Chapter 1Introduction
1.1On 5 March 2026, the Senate referred the provisions of the Treasury Laws Amendment (Financial Reporting System Reform) Bill 2026 (the bill) to the Senate Economics Legislation Committee (the committee) for inquiry and report by 24 April 2026.
1.2The first chapter of this report outlines the purpose and provisions of the bill. Chapter 2 of the report outlines views on the bill, as well as providing the committee view and recommendations.
Purpose of the bill
1.3The bill makes amendments to the Australian Securities and Investments Commission Act 2001 (ASIC Act) to combine three bodies, the Australian Accounting Standards Board (AASB), the Auditing and Assurance Standards Board (AUASB) and the Financial Reporting Council (FRC), into one new body to be called External Reporting Australia (ERA).
1.4The Explanatory Memorandum states:
This reform aims to create more flexible institutional arrangements for standard setting, not only to accommodate the establishment of a dedicated board of technical experts for the development and ongoing maintenance of the new sustainability standards, but also to better position the financial reporting system to respond to standard-setting needs that may similarly arise in the future.
1.5According to the second reading speech from the Assistant Treasurer, the Hon Dr Daniel Mulino MP, the bill will ‘set out a new era for financial reporting standard setting in Australia,’ with three key principles in mind: flexibility, accountability and preserving the elements of the previous bodies which have been successful in the past.
Background
1.6The merger in this bill was first considered in 2022, when it was raised in a Treasury consultation paper, ‘Climate-related financial disclosure’. This consultation considered various options for the introduction of standards relating to climate-related financial disclosure reporting requirements. One of the options considered was the merger of the AASB, the AUASB and the FRC into one entity.
1.7In November 2023, the merger of these three entities was announced as government policy.
1.8There have been various consultations since 2023 relating to the merger of the AASB, the AUASB and the FRC. These will be discussed in detail below.
1.9The three bodies being merged are briefly described below.
The Australian Accounting Standards Board
1.10The AASB’s role is to develop and maintain Australian accounting standards and guidance. Its statutory functions are:
to make accounting standards under section 334 of the Corporations Act 2001 (the Corporations Act) and formulate accounting standards for other purposes;
to develop a framework for evaluating proposed standards;
to contribute to the development of a set of accounting standards for worldwide use; and
to advance and promote the objects of Part 12 of the ASIC Act, ‘which include reducing the cost of capital, enabling entities to compete effectively overseas and maintaining investor confidence in the Australian economy.’
1.11The AASB typically has a 14-member board and is supported by a secretariat which provides administrative and technical support. Apart from the Chair, the AASB’s members serve on a part time basis and are appointed for two- or three-year terms.
The Auditing and Assurance Standards Board
1.12The AUASB’s responsibility is the creation of auditing standards under section 336 of the Corporations Act, as well as for other purposes. Similarly to the AASB, it also participates in and contributes to the development of auditing standards for use worldwide.
1.13The AUASB normally has 12 members, appointed on a part-time basis (apart from the Chair), who serve two- or three-year terms. Members of the AUASB are appointed by the FRC, apart from the Chair who is appointed by the relevant Minister.
The Financial Reporting Council
1.14The FRC is responsible for overseeing the effectiveness of the financial reporting system in Australia. Its functions, as set out in the ASIC Act are:
to provide oversight of the accounting, sustainability and auditing standard setting process, as well as providing the relevant Minister with advice and reports on these matters;
establishing consultation mechanisms;
monitoring the effectiveness of consultation of the AASB and the AUASB and the operation of accounting, sustainability and auditing standards;
doing the following for the AASB and the AUASB:
appointing members, excluding Chairs, and determining the broad strategic directions of both Boards;
giving feedback and advice on priorities, procedures and business plans;
giving feedback to the offices of both Boards on budget and staffing;
providing reports to the Minister and relevant professional accounting bodies on the quality of audits performed in Australia;
monitoring the development of international accounting, auditing and sustainability standards, contributing to the development of a single set of these standards for world-wide use; and
promoting the continued adoption of international best practices in the Australian standard setting process.
1.15The FRC also has statutory obligations, such as the appointment of new members of AASB and AUASB and continuing work to enhance the quality of financial reports in Australia.
1.16The FRC is currently made up of eight members, plus a Chair, serving on a part-time basis and appointed by the Minister.
