Bodies established under Part 12 of the ASIC Act
3.1
This chapter considers the 2016–17 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:
-
developing accounting standards that require the provision of
information that is relevant, reliable, easy to understand, allows users to
make and evaluate financial decisions, and assists directors to fulfil their
statutory financial reporting obligations;
-
developing auditing and assurance standards that provide
Australian auditors with relevant and comprehensive guidance in determining
whether financial reports comply with statutory requirements, and require
auditors' reports to be reliable and readily understood by users;
-
facilitating the Australian economy; and
-
maintaining investor confidence in the Australian economy.[1]
3.3
The FRC annual report notes that, under Part 12 of the ASIC Act, the
core objectives for accounting and auditing standard setting in Australia are
to support the Australian economy by:
-
reducing the cost of capital and enabling Australian entities to
compete effectively overseas;
-
maintaining investor confidence in the Australian economy,
including its capital markets; and
-
being clearly stated and easy to understand.[2]
3.4
Three agencies are established under Part 12 of the ASIC Act as the
administrative arms of the financial reporting system: 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.[3]
3.5
ASIC is also involved in the administration of the financial reporting
system. ASIC's role in identifying and addressing audit deficiency is set out
under division 5A of the ASIC Act—audit deficiency notifications and reports.[4]
Coordination between the FRC, the AASB and the AUASB
3.6
The ASIC Act sets out the relationship between the FRC, the AASB and the
AUASB. The FRC has specific functions relating to accounting standards and auditing
standards with respect to certain activities of the AASB and the AUASB,
including:
-
appointing members of the AASB and the AUASB, other than the
Chair;
-
advising the AASB and the AUASB on priorities, business plans and
procedures;
-
advising the Office of the AASB and the Office of the AUASB on
budgets and staffing arrangements;
-
determining the broad strategic direction of the AASB and AUASB;
-
monitoring the development of international accounting and
auditing standards; and
-
monitoring the effectiveness of the AASB and AUASB's consultative
arrangements.[5]
3.7
The ASIC Act sets out express restrictions on the FRC's ability to
become involved in the technical deliberations of the AASB and AUASB. In
particular, it provides that the FRC does not have the power to:
-
direct the AASB or AUASB in relation to the development, or
making, of a particular standard; or
-
veto a standard made, formulated or recommended by the AASB or
the AUASB.[6]
3.8
These restrictions are designed to ensure the independence of the
standard setting boards.[7]
The Financial Reporting Council
3.9
The FRC was established in 1989 and operates pursuant to Part 12 of the
ASIC Act 2001.[8]
As the peak body responsible for overseeing the effectiveness of the financial
reporting framework in Australia,[9]
the FRC's role in the operation of Australia's corporations law includes:
-
providing broad oversight of the processes for setting both accounting
and auditing standards in Australia; and
-
advising the Minister on these matters.[10]
3.10
The FRC's specific auditor quality functions direct it to give the Minister
and professional accounting bodies strategic policy advice and report on the
quality of audits conducted by Australian auditors, including:
-
the systems and processes used by auditors to comply with
legislative provisions dealing with the conduct of audits, auditing standards,
and codes of conduct;
-
the systems and processes used by professional accounting bodies
for quality assurance reviews of audit work;
-
the action that auditors who have been subject to review have
taken in response;
-
the action taken by professional accounting bodies to ensure that
auditors who have been subject to review respond appropriately;
-
the investigation and disciplinary procedures of professional
accounting bodies applied to auditors;
-
the adequacy of relevant legislative provisions;
-
standards, and codes of conduct; and
-
the teaching of professional and business ethics by professional
accounting bodies related to audit quality.[11]
3.11
The FRC's functions also reflect the objective of section 224 of the ASIC
Act which is to 'facilitate the Australian economy by enabling Australian
entities to compete effectively overseas'.[12]
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.[13]
FRC annual report
3.12
The FRC annual report is required to include an analysis of its
achievements against the objects of the financial reporting system.[14]
The committee examines whether the FRC's achievements are satisfactory in its
ASIC Oversight report.
