9.30-12.00, Tuesday 5 September 2006Institute of Chartered Accountants of Australia, Melbourne Room, Level 5, Institute of Chartered Accountants of Australia Building, 37 York Street, Sydney
Warwick Hunt – Chair (Accounting Standards Review Board (ASRB) - NZ)
Bill Palmer (Institute of Chartered Accountants Australia (ICAA) - Aust)
Mark Shying (Certified Practising Accountants (CPA) – Aust)
Roger Cotton (National Institute of Accountants (NIA) - Aust)
Professor David Boymal (Australian Accounting Standards Board (AASB) - Aust)
Merran Kelsall (Audit and Assurance Standards Board (AUASB) - Aust)
Jim Murphy (Treasury - Aust)
Geoff Miller (Treasury - Aust)
Stephen Powell (Treasury - Aust)
Bede Fraser (Treasury - Aust)
Garry Muriwai (New Zealand Institute of Chartered Accountants (NZICA) - NZ)
Joanna Perry (Financial Reporting Standards Board (FRSB) - NZ)
Craig Fisher (Professional Practices Board (PPB) - NZ)
Peter Mumford (Ministry of Economic Development (MED) - NZ)
Geoff Connor (Ministry of Economic Development (MED) - NZ)
Ashley Tomlinson (Ministry of Economic Development (MED) - NZ)
Charles Macek (Financial Reporting Council (FRC) - Aust)
Agenda Item 1: Preliminaries
Welcome New Members
The group welcomed the newly appointed members of TTAASAG, Merran Kelsall, Chair of the Audit and Assurance Standards Board and Craig Fisher, Chair of the Professional Practices Board.
Minutes of the previous meeting
The minutes of the previous meeting of the group held in Auckland on 5th May 2006 had been circulated for comment on 16 May 2006. Following some minor comments and subsequent changes, the minutes were made available on the Trans-Tasman page of the FRC and ASRB websites.
Action Points from that Meeting
- New Zealand and Australia will suggest to the host of the next IFRS regional policy forum that the new South Asian grouping be contacted about the possibility of members of this new grouping attending the forum. Jim Murphy and Charles Macek to raise this if appropriate during their forthcoming visit to China, Japan, and Singapore. Discussed under agenda item 2
- The Australian Treasury will contact the four jurisdictions (which did not confirm that their questionnaire responses could be published on the internet) to advise them that the responses from the other jurisdictions attending the Forum have been published on the internet. Discussed under agenda item 2
- Joint meetings and work between the AASB and the FRSB will be a standing agenda item at future TTAASAG meetings. Agenda item 3 has been included as a result
- For the consideration of Ministers Dalziel and Costello, MED and the Australian Treasury will prepare a joint Ministerial press release congratulating the AASB and the FRSB on finalising the protocol. The press release was published in Australia and New Zealand on 9 August 2006, and links on the Ministers websites were circulated to TTAASAG members. The TTAASAG Chair also passed on the group’s congratulations to the AASB and the FRSB on signing the protocol
- Subject to consultation with the chairs of the AUASB and the PPB, the Australian Treasury and MED will jointly prepare a proposal to Ministers to expand the group’s Terms of Reference to cover audit issues. Both Ministers have agreed the changes to the terms of reference and appointment of new members to TTAASAG
- The Australian Treasury and MED will produce a comparative table setting out the differences between the Australian system for auditor regulation and auditing standards setting and the position contained in MED’s draft discussion document. This table will be discussed at the next meeting of the group. Discussed under agenda item 7
- The Australian Treasury and MED will produce a paper describing the differences between the two countries reporting requirements focusing on large non-issuer/proprietary companies. This paper will be considered at the next meeting of the group. Discussed under agenda item 5
- The AASB and the FRSB will prepare a submission for Sir David Tweedie on the pre-release exposure draft of the IASB’s SME project by 26 May 2006. The submission will then be circulated to the group for comment before being sent to Sir David. Discussed further under agenda item 5. The TTAASAG Chair noted that Sir David had replied to the letter and expressed the hope that Australia and New Zealand may adopt the IASB standard for SMEs
- The TTAASAG Chair will discuss differential reporting issues with Charles Macek. Completed
Agenda Item 2: The next International Financial Reporting Standards Regional Policy Forum
The group discussed the preparations for the next regional forum. The main points discussed were as follows:
- It was positive to see that Japan had agreed to host the forum, and that a date has been confirmed (29 March 2007). It was also positive to see that the Japanese Financial Services Agency would be joint host (along with the Accounting Standards Board of Japan), and that Sir David Tweedie planned to attend.
