Trans-Tasman Accounting Standard Advisory Group – Minutes

2.00-4.30pm, Friday 8th June 2007

Australian Accounting Standards Board/Audit and Assurance Standards Board, Boardroom, Level 7, 600 Bourke Street, Melbourne

Participants

Warwick Hunt – Chair (Accounting Standards Review Board (ASRB) – NZ)
Charles Macek (Financial Reporting Council (FRC) – Aust)
David Boymal (Australian Accounting Standards Board (AASB) – Aust)
Merran Kelsall (Audit and Assurance Standards Board (AUASB) – Aust)
Bill Palmer (Institute of Chartered Accountants Australia (ICAA) – Aust)
Mark Shying (Certified Practising Accountants (CPA) – Aust)
Andrew Conway (National Institute of Accountants (NIA) – Aust)
Jim Murphy (Treasury – Aust)
Geoff Miller (Treasury – Aust)
Bede Fraser (Treasury – Aust)
Stephen Powell (Treasury – Aust)
Joanna Perry (Financial Reporting Standards Board (FRSB) – NZ)
Peter Mumford (Ministry of Economic Development (MED) – NZ)
Lisa Barrett (Ministry of Economic Development (MED) – NZ)
Ashley Tomlinson (Ministry of Economic Development (MED) – NZ)
Naomi Hamilton (Ministry of Economic Development (MED) – NZ)

On speakerphone:

Bruce Bennett1 (New Zealand Institute of Chartered Accountants (NZICA) – NZ)
Craig Fisher (Professional Standards Board (PSB) – NZ)

Agenda Items

Agenda Item 1: Preliminaries

Welcome New Attendees

The group welcomed Lisa Barrett and Naomi Hamilton from MED, and Bruce Bennett from NZICA, all of whom were attending their first meeting.

The group also welcomed Warren McGregor and Patricia O’Malley of the International Accounting Standards Board, who attended part of the discussion on agenda item 2 (see below).

Apologies from Charles Macek for the first half hour of the meeting were noted.

Minutes of the previous meeting

The minutes of the previous meeting of the group held in Auckland on 8 March 2007 were circulated for comment on 16 March 2007. 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

  1. The group agreed that a paper would be prepared on entities that report which would consider what recommendations could be made to governments on this issue and broader harmonisation of reporting frameworks. These issues were discussed under agenda item 2.
  2. The group agreed that there would be an ongoing report back to the group on the issue of the two countries’ concepts of reporting entity. To be covered under agenda item 2.
  3. That progress on the Australian and New Zealand responses to the IASB’s SME project will be discussed at the next meeting of TTAASAG. To be covered under agenda item 2.
  4. The AASB and FRSB will prepare commonly formatted reports on their recent activities for the next meeting of TTAASAG. These reports will contain a specific section on their involvement with IPSASB (especially in relation to their commitment of funding and other resources). To be covered under agenda item 3.
  5. Australian Treasury, MED and NZICA will update the group on progress towards the recognition of New Zealand auditors in Australia at the next meeting of the group. To be covered under agenda item 4.
  6. TTAASAG members who are presenting at the International Financial Reporting Standards regional policy forum will share draft presentations before giving their presentation. Members who were present at the forum were familiar with the content of each others preparations before the forum.
  7. The AUASB and the PSB will prepare reports on their recent activities for the next meeting of TTAASAG. To be covered under agenda item 6.
  8. A database should be maintained noting the current Australian and New Zealand representatives at the international level. To be covered under agenda item 7.
  9. The pool of actual and potential Australian and New Zealand representatives at the international level will be a standing agenda item at future meetings of TTAASAG. To be covered under agenda item 7.
  10. The group will be provided with government and professional advice on potential multilateral forums to maintain influence. Proposals arising out of this work could be launched at the regional policy forum in 2008. A paper will be prepared on these issues for the December meeting of the Group.