Provisions of the bill
1.17The bill contains one schedule which amends Part 12 of the ASIC Act. As mentioned above, it combines the existing institutions—the AASB, the AUASB and the FRC —into one new entity, External Reporting Australia (ERA).
External Reporting Australia
1.18ERA is created in the bill through re-naming the Office of the AASB to ‘External Reporting Australia’ and abolishing the AASB, AUASB, FRC and the Office of the AUASB. ERA will be a listed entity, with its Governing Council being the accountable authority for the purposes of finance law under the Public Governance, Performance and Accountability Act (2013) (PGPA Act).
1.19The officials of ERA, for the purposes of finance law under the PGPA Act, will be:
the members of the Governing Council, including the Council Chair and Deputy Chair;
associate members of the Governing Council;
members of the standard-setting boards (discussed further below), including the Chairs and Deputy Chairs of these boards;
ERA staff as employed under the Public Service Act 1999 (PS Act) or through contract; and
‘officers and employees of Agencies and authorities of the Commonwealth who assist [ERA].’
1.20The functions of ERA are generally drawn from the previous functions of the AASB, AUASB and the FRC.
1.21The functions of the ERA are as follows:
to make accounting, auditing and sustainability standards for the Corporations Act;
to formulate guidance for these standards and for the standards to be published online;
to develop frameworks for the purposes of evaluating these domestic standards or international versions of these standards;
to monitor the development of and changes to international standards and to contribute to the development of a single set of standards for world-wide use, with appropriate regard to international developments;
to monitor the development of these standards as they apply to major international financial centres; and
to give strategic policy advice to the Minister relating its powers and functions under the ASIC Act.
1.22The bill also allows for the Minister to create additional functions through legislative instrument, as well as providing that ERA ‘may do anything else that is incidental or conductive to the performance of any of its functions.’
1.23ERA is required to, as far as practicable, perform its functions:
in a way that promotes the objects of Part 12 of the ASIC Act;
with regards to the interests of Australian corporations that raise, or propose to raise capital in major international financial centres; and
with regards to public interest in accessibility of appropriate financial and other information to a wide variety of stakeholders who engage with public and private sector entities, in particular investors and creditors.
1.24ERA has powers under the bill to establish committees and other consultative groups to monitor these arrangements, as well as to do anything necessary or convenient in order to perform its functions.
The Governing Council
1.25The bill establishes the Governing Council of ERA as the ‘principal leadership organ’ of the ERA. According to the EM:
The Governing Council’s primary role is to govern [ERA]. As accountable authority, the Governing Council has responsibilities for the proper use and management of [ERA]’s resources as a whole including duties relating to overall planning, budgeting and performance as set out in the PGPA Act.
1.26The Governing Council’s functions also include providing strategic policy advice to the Minister in relation to the functions and powers of the ERA and any other functions conferred on the Governing Council by the ASIC Act. These include establishing standard-setting boards, making appointments to these boards, and various other functions relating to the management of the performance of these boards and their appointees.
1.27The Governing Council will be made up of a Chair plus at least four and at most eight other members, including a Deputy Chair. This number of members ‘seeks to accommodate the appointment of persons with a sufficient mix of skills and expertise’ to carry out the functions of ERA, including oversighting the standard-setting boards which will be established.
1.28Members of the Governing Council will be appointed by the Minister through written instrument, including the Chair of the Council. All members of the Governing Council are appointed on a part-time basis, apart from the Chair who serves in a full-time capacity. For the purposes of the PS Act the Chair is also the head of the statutory agency.
1.29In order to be appointed as a member of the Governing Council, the Minister will have regard to whether a candidate has experience in one of the following fields: ‘governance, business, financial markets, law, government, accounting, auditing, sustainability or climate change, science, or any other field the Minister considers appropriate’ when considering any additional functions which may be conferred on ERA.
1.30When making appointments, the Minister must also have regard to the Governing Council having an appropriate level of representation of appointees who are, and are seen to be, independent from Australian auditors. The Explanatory Memorandum states:
This requirement is intended to mitigate against potential conflicts by ensuring that the Governing Council, as a whole and as a body that engages in collective decision-making, is constituted taking into account this consideration. As auditors must themselves comply with auditing standards set by External Reporting Australia, actual or perceived conflicts may arise for appointees who work in the industry applying auditing standards. In contrast, other kinds of standards (such as accounting or sustainability standards) may not give rise to the same potential for direct conflicts at the individual level, as those standards generally relate to reports produced by entities involved in a broad range of activities across the economy.
