codes of professional conduct in the light of those developments and giving the Minister, and professional accounting bodies, reports and advice on any additional measures needed to enhance the independence of Australian auditors (paragraph 225(2B)(e)); and
  • promoting, and monitoring the adequacy of, the teaching of professional and business ethics by, or on behalf of, professional accounting bodies to the extent to which the teaching of those subjects relates to auditor independence (paragraph 225(2B)(f)).

To facilitate the performance of the audit independence functions by the FRC, section 225A of the ASIC Act sets out powers that may be used by the FRC for gathering information from Australia's professional accounting bodies and Australian auditors.