Key points
- The Treasury Laws Amendment (Financial Reporting System Reform) Bill 2026 (the Bill) proposes to amend the Australian Securities and Investments Commission Act 2001 to merge the Financial Reporting Council, the Australian Accounting Standards Board and the Auditing and Assurance Standards Board into a new body, named External Reporting Australia, with responsibility for performing core financial reporting and sustainability standard-setting functions.
- The proposal was announced by the Treasurer in November 2023, after having been raised in a consultation paper in December 2022.
- In January 2025 Treasury released a consultation paper seeking feedback on the design of the new standard setting body. Treasury received 33 stakeholder submissions.
- In October 2025 Treasury released an exposure draft of the legislation and undertook public consultation. Treasury received 20 stakeholder submissions.
- External Reporting Australia will have a Governing Council, appointed by the Minister. To be eligible for appointment, a person must have experience in, or knowledge of, at least one of a number of fields listed in the Bill, including law, business, financial markets, accounting, auditing, science and sustainability or climate change.
- One of the main differences between the exposure draft and the Bill as introduced is the ability for the Minister to appoint non-voting associate members of the Governing Council. These members will need to meet the same eligibility requirements as Council members.
- The Governing Council will be empowered to create standard-setting boards by disallowable legislative instrument and appoint members to the boards.
- At the time of writing, the Bill has not been referred to or reported on by any parliamentary committees.
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Introductory Info
Date of introduction: 12 February 2026
House introduced in: House of Representatives
Portfolio: Treasury
Commencement:
Parts 1 and 3 of Schedule 1 to the Bill commence on the later of:
- 1 November 2026; and
- the first day of the first calendar month after the end of 4 months beginning on the day of Royal Assent.
Part 2 of Schedule 1 to the Bill, which contains the transitional provisions to support the merging of the financial reporting bodies, commences on the later of:
- 30 June 2026; and
- the day after Royal Assent.
Purpose of the Bill
The purpose of the Treasury Laws Amendment (Financial Reporting System Reform) Bill 2026 (the Bill) is to amend the Australian Securities and Investments Commission Act 2001 (the Act) to merge the Financial Reporting Council (FRC), the Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) into a new body, named External Reporting Australia, with responsibility for performing core financial reporting and sustainability standard-setting functions.
Background
The Treasurer, Jim Chalmers, announced the plan to merge the FRC, AASB and AUASB in November 2023. The idea was raised earlier in the December 2022 Climate-related financial disclosure consultation paper (p. 19).
Part of the Government’s argument for the merger was to ‘better support the ongoing implementation of climate-related financial disclosure standards in Australia.’ As the January 2025 consultation paper, Positioning Australia’s financial reporting system for the future explained:
Recent efforts to develop sustainability and climate-related financial disclosure standards in Australia and internationally have highlighted the need to ensure the institutional arrangements for standard setting are sufficiently flexible to respond to developments in the reporting landscape now and in the future (p. 3).
Despite discussion of a merger being included in the 2022 consultation paper, the Treasurer’s November 2023 announcement ‘was a surprise to most observers’ according to an article in the Australian Accounting Review (AAR).
In a media release Chartered Accountants ANZ described the change as ‘the largest reform to the accounting and audit standard setting bodies in decades’ and considered that the Government should have consulted before making the announcement. The then Shadow Treasurer, Angus Taylor, told The Mandarin the Coalition supported regulatory simplification but expressed concern that the Government had not consulted key stakeholders.
While a headline in the Financial Review suggested the merger ‘could transform accounting,’ some observers questioned whether it would make much practical difference. At a panel session held at the Accounting and Finance Association of Australia and New Zealand’s annual conference in July 2024, one panellist noted the 2 boards (AASB and AUASB) have operated out of the same premises and shared administrative staff and systems for years, and that much of the FRC’s work is undertaken through board staff-sharing arrangements (p. 368).
Setting standards for external reporting
The proposed standard setting body will be named External Reporting Australia. As a 2025 consultation paper notes, external reporting refers:
… to the periodic communication of financial and other information concerning an entity for the purposes of informing stakeholders external to the entity (for example, the preparation of annual reports). The term contrasts with reporting prepared for internal business purposes (such as management accounts) (p. 5).
Standards enable external stakeholders to compare information between entities and across time. Standards can be voluntary or mandatory. Standards for external reporting fall into three categories:
AASB sets standards for reporting financial and other information. The AUASB sets auditing and assurance standards.
Consultation prior to the introduction of the Bill.
Raising the proposed merger as an option in the 2022 climate related financial disclosure consultation paper may be the reason it attracted so little attention. It meant it was overshadowed by the more controversial proposal to require disclosure of Scope 3 emissions.
2022 Climate-related financial disclosure consultation paper
The 2022 consultation paper argued that structural changes were needed to the standard setting bodies ‘to support implementation of climate risk disclosure standards and the ongoing efficiency and effectiveness of the financial reporting system’ (p. 17). The paper outlined 3 potential structures including the one the Government finally chose (potential structure 3). The first option was to confirm the AASB as the entity responsible for sustainability standards. The second was to establish a separate board for sustainability standards. The third was:
Potential Structure 3. Reform existing financial reporting bodies into a single, flexible entity
Under this proposal, Commonwealth legislation would be amended to combine the functions and powers of the FRC, AASB and AUASB into one entity responsible for financial reporting system oversight, standard-setting and advice to government. In addition to the accounting and auditing standard setting powers of the AASB and AUASB, the body would also have statutory authority to make climate and sustainability risk disclosure standards (p. 19).
