In 2015–2016 the Financial Reporting Council (FRC) continued to oversee the effectiveness of the Australian financial reporting framework and the processes for setting accounting and auditing standards, including providing strategic advice in relation to the quality of audits conducted by Australian auditors.
Based on the activities outlined in this annual report, the FRC believes no specific action needs to be taken by the Minister at this time.
Changes to the FRC membership
On 29 April 2016, I was appointed Chair and consider it an honour to be asked to perform this role. I thank Michael Coleman for his role as Acting Chair for much of the year, as well as his role as member, before his term ended during the year.
I also acknowledge the contributions of the other FRC members Ian Laughlin, Ross Barker, Roger Burrows and Mark Coughlin, whose terms also ended during the year. All members discharged their duties in a highly professional manner.
I congratulate new members Judith Downes and Jackie Callaway on their appointment and also Stein Helgeby and Noelle Kelleher on their reappointments.
These changes have resulted in a total FRC membership of ten, compared with a membership which had previously been much higher, and will enable the FRC to act with greater agility and efficiency.
The FRC undertook a benchmarking process during the year to seek high level information about the arrangements employed by oversight bodies, in overseeing national standard setters, in a range of jurisdictions that Australia generally sees as within its peer group in terms of standard setting.
Most of the oversight bodies (in common with the FRC):
- are comprised of members drawn from key stakeholder groups and have a role in setting strategic direction for standard setting;
- have no role in the technical deliberations of the boards they oversee.
Although the FRC’s role as an advisor to the Minister on the areas it oversees is not formally a role that appears to be provided by many other oversight bodies, there are indications that this role is in fact fulfilled by a number of oversight bodies, at least from time to time.
The administrative arrangements for most standard-setting structures are addressed through the oversight body, which is different from the Australian arrangements.
The FRC is aware of the constantly changing regulatory environment for Australian businesses and the complexity of the financial reporting framework.
Several reports have been prepared by, or presented to, the FRC, in particular:
- FRC Managing Complexity Task Force Report (October, 2012)
- FRC Financial Reporting Task Force Report (November, 2014).
It is important that actions recommended by these reports be progressed in a coordinated manner and that there be effective communication between relevant stakeholders.
The FRC will continue to monitor the progress of actions in the area.
One further key project being undertaken is the Australian Accounting Standards Board (AASB ) Project “Australian Financial Reporting Framework”.
With this project, the AASB is building on its empirical research regarding use of special and general purpose reports in the corporate sector and the FRC’s work mentioned above on the complexity of determining what reporting requirements apply to different types of entities. This project has the potential to help regulators introduce reforms that simplify reporting requirements and produce more meaningful and useful reporting, as well as reduce costs overall.
The Auditing and Assurance Standards Board (AUASB) will also be involved in this project.
One of the FRC’s key functions is to oversee the process for setting accounting and auditing standards in Australia. The FRC acknowledges the considerable work undertaken by the AASB and the AUASB during 2015–2016. Their specific achievements and ongoing work are reported separately in their respective annual reports, which I encourage stakeholders to read.
The FRC considers it essential that regular contact be made with all stakeholders in the capital markets and we continue to maintain and strengthen our communication with them.
The FRC is very grateful to the wide range of stakeholders who regularly provided reports to our meetings, assisting us to understand relevant developments in Australia, and overseas.
In particular we thank:
- Association of Superannuation Funds of Australia (ASFA)
- Australian Institute of Company Directors (AICD)
- Australian Prudential Regulation Authority (APRA)
- Australian Securities and Investments Commission (ASIC)
- Australian Securities Exchange (ASX)
- Business Council of Australia (BCA)
- Chartered Accountants Australia and New Zealand (CA ANZ)
- CPA Australia
- Department of Finance
- External Reporting Board of New Zealand (XRB)
- Group of 100 (G100)
- Institute of Public Accountants (IPA)
- Heads of Treasuries Accounting and Reporting Advisory Committee; and
- The Treasury.
The FRC monitors international developments to ensure the Australian financial reporting framework represents world’s best practice.
We monitor key regulatory actions, initiatives and draft legislation affecting audit, capital markets and corporate governance.
It is also essential that Australia be influential with all international boards and committees that produce international accounting and auditing standards, and those that produce other international regulation or guidance, preferably with direct representation. This ensures Australian interests are appropriately considered in setting such standards.
During 2015–2016 the FRC undertook a review of Australian members of such international boards and committees to ensure Australia continues to be influential, with appropriate representation, and that Australia is well prepared for future appointments.
International Financial Reporting Standards (IFRS) Foundation Review
During the year, the IFRS Foundation requested submissions on ‘Trustees’ Review of Structure and Effectiveness’.
The FRC made a submission which included the following viewpoints:
- Strong support for the work of the IFRS Foundation and the International Accounting Standards Board (IASB)
- Supporting the extension of the International Accounting Standards Board’s (IASB) remit to the development of standards for the private not-for-profit sector in the longer term; and
- Supporting the active involvement of the IASB in wider corporate reporting.
As would be expected, the FRC annually conducts a review of its performance against the obligations required of it by the Australian Securities and Investments Commission Act 2001 (ASIC Act).
Our review this year confirmed that the FRC continues to satisfy all of its statutory obligations.
Financial Reporting Council
29 September 2016