Trans-Tasman Accounting Standards Advisory Group - Minutes
2.00pm, Tuesday 21 September 2004
CPA Australia offices, Level 28, 385 Bourke St, Melbourne.
Jim Murphy (Treasury - Aust) - Chairman
Charles Macek (Financial Reporting Council - Aust)
Professor David Boymal (Australian Accounting Standards Board)
Warwick Hunt (Accounting Standards Review Board - NZ)
Alan Teixeira (Financial Reporting Standards Board - NZ)
Greg Larsen (CPA Australia)
Bill Palmer (Institute of Chartered Accountants Australia) – by telephone
Peter Mumford (Ministry of Economic Development - NZ)
Geoff Connor (Ministry of Economic Development - NZ) – by telephone
Kerstin Wijeyewardene (Treasury - Aust)
Peter Taft (Treasury - Aust)
Patricia McBride (CPA Australia)
Apologies were noted from Joanna Perry (Financial Reporting Standards Board) and Keith Rushbrook (Accounting Standards Review Board). The minutes of the previous meeting of the Group held in Sydney on 19 May 2004 was accepted as true and accurate.
Agenda item 1: Alignment of Australian and New Zealand financial reporting standards
An extensive list detailing the wording differences in Australian and New Zealand accounting standards, prepared by the Financial Reporting Standards Board (FRSB), was considered. It was noted that approximately half of the differences resulted from adopting the standards for ‘public benefit’ entities. Approximately one-third were due to regulatory differences in the two countries. The remainder were legacies of extra disclosure requirements of AASB and FRSB standards which were not needed under International Financial Reporting Standards (IFRS). Differences in standards adopted under IFRS had arisen because Australia had provided its own guidance whereas New Zealand had largely relied on the guidance provided by the International Accounting Standards Board (IASB). In addition, in both countries there was a preference to eliminate the choices contained in the IASB standards, which inherently leads to different requirements when different choices are removed. Therefore, notwithstanding the move by both countries towards adoption of IFRS, differences would remain as remnants of past practices and the application different reporting regimes.
There was general agreement that there was a limited scope to eliminate the differences in wording while the two countries imposed different financial reporting frameworks governing the requirements on different types of entities. That is, if there was a genuine desire to move towards a common Trans Tasman market in relation to accounting standards, the financial reporting frameworks would need to be better aligned.
There was, however, a view expressed that more could be done within the existing framework to better align the words. Members of the Group were of the view that better alignment of the standards within the existing framework could have a more positive impact on the profession than is often realised, because of economies of scale in training, and greater flexibility in professionals working between the countries.
It was considered that under the current framework, the FRSB and AASB should get together and work through each standard. In the longer term, a single standards board may be required, or some other mechanism that will provide for standards adopted in the two countries to be made as similarly as possible. Some sort of agreement or protocol between the countries would be desirable to allow for closer alignment that would involve both countries raising the overall quality of their standards, and should be used when working through each standard.
Concerning possible future financial reporting frameworks, it was decided that the Treasury and the Ministry of Economic Development would jointly prepare a report to the respective Governments containing options to bring about a closer alignment of the financial reporting frameworks, and that these options would be considered at the next meeting of the Group. This could, for example, involve adding an overlay of consideration of trans-Tasman issues in the development of new laws and standards, but would refer to the work being undertaken to eliminate differences in wording. Auditing standards setting would be included in the consideration of issues. The task is to be undertaken in consultation with the FRSB, AASB and the professional bodies.
Agenda item 2: Survey of Businesses of the Costs of Non-aligned Standards
In August, the Chairman of the Group, Mr Jim Murphy, wrote to the National President of the G100, Mr John Stanhope, seeking comment on the implications of there being different accounting standards in Australia and New Zealand, and in particular whether differences in the Australian and New Zealand versions of IAS 19 and IAS 40 would cause compliance issues for companies operating in the Trans-Tasman market, and what potential costs may be incurred in complying with the different requirements.
Consequently, the G100 surveyed 15 of its members with known Trans-Tasman links. Responses were received from companies from a range of sectors, including banking, telecommunications, manufacturing and mineral refining. The overall view expressed was that the differences in the standards did not represent a significant problem and would on the whole be manageable, and not especially costly. The Group considered that the response mirrored the views put earlier in the meeting that the extent of non alignment was not considerable given the differences in the broader framework.
There was a view put by members of the Group that as the survey had been targeted at a fairly high level – that is, the Chief Financial Officers – it was possible that the full extent of the benefits from better alignment would be experienced at a lower level within companies. Another view put was that it was more likely to be New Zealand rather than Australian companies that experience costs from non alignment, and that smaller companies without sophisticated accounting mechanisms in place may also be in the same position.
New Zealand has advised that it intends to conduct a survey of companies in the near future. Members agreed that officials should examine whether further information should be sought to better gauge the impact of differences in standards. It was agreed that this issue be reconsidered at the next meeting of TASAG.