1.31The Explanatory Memorandum emphasises that being an auditor will not disqualify a potential appointee from a position on the Governing Council, rather that the Minister is required to ensure there is a balance on the Governing Council of people with a suitable mix of backgrounds and experiences relevant to the functions of ERA.
1.32Appointments of members to the Governing Council will be for terms up to five years and members, including the Chair, may be re-appointed.
1.33The Governing Council is ‘required to hold meetings as are necessary to ensure the efficient performance of its functions.’ The Chair of the Council can convene a meeting at any time and must convene a meeting within 30 days of receiving a request to do so from a member of the Council. The Chair is required to convene at least four meetings in a calendar year. Meetings are subject to quorum requirements based on the number of members of the Council at a particular time.
1.34Other matters about the Governing Council include:
renumeration of Council members is to be through a determination from the Renumeration Tribunal, though there is flexibility in the bill for the Minister to determine if other arrangements would be more appropriate;
if employed on a full-time basis, the Council Chair is prevented from engaging in paid work outside of their work on the Governing Council without the Minister’s approval;
Council members are subject to material personal interest reporting requirements under the PGPA Act. Any of these kinds of disclosures must be tabled at the next meeting of the Governing Council and recorded in the minutes of that meeting;
Council members may resign through providing a written resignation to the Minister. They may be terminated by the Minister for reasons including misbehaviour, loss of physical or mental capacity, breaches of ERA confidentiality obligations, absences without leave and failure to comply with PGPA Act obligations;
the Governing Council must produce an annual report for the Minister, as required by the PGPA Act. This annual report must include any directions given, and the reasons for those directions, by the General Council to one of the standards-settings boards;
there are provisions within the bill for the appointment of acting members and associate members of the Governing Council. Associate members have all the rights of full members of the Governing Council apart from the right to vote;
the Governing Council may delegate certain administrative functions or powers to a Council member, associated member or member of staff. It cannot delegate any of its powers that relate to the making and formulating of standards.
Creation of standard-setting boards
1.35The bill requires that the Governing Council establish standard-setting boards, with at least one board for each category of standards the ERA has responsibility for: accounting, sustainability, and auditing and assurance. The bill empowers the Governing Council to create standard-setting boards through legislative instruments.
1.36These legislative instruments, referred to as determinations, must include the following:
that a standard-setting board of a specified name is established;
the kinds of standards in relation to which the board is empowered to perform a set of functions set out in the legislation;
any other functions conferred on External Reporting Australia that may be performed by the standard-setting board; and
the extent to which (if at all) the standard-setting board is empowered to establish committees and consultative groups.
1.37The Explanatory Memorandum notes that the decision to have these boards created by legislative instrument will ensure they are ‘subject to appropriate consultation requirements as well as disallowance and sunsetting under the Legislation Act 2003, and therefore appropriate parliamentary scrutiny.’ It goes on to state:
Providing for the mandatory establishment of standard-setting boards via a legislative instrument in this way ensures the operational structure of External Reporting Australia and the standard-setting processes that it follows will remain open and transparent. The intent is to provide a level of certainty to the market and confidence to industry that, as far as is practicable, External Reporting Australia will operate in a way that is accountable for its commitment to due process and recognises the key role of technical and standard-setting expertise within its structural operations.
1.38As stated above, the bill requires that there be at least one board for each of the categories of standards which ERA has responsibility for. However, this does not constrain ERA from creating more than one board for a category. The Explanatory Memorandum provides the following examples of possible ways categories of board could be split:
accounting standards could be split between a board with responsibility for public sector entities and one with responsibility for private sector entities;
auditing and assurances standards could be dealt with between a board with responsibility for auditing standards for the purposes of corporations legislation and another board with more general responsibility for all other auditing and assurance standards.
1.39The Explanatory Memorandum is clear however, that the responsibilities of a standards setting board cannot extend beyond a single category of standards. This does not prevent the separate standards-setting boards from acting jointly when required.
