Bodies established under Part 12 of the
ASIC Act
3.1
This chapter considers
the 2015–16 annual reports of the:
-
Financial Reporting
Council (FRC);
-
Australian Accounting
Standards Board (AASB); and
-
Auditing and Assurance
Standards Board (AUASB).
Financial reporting framework
3.2
Part 12 of the ASIC Act
establishes Australia's financial reporting system. As outlined in section 224
of the ASIC Act, the objectives of the financial reporting system include:
-
facilitating the
Australian economy;
-
maintaining investor
confidence in the Australian economy;
-
developing accounting
standards that require the provision of information that is relevant, reliable,
easy to understand, allows investors to make and evaluate financial decisions,
and assists directors to fulfil their statutory financial reporting
obligations; and
-
developing
auditing and assurance standards that provide Australian auditors relevant and
comprehensive guidance in determining whether financial reports comply with
statutory requirements, and require auditors' reports to be reliable and
capable of being readily understood by investors.1
3.3
Three
agencies are established under Part 12 of the ASIC Act as the administrative
arms of the financial reporting system; namely, the FRC, the AASB and the
AUASB. All three bodies are required to advance and promote the object of Part
12 of the ASIC Act.2
3.4
ASIC is
also involved in the administration of the financial reporting system. ASIC's role
in oversighting auditor independence is set out under division 5A of the ASIC
Act, which covers 'Audit deficiency notifications and reports'. During the
2015–16 financial year ASIC did not conduct any joint inspections.3
3.5
The FRC annual report
is required to include an analysis of its achievements against the objects
of the financial reporting system.4 The Chairs of AASB and AUASB must, as soon as
practicable after the end of each financial year, prepare and give to the
Minister, for presentation to the Parliament, reports of the operations of the
AASB, the AUASB and their respective offices.5
Coordination between the FRC, the
AASB and the AUASB
3.6
The ASIC Act requires
interaction between the FRC, the AASB and the AUASB. Accordingly, the FRC's
specific accounting standards functions and specific auditing standards
functions also include oversight of certain activities of the AASB and the
AUASB. The FRC is required to:
-
appoint members of the
AASB and the AUASB, other than the Chair;
-
determine the broad
strategic direction of the AASB and AUASB;
-
advise the AASB and the
AUASB on the Boards' priorities, business plans and procedures;
-
monitor the
effectiveness of the Boards' consultative arrangements; and
-
advise the Office of
the AASB and the Office of the AUASB on the offices' budgets and staffing arrangements.6
3.7
The ASIC Act also sets
out restrictions on the FRC's oversight of the AASB and the AUASB. The FRC does
not have power to:
-
direct the AASB in
relation to the development, or making, of a particular standard;
-
veto a standard made,
formulated or recommended by the AASB;
-
direct the AUASB in
relation to the development, or making, of a particular auditing standard; and
-
veto a standard made,
formulated or recommended by the AUASB.7
3.8
The
committee notes that the Boards of the AASB and the AUASB have implemented a
'shared support model' with a single National Director and combined
administrative staff supporting both Boards.8
The Financial Reporting Council
3.9
The FRC was established
in 1989 and operates pursuant to Part 12 of the ASIC Act 2001.9 The FRC's role in the operation of
Australia's corporations law includes:
-
providing broad oversight
of the processes for setting accounting standards and auditing standards in
Australia; and
-
advising the Minister
on these matters.10
3.10
The
ASIC Act also confers on the FRC 'specific accounting standards functions' and
'specific auditing standards functions'. The Corporations Legislation
Amendment (Audit Enhancement) Act 2012 added provisions conferring
'specific auditor quality functions' on the FRC.11
3.11
The FRC's specific
auditor quality functions direct the FRC to give the Minister strategic policy advice
and reports on the quality of audits conducted by Australian auditors. In undertaking this function, the FRC is
to advise the Minister on:
-
systems and processes used by Australian auditors and professional
accounting bodies in oversighting auditors;
-
the procedures and
outcomes of reviews;
-
investigations and disciplinary procedures applied to Australian auditors;
-
the adequacy of audit legislation;
-
standard and codes of
conduct; and
-
the teaching of
professional and business ethics.12
3.12
The
FRC's specific accounting standards functions and the specific auditing
standards functions recognise the position of Australia's financial system
within the international economy.13 The functions also reflect the object
in section 224 of the ASIC Act which is 'facilitating the Australian economy by
enabling Australian entities to compete effectively overseas'.14
Accordingly,
the FRC is required to:
-
monitor developments in
international accounting standards and auditing standards;
-
further the development
of a single set of accounting standards and auditing standards for world-wide
use; and
-
promote
the continued adoption of international best practice accounting standards and
auditing standards if doing so would be in the best interests of the private and
public sectors of the Australian economy.15
Annual report of the FRC
3.13
During 2015–16, the FRC
continued to actively monitor ongoing international developments in relation to
financial reporting and auditing, as well as the effectiveness of the
Australian financial reporting framework, including the relevance and
appropriateness of current processes for setting accounting and audit
standards. The FRC noted that based on its observations during the
reporting period, the Australian financial
reporting framework continued to be robust and that it was not necessary to
propose changes to the Minister at this time.16
3.14
The FRC highlighted a
number of activities undertaken during 2015–16, including:
-
conducting a benchmarking
process that looked at arrangements employed by other oversight bodies that
oversee national standards setters in comparable jurisdictions to Australia;
-
undertaking a review of
Australian members of international boards and committees that produce
accounting and auditing standards; and
-
making a submission to
the International Financial Reporting Standards (IFRS) Trustees' Review of
Structure and Effectiveness.17
3.15
The FRC
also approved the reduction in the size of the AASB from 14 members as at 30
June 2016 to 11–12 members with effect from 2016–17.18 This follows the reduction
in the size of the board of the AUASB that came into effect last year. The
report also noted the AASB and AUASB's move to a shared support model with both
Boards supported by a single National Director and combined administrative staff.19
Committee view
3.16
The committee considers
that the FRC has fulfilled its regulatory and reporting responsibilities during
the 2015–16 financial year.