Agenda item 3: Influencing international standard setting
The Group considered measures to maintain and enhance the influence of Australia and New Zealand in accounting standard setting, as proposed in a paper prepared by the Australian Treasury in conjunction with the Ministry of Economic Development, the AASB, FRSB and the professional bodies. It was noted that in the first instance, Australia and New Zealand should endeavour to maintain their reputation for making a high quality contribution to international standard setting. Further, the limited resources that the countries jointly have to contribute to international accounting standard setting processes can be used more effectively by coordination and cooperation between them.
It was considered by the Group that following on from structural changes likely to arise from the IASC Foundation constitutional review, greater co-operation would be needed for countries in the region to maintain and enhance their influence. This would involve working with standard setters or directly with governments, depending on the process applying in the relevant countries. The Group generally agreed that Australia and New Zealand should promote IASB standards within the region, and that this would include looking to provide technical expertise.
There was discussion about ways in which the countries could directly influence the IASB, including via more contact with IASB staff members. It was noted that even though members on IASB committees from the region often did not think ‘regionally’, they often looked to Australia and New Zealand for guidance.
The Group agreed that at each level – Government, standard setters and oversight boards, and the profession – there was scope to enhance relationships with international counterparts. For example, within Europe, the AASB maintained informal contacts with the French, German and Italian standard setters. All of these relationships should be used to promote Australia and New Zealand and in the case of nearby countries, regional thinking on standard setting issues. This may involve better liaison before international fora.
The Group agreed that a number of the avenues suggested in the paper by Treasury be pursued, in particular raising the issue of standards setting at the meeting of the Four Markets group in Tokyo on 27 October. In addition, the meeting of the Executive Committee of the Confederation of Asian and Pacific Accountants (CAPA) scheduled for early November in Sri Lanka provides an opportunity to raise accounting standards issues in the region. The Group agreed to further consider the strategy at its next meeting, and to report on discussion and developments on this item in the report to the respective Ministers.
Agenda item 4: General Business
Cross membership of standard setting and oversight bodies
The Group noted that since its last meeting on 19 May 2004, the Australian Treasurer had written to the New Zealand Minister of Finance seeking the nomination of a New Zealand representative to the Financial Reporting Council, and the Ministry of Economic Development had taken steps towards the appointment of an Australian representative to the ASRB. These would likely be progressed in the next couple of months following the required procedures in each country.
It was also noted that the FRSB and AASB had aligned meeting agendas to facilitate consideration of issues of mutual interest. Further steps would be to have joint papers prepared for the Boards and common monitoring of IASB projects. Although there had been no formal cross-appointments, it was agreed that these should be formalised where possible. The AASB would be happy to have a New Zealand representative appointed to it by the FRC and the FRSB would undertake to reciprocate with the appointment of an AASB member.
Review of the New Zealand Financial Reporting Act 1993
The Ministry of Economic Development has evaluated submissions on the discussion document released in March 2004 on the Review of the Financial Reporting Act 1993.
Submissions revealed broad support for the general objective of some form of differential reporting requirements depending on the characteristics of the company. Concerns were raised regarding the sector neutral approach proposed in the discussion paper. The Minister of Commerce has announced that officials will develop a revised proposal that will be included in the second part of the review scheduled for public release in November 2004 with a view to new legislation being introduced in 2005 and enacted in 2006.
In view of the discussion earlier in the meeting and the decision to consider changes to the financial reporting framework in both countries, the New Zealand representatives of the Group indicated that they would be keen for Australian interests to input into the review, and that consideration should be given to making a single Trans Tasman market a priority outcome.
Members of the Group were alerted to the fact that information regarding its purpose and meeting records had been posted to the FRC and ASRB websites:
- A direct link to the Trans-Tasman Group information is on the home page of the ASRB website www.asrb.co.nz; and
- Information regarding the Trans-Tasman Group can be accessed on the FRC website www.frc.gov.au via the ‘links’ page under ‘Other International Bodies’.
The Group tentatively agreed to meet again following the FRC meeting scheduled for 6 December 2004.
List of Proposed Actions
- A report to the respective Governments be prepared outlining progress to date on the objectives of the Group, and containing options for consideration to bring about a closer alignment of the financial reporting frameworks. These options are to be considered at the next meeting of the Group, and would include possible options for submission to the New Zealand review of its Financial Reporting Act (Treasury, MED);
- Formalise cross-appointments between standard-setting and oversight bodies
and auditing bodies, as follows:
- Appointment of New Zealand representative to the FRC – to be followed up with the incoming Australian Government following the election, pending response from the New Zealand Minister of Finance (Treasury);
- Appointment of Australian representative to the ASRB (MED);
- Appointment of New Zealand representative to the AASB (the AASB to make a recommendation to the FRC); and
- Appointment of Australian representative to the FRSB (FRSB to consider)
- New Zealand to survey businesses on the costs from differing standards, with recommendations on follow-up survey work to inform a submission to Governments (Treasury, AASB, MED, ASRB).
- Preparation of a submission on international accounting standards to the Four Markets group in Tokyo in October (Treasury), and to the CAPA meeting in November (Treasury, MED, in consultation with the professional bodies).