1.40Matters relating to the operation of a standards-setting boards, such as the way a board is to perform its functions, its broad strategic direction and reporting requirements, may be included in the legislative instrument. The Governing Council may determine other matters relating to the operation of standards-setting boards, such as procedures for convening meetings, who may attend meetings and who shall preside, quorum requirements and how matters may be resolved by the board.
1.41It is intended that the Governing Council’s determinations will contain matters similar to the AASB and AUASB’s charter documents.
Standards-setting boards
1.42The main role of a standards-setting board is to perform certain functions of ERA related to the making of standards, and to exercise those powers of ERA it is necessary or convenient for the board in question to perform. The making of a determination specifying that a board has accountability for one of the three categories of standards (accounting, auditing and assurance or sustainability) activates an authorisation to perform a set of functions and powers on behalf of ERA relevant to that standard, as well as any other functions the Governing Council has decided the board in question should be perform.
1.43More specifically, the standards-setting boards may automatically perform the following functions of ERA:
to make standards for the purposes of the Corporations Act;
to make standards to be published online, in respect of activities or matters in a Territory, or for other purposes;
to formulate guidance relating to those standards; and
to develop conceptual frameworks in order to evaluate proposed domestic or international standards.
1.44Standards-setting boards’ powers are limited ‘to those powers of [ERA] that are necessary or convenient to perform the set of functions for standards-setting boards specified in the legislation.’ A board’s powers would not automatically extend to being able to create committees and consultative groups, for example.
1.45Board members are appointed by written instrument from the Governing Council and are to serve on a part-time basis, for a period of no more than five years. There is no prescribed minimum or maximum number of board members, with the Governing Council able to determine the appropriate amount appointees to each board based on the board’s remit, operating size, and ERA’s overall resources and budget. Members of a standards-setting board must have experience relevant to one of the fields listed in legislation in order to be appointed to the board (these are the same fields as required for appointment to the Governing Council, see above).
1.46Members of the Governing Council cannot be appointed to a standards-setting board without the approval of the Minister in writing in order to avoid conflicts of interest between the Governing Council and the boards.
1.47Matters relating to the standards-setting board member’s renumeration, resignation, termination of appointment, conflicts of interest and acting appointments are largely similar to the arrangements for the Governing Council detailed previously in this chapter, with the Governing Council having a similar role over the standards-setting board that the Minister has over the Governing Council. For example, a resignation of a board member must be provided in writing to the Governing Council, whereas resignation of a Governing Council member must be provided in writing to the Minister.
Standards issued by ERA
1.48The bill continues the previous arrangements of the ASIC Act in relation to interpretation of standards set by ERA and its standards-setting boards. Any standards issued by ERA should be interpreted in such a way as to promote the objectives of part 12 of the ASIC Act.
1.49The bill requires the following of standards created by ERA:
Standards can be of general or limited application;
When making a standard, the ERA must have regard to the suitability of a standard to different types of entities and must ensure that there are appropriate accounting standards for each type of entity that is required to comply with those standards;
Accounting requirements can differ for different kinds of entities;
Similar requirements exist for sustainability standards, in that they must be appropriate for different kinds of entities and can differ depending on the type of entity; and
ERA must carry out cost/benefit analysis (as far as it is practicable to do so) for a proposed accounting, auditing and assurance and sustainability standard.
1.50The Governing Council has the ability to make, vary or revoke a standard made by a standard-setting board, or to provide written directions to a standard-setting board in relation to one of the standards the board has made, if the following conditions are met:
there must be an agreement between at least 75 per cent of the voting members present at a Governing Council meeting to take such an action. At least 50 per cent of the voting membership must be present at such a meeting;
the Governing Council considers the decision is required because the standards-setting board has failed to comply with any of the requirements in the determination that established the board;
the Governing Council considers that the decision to take action is required in order to comply with its obligations as the accountable authority for ERA under the PGPA Act.
1.51The above requirements only apply where the Governing Council is seeking to make, revoke or vary a standard that a standard-setting board would normally be authorised to issue. In situations where there is, at the time of making the standard, no relevant standards-setting board established, the Governing Council does not need to comply with these requirements.
Consequential, transitional and machinery provisions
1.52Due to the nature of the bill, creating the new ERA and replacing the AASB, AUASB and the FRC, there are many consequential and transitional provisions.
