Trans-Tasman Accounting Standards Advisory Group - Minutes

2.00pm, Wednesday 19 May 2004

ICAA offices, Sydney

Participants:

Jim Murphy (Australian Treasury) - Chair
Charles Macek (Financial Reporting Council (FRC) - Australia)
Professor David Boymal (Australian Accounting Standards Board (AASB))
Joanna Perry (Financial Reporting Standards Board (FRSB) – New Zealand)
Greg Larsen (CPA Australia)
Peter Mumford (New Zealand Ministry of Economic Development (MED))
Keith Rushbrook (on behalf of the Accounting Standards Review Board (ASRB) – New Zealand)
Kerstin Wijeyewardene (Australian Treasury)
Peter Taft (Australian Treasury)

Agenda Items

Introduction

The Chairman noted an increased Ministerial interest in Trans-Tasman co-operation across a number of different areas. The Trans-Tasman business leaders’ forum held the previous weekend in Wellington is seen to have given added impetus to the desire for greater integration of business regulation. The Trans-Tasman Group (‘the Group’) has a clear mandate to see what can be done, and to devise specific proposals to be put to the Minister to achieve greater convergence of standards. It was noted that business law issues had been on the agenda for a long time, but opportunities for greater co-operation had arisen from the initiative of Ministers Cullen and Costello to work towards a single Trans-Tasman economic market based on common regulatory frameworks.

Agenda item 1: Alignment of Australian and New Zealand financial reporting standards

Extent of Differences

The Group noted that while there were some differences in standards in Australia and New Zealand, generally both countries are modifying the standards in similar ways and therefore differences were limited. Differences in the standards were stemming from:

  • Sector neutrality
  • Different treatment of options.

The Group noted that the difference between standards mainly related to disclosure rather than the differences arising from measurement requirements. In addition, Australia was keeping certain “domestic” standards (for example, materiality) while New Zealand was not.

The Group considered that through the work of the Advisory Group and co-operation at board level, the countries could achieve greater consistency, however given the timetable for international accounting standards (IAS) adoption, there was a limit to what could be done by 30 June 2004. Changes to address minor wording differences could probably be addressed by this time.

It was agreed that the table in which the differences in standards adopted from international standards were listed would be extended to cover all standards, and specific actions and timeframes to eliminate these differences would be identified.

Business Involvement

In terms of the practical impact of these differences for companies operating in the Trans-Tasman market, it was suggested that those companies be surveyed. The ASRB’s user group in New Zealand and the G100 were identified as sample groups to test this issue.

It would be important that the survey questions were specifically aimed at ascertaining the costs of different standards applying between Australia and New Zealand. It was agreed that this work would be co-ordinated by officials with a view to reporting to Ministers.

Impact of Domestic Issues

Another issue raised was the extent to which certain domestic factors could impede convergence. For example, certain recommendations from the HIH Royal Commission are being built into Australian standards. Standard setters and others would need to be mindful of Trans-Tasman issues and even give them priority when dealing with recommendations arising from such processes. It was suggested that where processes such as inquiries and commissions were likely to suggest changes to accounting standards then they should be asked to consider Trans-Tasman convergence objectives.

Interpretation of Standards

The issue of interpretation of standards was also discussed. New Zealand has no equivalent to the Urgent Issues Group which provides interpretations in Australia and was proposing to follow interpretations made by the International Accounting Standards Board (IASB). Australia envisages that in addition to IASB interpretations some domestic interpretations will also be required. It was noted that Australia would not provide interpretations in isolation but would consult with the IASB. The Group noted that regulators had also issued interpretations of standards. The Group agreed that to maintain the maximum extent of alignment, the issue of interpretations would need to be kept under review.

Agenda item 2: Influencing international standard setting

IASB

There was discussion as to whether Australia and New Zealand should seek to make joint representations or whether separate, mutually-supportive representations were more effective. One view was that separate representations by both countries have more weight. An alternative view was that the strength of technical arguments was more important than the number of countries advocating a particular view, and that Australia and New Zealand were both rated highly in terms of technical competence.