The Auditing and Assurance Standards Board
3.17
The
AUASB is established under Subdivision C, Division 1, Part 12 of the ASIC Act.
The AUASB's responsibilities include facilitating an Australian financial
reporting system that provides guidance to auditors about auditing standards
and requirements.20 The AUASB formulates auditing standards, in the form of
legislative instruments, which operate under the Corporations Act.21
3.18
Consistent
with the object in section 224 to 'enable Australian entities to compete
effectively overseas', the AUASB is required to contribute to the 'development
of a single set of auditing standards for world-wide use.'22
The ASIC Act
also establishes the Office of the AUASB, which provides technical services and
administrative support to the AUASB.23
Annual report of the AUASB
3.19
The AUASB's statutory
responsibilities are reflected in the Board's mission statement as contained in
the 2015–16 annual report:
The mission of the
AUASB is to develop, in the public interest, high– quality auditing and
assurance standards, and related guidance, as a means to enhance the relevance,
reliability and timeliness of information provided to users of audit and
assurance services.
Sound public
interest oriented auditing and assurance standards are necessary to reinforce
the credibility of the auditing process for those who use audited financial and
other related information.
The AUASB
contributes to public confidence in the financial reporting and corporate
governance frameworks by issuing auditing standards, which are legally enforceable
for audits and reviews of financial reports required under the Corporations
Act 2001, other auditing and assurance pronouncements and related guidance.
The
role of the AUASB also extends to liaison with other NSS [national standard
setters] and participating in standard setting initiatives of the IAASB
[International Auditing and Insurance Standards Board ] to develop a single set
of auditing standards for worldwide use. Such involvement seeks to contribute
ultimately to the quality of AUASB pronouncements.24
3.20
The
annual report indicates that key activities of the AUASB during 2015–16
occurred as the auditing profession prepares to implement changes in reporting
to users of financial reports. The report notes that these changes are the
culmination of extensive work begun in 2006 by the IAASB and the promulgation
of new standards to be applicable on or after 15 December 2016.25
3.21
The
AUASB reports that it undertook three separate consultations that successfully
influenced the refinement and adoption of the resultant standards. The annual
report indicates that in December 2015, the AUASB approved and adopted one new
standard, six revised standards and eighteen compiled standards.26
Global
developments
3.22
As detailed in the
2015–16 annual report, the AUASB continued its membership and participation in
IAASB meetings and working groups and made submissions on all IAASB exposure
drafts and discussion papers. This participation included:
-
consultation with
Australian stakeholders on the IAASB proposals concerning enhanced audit
quality, participation in IAASB debate, and feedback to the IAASB on the topic
in a submission in May 2016; and
-
work on
the IAASB Integrated Reporting Working Group, chaired by the AUASB Chairman,
and regular meetings with the International Reporting Council.27
Local developments
3.23
The
annual report noted continued engagement with Australian stakeholders in order
to promote world best practice standards and to obtain feedback on necessary
amended standards and guidance.28 This
included:
-
working closely with
the New Zealand Auditing and Assurance Standards Board to promote and
facilitate harmonised Australian and New Zealand standards; and
-
continued
revision of standards and guidance for significant national requirements not
otherwise addressed in IAASB standards and practice notes.29
Committee view
3.24
The committee considers
that the AUASB has fulfilled its regulatory and reporting responsibilities
during the 2015–16 financial year.