1.53Transitional provisions of the bill are contained in part 2 of schedule 1. These provisions are designed to allow ERA to begin its operations on the day that the new framework comes into being – ‘the ERA start date’. See ‘Commencement’ below for more details on start dates of different parts of the bill.
1.54These provisions will have a staged approach, with the government first determining the composition of the Governing Council, and then the proposed appointees setting up elements for ERA’s internal arrangements. The appointees to the new Governing Council will be able to exercise certain powers for a transitional period of at least four months.
1.55It is envisioned that the FRC will take certain preparatory steps for the period of Royal Assent of the bill to the ERA start date to ensure that ERA can commence operations from the start date. It is anticipated that inaugural members of the ERA Governing Council will be appointed to the FRC for this transitional period. At the end of the transitional period, members of the FRC will be taken as appointed to the ERA Governing Council for the balance of their term of appointment.
1.56Standards made by the AASB and the AUASB will continue in effect and may be dealt with by ERA after the ERA start date.
Consultation
1.57As mentioned previously in this report, there have been several consultations relating to the establishment of ERA. The idea for a combined AASB, AUASB and FRC was first proposed in a Treasury Consultation on setting standards for climate-related financial reporting requirements in December 2022. This would be announced as Government policy in November 2023.
1.58In January 2025, a Treasury consultation, Positioning Australia’s financial reporting system for the future, commenced inviting views on a proposed body to combine the AASB, AUASB and the FRC. This consultation received 33 submissions, including two confidential submissions.
1.59A further consultation based on the exposure draft of the legislation and accompanying explanatory materials was commenced by Treasury in October 2025. This consultation received 20 submissions, including four confidential submissions.
Commencement
1.60The bill contains different commencement dates for different parts of the bill.
1.61Parts 1 and 3 of Schedule 1 will commence on the latter of:
1 November 2026; or
the first day of the month after the end of four months after the bill receives Royal Assent.
1.62Part 2 of Schedule 1 (containing transitional provisions) will commence on the latter of:
30 June 2026; or
the day after Royal Assent.
1.63As mentioned under ‘Consequential, transitional and machinery provisions’ above, there is a four-month transitional period from the day after Royal Assent (or 30 June 2026) for transition from the FRC to ERA where part 2 of the bill will be in effect. Part 1 of the bill, containing the substantive new law, will commence on ‘ERA start date’, or the day after the final day of the four-month transitional period.
Financial impact
1.64According to the Explanatory Memorandum, the bill will have nil financial impact.
Legislative scrutiny
1.65The Senate Standing Committee for the Scrutiny of Bills (the Scrutiny Committee) commented on the bill in its Scrutiny Digest 3 of 2026.
1.66As mentioned above, the bill allows for ERA to make standards for both the corporations legislation and for purposes other than the corporations legislation through legislative instruments and through non-legislative instruments. According to the EM, a standard will be a ‘legislative instrument if, at the time it is formulated, any part of the standard could reasonably be expected to affect a person’s rights or obligations under a law of the Commonwealth, whether directly or indirectly.’
1.67Standards not for the purposes of the corporations legislation would generally be non-binding, as they do not have legal effect under the Corporations Act. The Explanatory Memorandum goes on to explain however:
…at the time they are formulated, some standards may have immediate legal effect under other Commonwealth laws that automatically incorporate standards made by External Reporting Australia. This could be the case where when read with those other laws, the standard would impose obligations established by those laws. Such standards could reasonably be expected to affect a person’s rights or obligations and hence are to be made by legislative instrument. Where these considerations are not applicable, External Reporting Australia has the flexibility to make the standard by non-legislative instrument, which may be considered a more accurate reflection of the administrative character of a non-binding standard.
1.68The Scrutiny Committee raised concerns that it was not clear when parliamentary scrutiny would arise for a non-binding standards which were given legislative force by other legislation. It requested the Assistant Treasurer provide advice as to:
why it is necessary and appropriate to provide for the making of standards that are not legislative instruments;
whether or not standards made as non-legislative instruments with the intention that they later be incorporated or applied by reference would be reasonably expected to affect a person’s rights and obligations in Commonwealth laws for the purposes of the test in proposed subsection 225B(2); and
whether additional guidance could be provided, in the explanatory memorandum or otherwise, to provide further clarification of this issue.