- It was noted that the Australian Treasury had sent Japan a list of attendees from the previous forum, and offered the assistance of Australia and New Zealand in the arrangements for the forum, including the development of agenda topics, background papers, and other administrative arrangements, as well as the possibility of the Australian and New Zealand governments and standard setting bodies sponsoring the forum. To date Japan has asked for no further assistance than the list of attendees at the previous forum.
- The group expressed its appreciation to Charles Macek for his role in helping to establish Japan as the host of the next forum.
- Australian Treasury will continue to update the group on further developments in relation to the next forum.
Agenda Item 3: Joint work between the AASB and the FRSB
The group discussed ongoing work involving the AASB and the FRSB. The main points discussed were as follows:
- It was noted that the AASB and the FRSB had been nominated in the Trans-Tasman Business Awards in the environmental, social, government, and community category.
- Although there has been no joint meeting between the two boards since the previous TTAASAG meeting on 5th May 2006, the AASB and the FRSB have continued to co-operate closely since that TTAASAG meeting, particularly in relation to sharing staff resources.
- The AASB and the FRSB will continue to see whether prospective financial information will be adopted as an area of work by the IASB.
- The AASB and the FRSB noted that Sir David Tweedie had provided positive feedback on Australia and New Zealand’s support for globalised accounting standards.
- It was noted that to maintain international influence, it was important for Australia and New Zealand to maintain the high quality of their contribution to international bodies and to continue to suggest projects to the IASB for further work. Other important ways to maintain influence that were noted by the group were to nominate candidates for positions at the IASB and other international bodies and to place greater emphasis on the influence that Australia and New Zealand have in public comments and speeches.
- The AASB and the FRSB will report back to the group on whether the IASB will be considering prospective financial information as an area of work.
- The AASB and the FRSB will provide a written report for future meetings on current activities, including any IASB project work that they are engaged in.
Agenda Item 4: Update on MED work on financial reporting and auditing issues
The group discussed MED work on financial reporting and auditing issues. The main points arising out of this discussion were as follows:
- The Business Law Reform Bill containing various financial reporting measures designed to reduce compliance costs and improve enforcement is currently before select committee in the New Zealand Parliament. The committee is due to report back to Parliament by 19th October 2006.
- MED is adding a section on auditor liability to the draft discussion document, and as well as a discussion on whether audit and assurance standards should have the force of law. This discussion would conclude that they should not have the force of law.
- MED now propose to issue, subject to Cabinet approval, a separate discussion document dealing with financial reporting by charities (rather than including this in the larger discussion document on auditor regulation and financial reporting issues).
- The AASB and the AUASB both expressed an interest in the tiered approach MED currently proposes to take in relation to financial reporting by charities. MED will provide material on this approach to both Boards.
- Members of TTAASAG encouraged the MED to review material prepared in Australia in relation to Auditor liability as it finalises its view for inclusion in the discussion paper.
Agenda Item 5: Australia and New Zealand’s Financial Reporting Frameworks
Australian Treasury and MED produced a paper on Australia and New Zealand’s financial reporting frameworks. The group discussed this paper and other matters relating to the financial reporting frameworks in the two countries (particularly the IASB’s proposed standard on SMEs). The main points arising out of this discussion were as follows:
It was noted that the objective of this work should be to achieve at least harmonisation of the outcomes, if not substance, of the financial reporting frameworks in Australia and New Zealand. If the group wants to go further than this, it should be with the aim of institutionalising these arrangements and/or making them more durable over time.
- The question of whether a formal differential reporting regime should be adopted in Australia should be seen in the broader context of what a general purpose financial statement should be and the Australian and New Zealand response to the IASB’s SME project.
- In Australia, the full suite of Australian standards must be complied with by reporting entities and where financial statements are or are held out to be of general purpose. In practice, where directors of a company consider that the company is not a reporting entity, they prepare special purpose financial statements which may not follow the full suite of standards. They ignore the point that the financial statements might be general purpose by virtue of being placed on a public register, and this point is not subject to regulatory control. In New Zealand, general purpose financial statements must be prepared unless the framework for differential reporting applies, in which case a second tier of (lesser) general purpose financial statement is required.
- The IASB view appears to be that if an entity makes information available, then it should be in the form of a general purpose financial statement. Adoption of the apparent IASB view would mean that many more companies would have to prepare general purpose financial statements in Australia and, to a lesser extent, in New Zealand. More specifically, it would mean that the reporting entity concept in Australia would no longer provide means to deal with the reporting requirements of entities when reporting according to full IFRS would not be appropriate.