Agenda Item 2: Australia and New Zealand’s financial reporting frameworks

The group discussed the Australian and New Zealand progress to date to the IASB’s draft standard for SME’s. The main points arising out of the discussions were as follows:

  • It was noted that both the AASB and FRSB have released discussion documents for public comment on the IASB’s SME standard.
  • It was noted that the IASB SME standard is not for publicly accountable entities, but in other respects it is up to specific jurisdictions to determine who the standard should apply to.
  • It was noted that the public interest may require full IFRS reporting even for those entities that are not deposit takers or publicly listed. The AASB has suggested that size may be a suitable proxy for when there is a public interest in full IFRS reporting when an entity is not a deposit taker or publicly listed.
  • The AASB considers that a differential reporting regime may be appropriate for not-for-profit entities in Australia (where the three tiers would be 1) IFRS, 2) SME standard, and 3) no preparation requirements).
  • It was noted that a three tiered system (based upon 1) IFRS, 2) SME standard, and 3) no preparation requirements) would result in an added burden to some organisations and a reduced burden on others in Australia. In New Zealand it would only reduce the burden on some organisations. The overall result would be the Australian and New Zealand reporting requirements would become more harmonised.
  • The FRSB considers a regime similar to the proposed Australian system of three tiers should be considered (i.e. the three tiers being 1) full IFRS, 2) SME standard, and 3) no preparation requirements).
  • It was noted that there may be a perception that with the transfer to IFRS in New Zealand the compliance requirements of small entities may increase. If consideration of the SME standard results in a reconsideration of the financial reporting framework in New Zealand and a consequent reduction in small company financial reporting requirements, an issue would arise in that this could mean increasing and then reducing the reporting requirements of small entities in a short space of time.
  • The FRSB has received feedback that the majority of New Zealand financial statements for smaller/family owned entities are prepared for their tax accounts. There are no external users and therefore they are probably not general purpose financial statements.
  • FRSB also considers that not-for-profit entities tend to have high public accountability and probably the majority of financial statements are general purpose financial statements. A three tier system therefore, may be appropriate for the not-for-profit sector.

Action Points – agenda item 2

  1. The group agreed that there would be an ongoing report back to the group on the Australian and New Zealand responses to the IASB’s SME project;
  2. The FRSB and ASRB could write to the New Zealand Minister of Commerce about the reporting requirements of small entities and the issues arising out of consultation on the SME standard;
  3. There will be an ongoing report to the group on the issue of Australian and New Zealand concept of reporting entity.

Agenda Item 3: Joint work between the AASB and the FRSB

The FRSB and the AASB prepared reports on their recent activities for the group. These reports were taken as read. The key points arising out of the reports were:

  • It was noted that the AASB has been working on (amongst other things) the removal of differences between Australian Accounting Standards and IFRS, and certain public sector standards issues.
  • The AASB’s removal of differences from IFRS has brought out inconsistencies between New Zealand and Australia.
  • It was noted that (amongst other things) the FRSB has been finalising its Not-for-profit financial reporting guide, which will be ready for publication shortly, and has been working on a number of exposure drafts. The FRSB has also been continuing its involvement in the conceptual frameworks projects of the IASB and IPSASB.

Action points – agenda item 3

  1. The AASB and FRSB will prepare commonly formatted reports on their recent activities for the next meeting of TTAASAG.

Agenda Item 4: New Zealand auditors practising in Australia

The group discussed the progress towards achieving the mutual recognition of auditors between Australia and New Zealand. The key points arising from the discussions were as follows:

  • Discussions between MED, Australian Treasury, Australian Securities and Investment Committee (ASIC) and NZICA has resulted in agreement that the Trans-Tasman Mutual Recognition Agreement is the most appropriate means of achieving mutual recognition for auditors.
  • It was noted that a statutory register of auditors will need to be maintained in New Zealand and NZICA has agreed to do this.
  • It was noted that, subject to Cabinet agreement, a Bill establishing a statutory register of New Zealand auditors would be introduced into the New Zealand parliament before the end of 2007 and hopefully enacted by mid 2008.
  • It was noted that there were a few outstanding issues that needed to be resolved or clarified so as to ensure the integrity of the proposed mutual recognition arrangements.

Action points – agenda item 4

  1. Australian Treasury, MED and NZICA will update the group on further progress towards the recognition of New Zealand auditors in Australia at the next meeting of TTAASAG.