1.69The Assistant Treasurer provided a response to the concerns raised by the Scrutiny Committee, which was published in Scrutiny Digest No. 5 of 2026.
1.70The response stated that, as some of the standards formulated by the AASB and the AUASB are not legislative in character, the Assistant Treasurer considered it appropriate that the bill provide for the making of non-legislative standards.
1.71The Assistant Treasurer’s response also made the point that, if a standard made by the ERA has immediate effect under other Commonwealth law, it is reasonable to expect it would affect an individual’s rights or obligations, and would therefore be made a legislative instrument. A standard that is not incorporated by another law or otherwise does not impose obligations would not meet the definition of a legislative instrument under the Legislation Act 2003. As such, the Assistant Treasurer wrote that these standards not being legislative instruments better reflects the character of these kinds of instruments.
1.72The Assistant Treasurer also advised that:
…the proposed test is intended to involve a factual enquiry about whether the standard could affect a person’s rights or obligations under a law of the Commonwealth at the time it is made. Further, it was suggested that the ERA would not be the body responsible or answerable for any subsequent incorporation, adoption or application of a standard. This was said to be the case irrespective of any intention on the part of the ERA that a new non-legislative standard that does not immediately affect a person’s rights or obligations would or may later be incorporated under other Commonwealth legislation.
1.73The Assistant Treasurer concluded by stating that it was appropriate for Parliament to scrutinise such an instrument at a later time, such as through disallowance, and declined to update the Explanatory Memorandum to further clarify the test.
1.74The Scrutiny Committee thanked the Assistant Treasurer for the response and acknowledged the points raised therein. The committee maintained, however, that they were ‘not aware of other laws that provide for an instrument to be made as a legislative or non-legislative instrument according to the assessment of officials’ and that bills that seek to adopt a different test should have extensive justification. The Scrutiny Committee was also noted its concern about the emergence of:
… a trend toward a broader use of provisions enabling the making of non-legislative instruments intended to be incorporated into legislation or otherwise given legislative force at a future date in a way which may limit parliamentary scrutiny.
1.75The Scrutiny Committee concluded by drawing the matter to the attention of Senators, noting that the committee ‘leaves to the Senate as a whole the necessity and appropriateness of’ these sections of the bill. It also the drew the matter to the attention of the Senate Standing Committee for the Scrutiny of Delegated Legislation.
Human rights implications
1.76The Parliamentary Joint Committee on Human Rights has made no comment on the bill.
1.77The Explanatory Memorandum contains a discussion of the human rights implications of the bill and states that the bill engages with the following human rights:
the right to work contained in articles 6 and 7 of the International Covenant on Economic, Social and Cultural Rights (ICESCR); and
the right to protection from arbitrary or unlaw interference with privacy in article 17 of the International Covenant on Civil and Political Rights (ICCPR).
1.78The bill interacts with the right to work through:
placing restrictions on eligibility for employment to the Governing Council and standards-setting boards;
restricting the Governing Council Chair’s ability to accept other paid work outside of their appointment to the Governing Council;
placing restrictions on Governing Council and standards-setting board members, such as that a member of these entities not misbehave, not become a bankrupt, make unauthorised disclosures and maintain integrity of the Governing Council.
1.79The Explanatory Memorandum states that where there are limitations on the right to work, they are reasonable, proportionate and necessary in order to maintain public confidence in, and the integrity of, ERA.
1.80The bill also interacts with the right to privacy because it allows or the authorisation of the disclosure of information provided to ERA in confidence. Any such disclosure would only be authorised under certain circumstances, such as if it was permitted by another law, or made to another government agency for that agency to exercise their functions.
1.81These provisions of the bill are consistent with the right to privacy as contained in the ICCPR. Any disclosures made by ERA would be necessary and proportionate to ensure the operation of the Australian financial reporting system and achieve the objective of assisting in the functions of bodies related to ERA.
1.82The Explanatory Memorandum concludes that the bill is compatible with human rights as any limitations of those rights are reasonable, necessary and proportionate.
Conduct of the inquiry
1.83The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting written submissions by 27 March 2026.
1.84The committee received sixteen submissions which are listed at Appendix 1.
Acknowledgements
1.85The committee thanks all individuals and organisations who assisted with the inquiry, especially those who made submissions.