- It was noted that there were country specific aspects to this issue, and also potentially separate standards setting and government regulation aspects, as well.
- The AASB and the FRSB will be having stakeholder discussions on the IASB’s SME project. These will deal with differential reporting as well as technical issues.
- The AASB and the FRSB will each prepare a discussion paper on issues associated with the potential adoption of a differential reporting regime for SMEs. This paper will include an analysis of the potential application of the IASB’s SME exposure draft. The group will then discuss whether Australia and New Zealand should look to address this issue separately or jointly on a prospective basis.
Agenda Items 6 and 7: Future direction of TTAASAG on audit issues and Australia and New Zealand’s audit regulation frameworks
Agenda items 6 and 7 were discussed together. Australian Treasury and MED prepared a comparative table setting out the Australian and New Zealand approaches to audit and assurance standards setting and auditor regulation. The main points arising out of the discussion of this table, the future direction of TTAASAG on audit issues, and Australia and New Zealand’s audit regulation frameworks were as follows:
- The AUASB and the PPB noted that in time the group may want to consider a broader or more positive objective for TTAASAG in relation to audit issues
- It was noted that the AUASB and the PPB have a positive working relationship with an ongoing dialogue taking place between the two boards
- It was noted that while Australia and New Zealand were not represented at the international level as was the case in relation to financial reporting standards, the two countries were influential and well regarded internationally in relation to audit issues
- It was noted that the principle difference between Australia and New Zealand in relation to audit and assurance standards was that these standards have the force of law in Australia but not in New Zealand. In Australia this has meant that the AUASB has had to address the complex exercise of drafting standards based on ISA as legally binding instruments. In New Zealand the PPB has agreed to adopt ISA with the minimum of changes necessary to make them suitable for New Zealand conditions
- It was noted that the legal status of audit and assurance standards impacts on how adherence to those standards would be monitored and enforced. With audit and assurance standards not having the force of law in New Zealand, they are enforced by NZICA as professional rules that NZICA members must comply with.
- Australia and New Zealand’s audit regulation frameworks will be a standing agenda item at future TTAASAG meetings
Agenda Item 8: MED work on auditor liability and the approach taken in Australia
The group discussed the approach to auditor liability issues that MED intended to take in their proposed discussion document, and the Australian approach to auditor liability issues. The main points arising out of this discussion were as follows:
- It was noted that MED had dismissed a number of arguments for easing the liability of auditors but concluded that two may have some merit, although evidence would have to be adduced to show that these arguments were actually valid in practice. The first of these arguments was that auditor’s exposure to liability may lead them to over-invest in precaution. The second of these arguments was that it may not be possible for auditors to obtain sufficiently high levels of professional indemnity insurance coverage to cover a worst case scenario
- It was noted that in Australia a capped liability system existed in all states and territories, and that data on the claims history was considered when the cap was set in the different Australian jurisdictions
- It was noted that in Australia it is argued that capped liability benefits consumers because it actually ensures that an agreed level of cover is held by auditors, thereby increasing the ability of clients to obtain redress for a negligent action by their auditor
- It was noted that the capped liability system in Australia has only operated in New South Wales for a significant period of time. Consequently, it is too early to fully assess reaction to the capped liability system, although some certainty seems to have been achieved around the level of professional indemnity insurance cover held by auditors
- Australian Treasury will provide MED with material on the approach taken to auditor liability in Australia.
Agenda Item 9: The ability of New Zealand accountants and auditors to practice in Australia
The group discussed some initial views around the inability of New Zealand auditors to practice in Australia. The main points arising out of this discussion were as follows:
- MED has yet to obtain detailed legal advice on the application of the Trans-Tasman Mutual Recognition Agreement (TTMRA) to the ability of New Zealand auditors to practice in Australia. However, at this stage MED considers that there is an arguable case that the TTMRA does apply to this situation
- Australian Treasury would like to explore options to address the ability of New Zealand auditors to practice in Australia. Australian Treasury has yet to obtain detailed legal advice on the application of the TTMRA to the ability of New Zealand auditors to practice in Australia. However, at this stage Australian Treasury consider that the TTMRA may not apply because there is not a statutory registration process in New Zealand
- Australian Treasury and MED will obtain detailed legal advice on the application of the TTMRA to New Zealand auditors practising in Australia, and will then discuss potential approaches to this issue. Australian Treasury and MED will jointly prepare a paper on this issue for discussion at the next meeting.
Agenda Item 10: General business
It was noted that IPSASB was likely to have a new Chair in the near future.
The next meeting of the group will be in Melbourne on 6th December (location and date to be confirmed).