3.13
The FRC engaged in a number of activities during 2016–17, including:
-
approving its Strategic Plan for the 2017 financial year; and
-
making a submission to the Public Interest Oversight Board (PIOB)
on the PIOB's 2017–19 Strategy.[15]
3.14
The FRC's Strategic Plan for 2017 outlines six Strategic Priorities:
- to promote initiatives to improve the financial reporting system for
both the public and private sectors (including the not-for-profit sector as
well as the for-profit sector) and to make financial reports more useful,
simple and relevant;
-
to continue to monitor the quality of audits carried out by Australian
auditors;
-
to continue to influence international accounting and auditing
developments, particularly by promoting suitably qualified Australians and New
Zealanders for appointment to relevant international boards;
-
to consider external reporting initiatives including their alignment
with, and impact on, financial reporting requirements;
-
to continue and enhance interaction with stakeholders, including users,
preparers and auditors of financial reports; and
-
to encourage appropriate use of technology in the preparation and
auditing of financial reports.[16]
3.15
The FRC recommended the Minister support, and encourage others to
support, initiatives to improve the financial reporting system according to the
first Strategic Priority of the FRC[17]
(above).
3.16
In its submission to the PIOB's 2017–19 Strategy, the FRC 'rejected
implications that technical members (or those affiliated with the accounting
profession) cannot be assumed to be setting standards in the public interest'.
The FRC voiced support for the current standing setting model and did not
support a change that would lead to the issue of public interest overriding the
need to have sufficient technically competent members.[18]
Oversight of Australian standard setting
3.17
As noted earlier, a key role of the FRC is to determine the strategic
direction of the standard setting boards. The FRC annual report notes that
since its establishment, the FRC has made three determinations concerning the
broad strategic direction of the AASB and AUASB:
-
to require the AASB to work towards the adoption of accounting
standards that are the same as those issued by the International Accounting
Standards Board (IASB);
-
to require the AASB to pursue the harmonisation of Government
Financial Statistics and Generally Accepted Accounting Principles reporting;
and
-
to require the AUASB to use auditing standards issued by the
International Auditing and Assurance Standards Board (IAASB) as a base from
which to develop the Australian standards, to develop auditing and assurance
standards other than for historical financial information, and to participate
in audit research that is conducive to the AUASB's standard-setting activities.[19]
3.18
The FRC notes that 'each of these directions is still current and the
FRC continually monitors their appropriateness and is satisfied that the Boards
have implemented these directions to the extent possible'.[20]
3.19
The FRC's reporting on audit quality will be covered in chapter 4
of this report.
Committee view
3.20
The committee considers that the FRC has fulfilled its annual reporting
responsibilities during the 2016–17 financial year. The committee is reserving
its judgement about whether the FRC has fulfilled its regulatory functions due
to the committee's concerns about audit quality that are discussed in chapter
4.
The Standards Boards
3.21
Following a major restructure in 2016, the AASB and AUASB implemented a
new joint operating model. The governance structures of the two Boards were
further aligned and updated and included a new combined AASB/AUASB Board
Charter. During 2016–17, the AASB and AUASB held a joint Board and Staff
Strategy Day and collaborated to align strategies, visions and missions.[21]
3.22
As part of the restructure, the AASB and AUASB combined administrative staff
to support both Boards. The annual report sets out the lines of authority and
administrative arrangements:
In 2016 the AASB and AUASB implemented a shared support
model, effectively operating, to the extent permitted by legislation, as a
single Office supporting both Boards. The Chairs remain Chief Executive
Officers and the Accountable Authority under the PGPA and are responsible for
the preparation of the financial reports for each entity, however have
delegated to the maximum extent possible the CEO responsibilities to the
National Director. The National Director supports the Chairs of the respective
Boards, and manages the technical staff of both Boards and the professional
staff. The AASB provides all administrative services for the AUASB and charges
the AUASB a management fee based on recharge of direct costs without mark-up
and an appropriate recoupment of common expenses.[22]
3.23
The Chairs of the 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 on the operations of the AASB, AUASB and their
respective offices.[23]
3.24
The AASB and the AUASB presented their financial reports jointly with a
column for each entity. This was supplemented with a detailed segment note
outlining the appropriations received, the direct costs incurred by each
agency, as well as common expenses.[24]
Nevertheless, this report examines the AASB and AUASB as individual entities.