The Group noted that Australia and New Zealand were highly regarded through work undertaken in the G4+1 and that they were well-represented given their size.

There was clearly scope for better use to be made of Australian and New Zealand representatives on the IASB and related bodies to communicate the views of the Australian and New Zealand standard setters and business communities.

It was argued that there was scope to develop the Australian and New Zealand liaison relationship with the IASB and take a leadership role in the region by engaging with other standard setters in Asia.

Europe

It was argued that there was scope for Australian and New Zealand representatives to build better personal relationships with overseas counterparts, especially in Europe. There were some issues of interest coming up where Australia and New Zealand could seek to build links with European interests and work to understand their position on issues.

Asia

There was general agreement that engagement in the Asia region would be desirable and that a strategy should be developed to pursue this. In addition, it was considered that it was better for submissions to international bodies to be made separately in order to maintain influence but that there needed to be greater and more systematic co-ordination between Australia and New Zealand. It was noted that this had occurred with submissions made to the IASC Constitution Review, although the consultation had been rather late in the process due to timing constraints. There was a suggestion that a more formal process for consultation be instituted.

It was agreed that officials would consider further options for increasing influence at the international level.

Agenda item 3: The legal framework for financial reporting

It was noted that the current review of the New Zealand Financial Reporting Act represented an opportunity for greater consistency to be achieved in Australia’s and New Zealand’s regulatory requirements. It was agreed that consideration should be given to the compliance costs of different reporting regimes.

It was suggested that some work would be done to compare the reporting regimes to see if New Zealand moving towards the Australian approach would constitute a ‘loosening up’ of the requirements.

The Group agreed that Australia’s GAAP/GFS harmonisation project would be considered at its next meeting.

Agenda item 4: Institutional integration of the Australian and New Zealand standard setting regimes

The Group noted that cross-representation of New Zealand and Australian members on standard setting and oversight bodies was an important first step to greater integration.

Members noted that Australia and New Zealand already had examples of joint institutions, for example Food Standards Australia New Zealand which approves amendments to the Food Standards Code that applies in both countries. The Group noted that under these arrangements a single standard-setter issued legally enforceable standards in both jurisdictions.

Members considered whether joint standards and the move from “2 voices” to “1 voice” would reduce its influence in the international debate. Members also questioned whether cross-representation on the standard setting and oversight bodies would achieve similar results. Other members queried whether Australia and New Zealand have the critical mass to support two separate bodies.

Members agreed that it would be desirable to look at what could be achieved by greater co-operation and co-ordination between jurisdictions and through better liaison and co-ordination across the region. Members considered that cross-membership on the bodies would be desirable and the current arrangements whereby each has observer status should be formalised. This should be the focus and joint institutions may be an inevitable outcome.

The Group noted that New Zealand was not considering the treatment of auditing standards, which remained the responsibility of the profession. The Group considered that cross-representation between Australia’s Audit Standards Board, and the New Zealand equivalent, on observer status basis, would be desirable.

General Business

Group agreed that it should meet every 3-4 months and the next meeting should be scheduled for August.

List of Proposed Actions

AASB and the FRSB to deal with minor wording differences between the standards by 30 June 2004, and to consider implications of drafts in standards applying to investment properties and employee entitlements. (AASB and FRSB to update / review the table as part of this process).

Formalise cross-appointments between standard-setting and oversight bodies and auditing bodies (Treasury, MED and others).

The New Zealand ‘user group’ and Australian G100 to be surveyed to ascertain the costs to business from differing standards, with the results forwarded to Governments (Treasury, AASB and ASRB).

Comparison of the Australian and New Zealand legal requirements (Treasury, MED).

Development of strategy paper for regional engagement (Treasury / MED in consultation with members).

Further consideration to be given to links with the EU (Treasury and others).