1.1 Introduction

During the year a new FRC Chairman, Lynn Wood, commenced her term on 11 March 2011. One of her initial actions was to initiate a strategic plan for the FRC covering the three years of her term from 2011 to 2014 based on ideas developed during the previous strategic discussions that had taken place on the FRC and Members' views expressed as part of the annual peer review process.

The plan reviews the main functions of the FRC, conducts a SWOT (strengths, weaknesses, opportunities and threats) analysis of the financial reporting framework in Australia, defines a range of strategic issues to be considered by the FRC, and concludes with an action plan for the FRC.

The FRC Strategic Plan 2011-2014 was approved in principle at the FRC meeting on 18 April 2011 and subsequently confirmed by Council members. The full text of the plan is available as Appendix A and on the FRC's website at www.frc.gov.au.

1.2 Australia’s financial reporting framework

The strategic plan concludes that the financial reporting framework in Australia is characterised by a number of key strengths, including its resilience during the global financial crisis, the assistance it is providing to Australian corporations in accessing global financial markets, and the leading role played by Australia (and New Zealand) in public sector financial reporting.

On the other hand, there are areas where the framework could potentially be improved, some of which at least partly reflect concerns in relation to IFRS, the global financial reporting standards adopted by Australia. These include the complexity and length of financial statements, their almost exclusive focus on financial reporting (neglecting to some extent the wider context in which companies and other entities operate), and a lack of focus on financial reporting for not-for-profit entities. A further area that could potentially be improved is the level of financial literacy among users, including company directors.

Opportunities arise from factors such as the growing political pressure, including from key international bodies such as the G20, for the introduction of global standards in financial reporting, and a growing interest around the world in the use of integrated reporting to provide more relevant information to users of financial statements.

Finally, the analysis showed that there were a number of ongoing and emerging issues that needed to be monitored, including overseas proposals to regulate audit practices, complexity caused by Australia's federal structure, and a plethora of proposals to impose additional reporting and disclosure requirements, for example as part of a Corporate Social Responsibility or Environmental, Social and Governance agenda without appropriate evaluation of cost benefit considerations.

Based on this analysis, the plan concludes that the FRC ought to be considering a number of key strategic issues, including the following:

• How to assume a thought leadership position in the debate about integrated reporting;
• How to reduce complexity in financial reporting;
• How to improve financial literacy among company directors;
• How to monitor the effectiveness of auditor independence and other audit quality drivers; and
• How best to meet the needs of users of profit-oriented and not-for-profit entities.

1.3 Action plan

Based on the SWOT analysis and the list of strategic issues, the strategic plan defines a range of projects to be executed by the FRC over the three-year period from 2011-2014. These projects are grouped into two categories, the first being a number of priority projects in which the FRC proposes to take a leadership role, and the second being a number of projects in which the FRC will play a supporting role.

Further detailed information about the priority projects is provided in the next section. The group of remaining projects includes matters such as influencing adoption of IFRS in the region and globally, monitoring private-sector not-for-profit financial reporting developments and keeping in touch with as well as influencing international developments in forums such as the G20 and the Financial Stability Board (FSB). These projects may be elevated to priority status if and when required.

1.4 Priority projects

The Strategic Plan 2011-2014 defines a number of priority projects for which the FRC intends to take a thought leadership role. These projects are being progressed by establishing Task Forces of three or more members, including a chairman who is an FRC Member and in some cases selected non-FRC members. A summary of the Task Forces and their members is provided in the table below:

*denotes non-FRC member

The general scope and expected outcomes of the work of the Task Forces have been agreed. The main objective of each Task Force is to conduct an initial scoping with a view to producing a high-level identification of the key issues and possible solutions. Solutions that are straightforward to adopt will be recommended to the FRC for implementation. If further, more detailed work appears to be justified, the matter will be reported back to the FRC and the FRC will then decide whether to commission the work.

Further detail on the activities of each of the Task Forces is provided in section 2.3.

A further priority has been to update and improve the FRC website. A number of changes have been made, including removing outdated information, uploading recent key documents, presenting information in a consistent manner, improving the functionality of the site by updating links, and changing the structure of the site to provide a sharper focus on key information. Going forward it is intended to make more systematic use of the website in communicating with stakeholders.