Agenda Item 5: The International Financial Reporting Standards (IFRS) regional policy forum

The group discussed the IFRS regional policy forum held in Japan in March 2007. The main points arising out of this discussion were as follows:

  • It was noted that TTAASAG was well represented and that three members had formal roles at the forum.
  • It was noted that much progress had been achieved in the regional adoption of IFRS since the last forum.
  • It was noted that having greater representation from policy makers at future forums would help to add value.
  • It was noted that the forum recognised that there were challenges in the interpretation of IFRS across the globe and there was a broad spectrum of capabilities among countries in complying with IFRS.
  • It was noted that the prevalence of national interpretations and guidance material in many jurisdictions raised issues for the IFRS brand.
  • It was noted that the group has an important interest in protecting the IFRS brand.
  • It was noted that being able to cite compliance with IFRS provides specific benefits to entities that are looking to raise capital internationally, but it also provides more diffuse benefits to other types of entities.
  • It was noted that China is interested in hosting the next IFRS regional policy forum.
  • It was noted that Jim Murphy would be attending an IASB forum in China in July 2007 and that the ASRB had also been invited to attend.

Action points – agenda item 5

  1. It was agreed that an agenda item on a regional network on financial reporting issues would be added to the agenda for the next meeting of the group, and that a tentative model of such a network would be prepared to stimulate discussion under this agenda item.

Agenda Item 6: Australia and New Zealand’s audit regulation frameworks

The group discussed papers prepared by the AUASB and the PSB on their recent activities. The main points arising out of this discussion were as follows:

  • It was noted that PSB has had a name change in order to prevent confusion as to the role of the Board.
  • PSB has amended its guidance material to deal with the issue of audit reporting on IFRS, so that it states that, subject to the terms of engagement, auditors should include in their audit report a statement on compliance with IFRS, with the entity’s approval.
  • The AUASB recently issued a report in relation to the inclusion of a statement of compliance with IFRS in the auditors report. They also raised the issue of whether directors and not just auditors should be responsible for the statement of compliance.
  • The AUASB raised concerns over the low level of understanding of standards in relation to audits in small firms. Audit rotation appears to be an issue especially when small firms only have one auditor. In relation to enforcing audit and assurance standards, it is understood that the approach taken by ASIC will generally be an educative role for the first year or so and subsequently focus more on enforcement.
  • The AUASB hopes to have a standard relating to audit reporting against IFRS released in July.

Action points – agenda item 6

  1. The AUASB and PSB will prepare short papers in a common format on their recent activities for the next meeting of TTAASAG.

Agenda Item 7: Australian and New Zealand international representatives

The group discussed the Australian and New Zealand international representatives. The key points arising out of this discussion were as follows:

  • There should be one central database containing a full list of Australian and New Zealand international representatives and related information.
  • It would not currently be appropriate for the database to list what prospective positions would be suitable for people on the list.
  • The group should target certain positions in international bodies and use the database to consider whether there are individuals who the group could suggest to fill those positions.
  • In the first instance the group should target certain positions on what are currently recognised as key international bodies and those international bodies where there is already Australian and/or New Zealand representation.

Action Points: agenda item 7

  1. With assistance from the FRC and NZICA, the Secretariat will maintain a register listing the following information about actual and potential Australian and New Zealand international representatives:
    • Names
    • Positions
    • Terms
    • Potential people who could be involved
    • Who makes the appointments

Agenda Item 8: Follow up on strategic discussion at previous TTAASAG meeting

At the previous meeting of the group there had been a discussion of TTAASAG’s future strategic direction. The group had a follow up discussion on this issue. The main points arising out of this discussion were as follows:

  • The group noted that there was a desire to be more involved at the policy level.
  • It was noted that there would be scope for the group and members collecting and/or commissioning more research into financial reporting and audit related matters. This research could help to identify areas where improvements could be made in both countries.

Action points – agenda item 8

  1. A list should be prepared noting common policy issues in Australia and New Zealand as TTAASAG meetings would be a good sounding board for these issues;
  2. MED will send out a reminder three weeks prior to the next meeting in order to give members a chance to consider issues that could be added to this list;
  3. It was agreed that an agenda item on a regional network on financial reporting issues would be added to the agenda for the next meeting of the group, and that a tentative model of such a network would be prepared to stimulate discussion under this agenda item.

Agenda Item 9: MED work on accounting and audit matters

The group discussed the progress made on MED’s auditor regulation and liability discussion document. The key point arising from this discussion was as follows:

  • It was noted that due to other priorities this work is not currently being progressed, although it remains on MED’s medium term work programme.

Action Points – agenda item 9

  1. The group will discuss MED work on auditor regulation and auditor liability at its next meeting.

Agenda Item 10: General Business

No matters were raised in general business.

Next meeting

The next meeting of the group will be held in Sydney on 29 August 2007.


1 In place of Garry Muriwai (New Zealand Institute of Chartered Accountants (NZICA) – NZ)