The Australian Accounting
Standards Board
3.25
The
AASB was first established in 1989 and is currently established by Subdivision
B, Division 1, Part 12 of the ASIC Act 2001.30 The AASB's role is to
develop a conceptual framework by which to evaluate proposed accounting
standards and international standards as well as formulating and making
accounting standards. The AASB also contributes to the development of 'a single
set of accounting standards for world-wide use'.31 The ASIC Act also establishes the Office of the AASB, to provide the
AASB with administrative and technical support.32
Annual report of the AASB
3.26
As detailed in the
2015–16 annual report, the AASB's mission statement captures the Board's
statutory responsibilities and role in Australia's financial reporting framework:
The mission of the AASB is to:
- create principle-based
external reporting standards for Australia that meet user needs; and
-
contribute to the
development of international external reporting standards.33
3.27
The annual report
indicates that the AASB has made progress in implementing the five key
strategic directions set out in its AASB Strategy 2015–19.34
3.28
During 2015–16, the
AASB commenced an outreach campaign that identified important issues and
concluded that:
-
its reporting framework
is regarded as too complicated and subjective, requiring the AASB to undertake
more work in this area as a key focus for 2016–17;
-
IFRS is not a perfect
solution for all constituents, requiring the AASB to issue more sector-specific
guidance that will include releasing a new standard for the not-for-profit sector;
-
general purpose
financial reports are regarded by constituents as too complicated and detailed,
indicating a need for revised disclosure requirements; and
-
accounting standards
are regarded as hard to interpret and apply, and need improved consistency and clarity.35
3.29
The
AASB identified continuing outreach with stakeholders and regulators as
critical to addressing these issues. The AASB reported that it has broadened
its forums for engagement that deliver feedback. For the AASB the increased
stakeholder engagement is to the benefit of the work that the AASB undertakes
on both the domestic and international fronts, particularly when implementing
new international reporting standards in Australia and influencing the
International Accounting Standards Board (IASB).36
3.30
The
AASB has commenced a review of the implementation of IFRS in Australia,
focusing on how transaction neutrality has been applied across the for profit
sector and the not-for-profit public and private sectors, and whether a third
tier of general purpose financial reporting is
required.37
3.31
The
AASB reported that it undertook a major restructure in cooperation with the
AUASB in order to serve the broader objective of ensuring that Australian
accounting and auditing practice remains at the forefront of international
practices, while remaining fit for purpose in Australia. Accordingly, the
annual report indicates that both the AASB and AUASB have adopted a shared
support model involving a single National Director and combined administrative staff.38
Committee view
3.32
The committee considers
that the AASB has fulfilled its regulatory and reporting responsibilities
during the 2015–16 financial year.
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1 ASIC Act
2001, s. 224.
2 ASIC Act
2001, s. 225, s. 227, s. 227B.
3 ASIC
Annual Report 2015–16, p. 188.
4 ASIC Act 2001, s. 235B.
5 Public
Governance, Performance and Accountability Act 2013, s. 39, s. 46.
6 ASIC Act 2001, s. 225(2)–(2D).
7 ASIC Act
2001, s. 225(5)–(8).
8 AUASB, Annual Report 2015–16, p. 18;
AASB, Annual Report 2015 –16, p. 15.
9 Section 261 of the ASIC Act directs that bodies
established under the Australian Securities and Investments Commission Act
1989 continue in existence as if they had been established under the ASIC
Act 2001.
10 ASIC Act
2001, ss. 225(1).
11 Corporations
Legislation Amendment (Audit Enhancement) Act 2012, Schedule 2.
12 ASIC
Act 2001, ss 225 (2B)–(2C).
13 ASIC Act
2001, ss 225(2), ss 225(2A).
14 ASIC Act
2001, ss. 224(b)(ii).
15 ASIC Act
2001, ss 225(2), ss. 225 (2A).
16 FRC, Annual Report 2015–16, pp. 1, 17.
17 FRC, Annual Report 2015–16, pp. 1, 3.
18 FRC, Annual Report 2015–16, p. 12.
19 FRC, Annual Report 2015–16, p. 16.
20 ASIC Act
2001, s. 224, s. 227A, s. 227B.
21 ASIC Act
2001, s. 227B; Corporations Act 2001, s. 336.
22 ASIC Act
2001, s. 227B.
23 ASIC Act 2001, s. 227AB.
24
AUASB, Annual Report 2015–16, p. 14.
25
AUASB, Annual Report: 2015–16, p. 9.
26
AUASB, Annual Report: 2015–16, pp. 9–10.
27 AUASB, Annual Report: 2015–16, pp. 10, 17.
28 AUASB, Annual Report: 2015–16, p. 10.
29 AUASB, Annual Report: 2015–16, p. 11.
30 Section 261 of the ASIC Act directs that bodies
established under the Australian Securities and Investments Commission Act
1989 continue in existence as if they had been established under the ASIC
Act 2001.
31 ASIC Act
2001, s. 227.
32 ASIC Act
2001, s. 226A.
33
AASB, Annual Report 2015–16, p. 11.
34
AASB, Annual Report: 2015–16, pp. 13–15.
35
AASB, Annual Report: 2015–16, pp. 7–8.
36
AASB, Annual Report: 2015–16, p. 8.
37 AASB, Annual Report: 2015–16, p. 14.
38 AASB, Annual Report: 2015–16, p. 9.