The Australian Accounting Standards Board
3.25
The AASB is currently established by Subdivision B, Division 1, Part 12
of the ASIC Act.[25]
The AASB's role is to develop a conceptual framework by which to evaluate
proposed accounting standards and international accounting standards as well as
to develop accounting standards. Additionally, the AASB contributes to the
development of 'a single set of accounting standards for world-wide use'.[26]
The ASIC Act also establishes the Office of the AASB, to provide the AASB with
administrative and technical support.[27]
Annual report of the AASB
3.26
The AASB's role in Australia's financial reporting framework is defined
in its mission statement:
Develop, issue and maintain principles-based Australian
accounting and external reporting standards that meet user needs and enhance
external reporting consistency and quality.
Contribute to the development of a single set of accounting
and external reporting standards for world-wide use.[28]
3.27
The annual report notes that key achievements of the AASB during the
2016–17 financial year include the issue of three new standards:
-
AASB 1058 Income of Not-for-Profit Entities issued
December 2016.
-
AASB 1059 Service Concession Arrangements: Grantors issued
July 2017.
-
AASB 17 Insurance Contracts issued July 2017 (within two
months of the issuance of the International Financial Reporting Standard (IFRS)
17 Insurance Contracts).[29]
3.28
The AASB contributed to international views by actively participating at
the Accounting Standards Advisory Forum (ASAF), International Forum of
Accounting Standard Setters (IFASS) and Asia Oceanic Standard Setters Group
(AOSSG). The AASB contributed on a number of key topics including:
-
discussions organised between IASB Board members and staff and
AASB Insurance Project Advisory Panel members as part of IASB's insurance
project;
-
publication and presentation of a position paper on digital
currency at the ASAF December 2016 and IFASS March 2017 meetings;
-
presentation of a paper at the ASAF meeting on country-by-country
reporting by promoting improving tax disclosures for users of financial
statements;
-
presentation on Financial Instruments with Characteristics of
Equity (FICE) at the AOSSG annual meeting November 2016; and
-
roundtable events in collaboration with IASB staff to gather
feedback from Australian constituents on Principles of Disclosure.[30]
Committee view
3.29
The committee considers that the AASB has fulfilled its annual reporting
responsibilities during the 2016–17 financial year. The committee is reserving
its judgement about whether the AASB has fulfilled its regulatory functions due
to concerns about audit quality discussed in chapter 4.
The Auditing and Assurance Standards Board
3.30
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.[31]
The AUASB formulates auditing standards, in the form of legislative
instruments, which operate under the Corporations Act 2001.[32]
3.31
Consistent with the objective of section 224 of the ASIC Act 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.'[33]
The ASIC Act also establishes the Office of the AUASB, which provides technical
services and administrative support to the AUASB.[34]
AUASB annual report
3.32
The AUASB's statutory responsibilities are reflected in its mission statement
as contained in the 2016–17 annual report:
Develop, issue and maintain in the public interest, best
practice Australian auditing and assurance standards and guidance that meet
user needs and enhance audit and assurance consistency and quality.
Contribute to the development of a single set of auditing and
assurance standards for world-wide use.[35]
3.33
The annual report indicates that key activities of the AUASB during
2016–17 included:
-
issuing five new standards;
-
publishing the Guidance Statement GS 001 Concise Financial
Reports Under the Corporations Act 2001;
-
publishing FAQs: Enhanced Auditor Reporting;
-
making four IAASB (International Auditing and Assurance Standards
Board) Discussion Paper submissions; and
-
publication of Audit Committees: A Guide to Good Practice – 3rd
edition.[36]
3.34
The AUASB hosted a number of auditor reporting panel events during
2016–17 that included audit firms, preparers, audit committee members and
relevant professional bodies.[37]
3.35
The AUASB continued to work closely with the New Zealand Auditing and
Assurance Standards Board (NZAuASB) on a number of developments, such as the New
Zealand auditing standards on service reporting information.[38]
3.36
During 2016–17, the AUASB achieved seven key performance indicators. The
committee notes AUASB was unable to formally issue Auditing Standard (ASA) 250
until after the reporting period as a result of issues associated with
processing conforming amendments to other ASAs. The committee also notes that
the formal stakeholder satisfaction survey process was delayed until 2017–18.
The survey will be performed in conjunction with the AASB.[39]
Committee view
3.37
The committee considers that the AUASB has fulfilled its annual reporting
responsibilities during the 2016–17 financial year. The committee is reserving
its judgement about whether the FRC has fulfilled its regulatory functions due
to concerns about audit quality discussed in chapter 4.
Navigation: Previous Page | Contents | Next Page