In their submission on the consultation paper, Chartered Accountants Australia and New Zealand (CA ANZ) and CPA Australia stated that potential structure 3 ‘would affect wider financial reporting and assurance stakeholders who may not be engaged with this consultation.’ As a result, they argued that it would require additional consultation and engagement. They argued it was outside of the scope of the 2022 consultation (p. 20).
Among the relatively small number of submissions that addressed this issue, there was no consensus about which potential structure was preferable.
2023 Announcement
In November 2023, Treasurer Jim Chalmers and Assistant Treasurer and Minister for Financial Services, Stephen Jones announced the Government’s choice of structure:
The Albanese Government will restructure the nation’s financial reporting bodies to make them more efficient, effective and fit for purpose, including to assist Australia in implementing new climate and sustainability standards.
The three bodies that currently oversee financial reporting and set reporting standards – the Australian Accounting Standards Board (AASB), the Auditing and Assurance Standards Board and the Financial Reporting Council – will be combined into a single entity.
January 2025—Positioning Australia’s financial reporting system for the future consultation paper
In January 2025 the Treasury began consulting on Positioning Australia’s financial reporting system for the future. The paper made it clear that the Government had decided on a merger and was seeking feedback on how to refine and settle the design of the new standard setting body. Treasury received 33 submissions.
October 2025—Exposure draft
On 30 October 2025 Treasury released an exposure draft of the legislation and undertook public consultation. Treasury received 20 submissions .
Existing institutions
As the Bill’s Explanatory Memorandum (EM) explains, responsibilities for accounting, auditing and assurance and sustainability standard setting are split across five separate statutory entities: the AASB, the AUASB, their respective Offices, and the FRC (p. 7).
Financial Reporting Council
The FRC has a broad oversight function in relation to the processes for setting accounting standards, sustainability standards, and auditing and assurance standards in Australia and for giving the Minister reports and advice. It is also responsible for providing strategic policy advice in relation to the quality of audits conducted by Australian auditors.
The FRC is a statutory body under Part 12 of the Australian Securities and Investments Commission Act 2001 (the Act).
Australian Accounting Standards Board
As outlined on its website, the AASB’s functions are:
- to develop a conceptual framework for the purpose of evaluating proposed standards;
- to make accounting standards under section 334 of the Corporations Act 2001;
- to formulate accounting standards for other purposes;
- to participate in and contribute to the development of a single set of accounting standards for worldwide use;
- and to advance and promote the main objects of Part 12 of the ASIC Act, which include reducing the cost of capital, enabling Australian entities to compete effectively overseas and maintaining investor confidence in the Australian economy.
According to the AUASB and AASB corporate plan 2025/26:
The Office of the AASB provides technical and administrative services, information and advice to the AASB. The Chair of the AASB is also the Chief Executive Officer of the Office of the AASB, however the CEO responsibilities have been delegated (to the maximum extent permitted) to the Managing Director (p. 7).
The AASB is a non-corporate Commonwealth entity established under the ASIC Act (p. 33).
Auditing and Assurance Standards Board
According to the AUASB and AASB corporate plan 2025/26:
The AUASB is … responsible for making auditing standards under section 336 of the Corporations Act 2001 for the purposes of the corporation’s legislation. The AUASB also formulates auditing and assurance standards for other purposes and participates in and contributes to the development of a single set of international auditing standards for worldwide use.
…
The Office of the AUASB provides technical and administrative services, information and advice to the AUASB. The Chair of the AUASB is also the Chair and Chief Executive Officer of the Office of the AUASB. The corporate services function responsibilities for the Office of the AUASB have been delegated (to the maximum extent permitted) to the Managing Director.
The AUASB is a non-corporate Commonwealth entity established under the ASIC Act (p. 33).
What the Bill does
The Bill amends Part 12 of the ASIC Act to create an entity—External Reporting Australia—that combines functions and powers of the AASB, the AUASB (including their offices), and the FRC. The new body will be responsible for making and formulating accounting, auditing and assurance, and sustainability standards.
External Reporting Australia will have a Governing Council as an accountable authority. Its members, including its Chair, will be appointed by the Minister. The Governing Council will have power to create standard-setting boards and to appoint members to each board.
The Bill’s EM provides further details on the Bill, including a table that compares the key features of the current and proposed law (Table 1.1, pp 7–11). The 2025 consultation paper explains the Government’s rationale for the reforms, the policy’s design principles, and other information.
Key issues
The major issue that has emerged among parliamentarians relates to restrictions to appointments to the Governing Council on conflict of interest grounds.
In a December 2025 Senate Estimates hearing, Senator Barbara Pocock argued for ‘a clean wall around conflicts of interest in an important new body like this’. The Senator said:
A major contributor to the very many challenges that have arisen in reviews of the big four consulting firms has been the general question of regulatory capture. There was no rule to prevent former partners of the big four, for example, with financial ties to them, including very long trailing sources of income, sitting on the Tax Practitioners Board, which is why we moved an amendment to fix that loophole that allowed big consultants to regulate themselves. Now that we're in the process of establishing a new standard-setting institution for consulting, auditing and accounting, how will eligibility work for appointments to the governing council and technical-standard-setting boards under the draft legislation? (pp. 47–48)
A Treasury official responded by stressing the need for expertise and experience in how standards are applied and argued that ‘the more you have a blanket exclusion in the legislation, you'd be limiting the scope of the number of potential participants in the role’ (p. 48).
A 2023 report in the Australian Financial Review, quoted Liberal Party Senator Richard Colbeck arguing against legislating to exclude particular groups of people from the new body. He said:
I wouldn’t want to see principles that were injected into the [Tax Practitioners Board] – which ruled people in and out based on the size of their firm - injected into this process.