Trans-Tasman Accounting Standard Advisory Group – Minutes

2.00-4.30pm, Wednesday 29th August 2007

Australian Stock Exchange Boardroom, Level 1 Exchange Centre, 20 Bridge Street, Sydney

Participants

Warwick Hunt – Chair (Accounting Standards Review Board (ASRB) – NZ)
Merran Kelsall (Audit and Assurance Standards Board (AUASB) – Aust)
Andrew Conway (National Institute of Accountants (NIA) – Aust)
Jim Murphy (Treasury – Aust)
Geoff Miller (Treasury – Aust)
Bede Fraser (Treasury – Aust)
Ronita Ram (Treasury – Aust)
Joanna Perry (Financial Reporting Standards Board (FRSB) – NZ)
Craig Fisher (Professional Standards Board (PSB) – NZ)
Garry Muriwai (New Zealand Institute of Chartered Accountants (NZICA) – NZ)
Peter Mumford (Ministry of Economic Development (MED) – NZ)
Ashley Tomlinson (Ministry of Economic Development (MED) – NZ)
Naomi Hamilton (Ministry of Economic Development (MED) – NZ)

On speakerphone:

Charles Macek (Financial Reporting Council (FRC) – Aust)
Mark Shying (Certified Practising Accountants (CPA) – Aust)

Apologies

David Boymal (Australian Accounting Standards Board (AASB) – Aust)
Bill Palmer (Institute of Chartered Accountants Australia (ICAA) – Aust)

Agenda Items

Agenda Item 1: Preliminaries

Apologies from Jim Murphy for the first half hour of the meeting were noted.

Minutes of previous meeting

The minutes of the previous meeting of the group held in Melbourne on 8 June 2007 were circulated for comment on 22 June 2007. Following some minor comments and subsequent changes the minutes were made available in the trans-Tasman pages of the FRC and ASRB websites.

Action points from that meeting

  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. To be covered under agenda item 2.
  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 the consultation on the SME standard. To be covered under agenda item 2.
  3. It was agreed that an agenda item on 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. A paper will be prepared on these issues for the December meeting of the group.
  4. A list should be prepared noting common policy issues in Australia and New Zealand as TTAASAG meetings would be a good sounding board of these issues. To be covered under agenda item 3.
  5. MED will send out a reminder three weeks prior to the next meeting in order to give members a chance of consider issues that could be added to this list. This was done three weeks before the meeting.
  6. The group will discuss MED work on auditor regulation and auditor liability at its next meeting. To be covered under agenda item 3.
  7. 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. To be covered under agenda item 4.
  8. With the 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
    To be covered under agenda item 6.
  1. The AASB and the FRSB will prepare commonly formatted reports on their recent activities for the next meeting of TTAASAG. To be covered under agenda item 7.
  2. The AUASB and PSB will prepare short papers in a common format on their recent activities for the next meeting of TTAASAG. To be covered under agenda item 8.

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

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

  • It was noted that both the AASB and the FRSB have released discussion documents for public comment on the IASB’s SME standard;
  • It was noted that the FRSB and AASB have both conducted round-table discussions covering the IASB’s draft SME standard and its potential application in New Zealand and Australia respectively;
  • Following FRSB’s public consultation around the draft SME standard, the FRSB formed the view that it may be appropriate to defer the mandatory adoption of IFRS for small and medium sized companies in New Zealand subject to a review of their preparation requirements being conducted;
  • It was noted that the ASRB and the FRSB have written to the New Zealand Minister of Commerce requesting a review of New Zealand’s financial reporting frameworks for small and medium sized entities. A response is expected from the Minister shortly;
  • It was noted that if the Minister agrees to a review, the ASRB will consider at its meeting on 4 September deferring the application of IFRS for companies that are not required to file and that come within the size criteria used in the Framework for Differential Reporting;
  • It was noted that deferring the application of IFRS for these companies would have ramifications for entities other than companies who also have the obligations to prepare financial statements in accordance with GAAP. These other entities would also be able to defer the imposition of GAAP;
  • It was noted that any review of New Zealand’s financial reporting frameworks provides an opportunity to consider the trans-Tasman aspects within the scope of TTAASAG’s goals;
  • It was noted that South Africa have adopted the draft SME standard.

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 response to the IASB’s SME project

Agenda Item 3: Common Policy Issues in Australia and New Zealand

It was noted that the following topics have been suggested for discussions at future TTAASAG meetings:

  • Parent Entity Financial Statements
  • Shareholder Friendly Reporting
  • Application of the SME standard
  • Auditor regulation
  • Auditor liability
  • Financial reporting by not-for-profit entities
  • Profits available for dividend

Financial reporting by not-for-profit entities, auditor regulation, and auditor liability were discussed in more detail, as was the scope for TTAASAG to pursue research projects.

Not-for-Profit Entities

MED and Australian Treasury prepared a joint report on the overview position of not-for-profit financial reporting in Australia and New Zealand. The key points arising out of the discussion of this issue were as follows:

  • In Australia most not for profit entities are either companies limited by guarantee or incorporated associations. In New Zealand not for profit entities may take a variety of forms including incorporated societies, charitable trusts, and unincorporated societies.
  • Australian Treasury is currently reviewing the financial reporting requirements for companies limited by guarantee and has recently received 40 submissions on a discussion paper seeking public comment on this issue. The general view was that while there was support for reduced financial disclosures for companies for the smaller end, all companies regardless of size should have some reporting requirements;
  • MED is in the process of setting up a focus group to discuss the financial reporting requirements of not-for-profit entities with the intention of releasing a discussion document in 2008 on possible options for reform in this area;
  • Earlier consultation undertaken by the PSB had indicated a general acceptance to introducing a three tier system for not-for-profits (i.e the three tiers being: 1) IFRS, 2) the framework for differential reporting or SME standard and 3) exempt company financial statements);
  • Both Australia and New Zealand were facing similar issues. For example, determining tiers would require consideration of appropriate size thresholds while recognising the public accountability of not for profit entities. As Australia has currently progressed further with this work, New Zealand and Australia should work on a parallel basis for now, but any decisions to be taken to Ministers should be discussed with the Group first in order to co-ordinate views between Australia and New Zealand as much as possible.

Auditor Regulation

MED and Australian Treasury prepared a report on auditor regulation in the two countries. The report was taken as read. The key points arising from the discussion of this issue were:

  • That the New Zealand Minister of Commerce has asked MED to expedite its policy work on auditor oversight;
  • That MED considers that there is a case for independent oversight of the regulation of New Zealand auditors, with the oversight function carried out by either a single body or several different organisations;
  • That MED work on the regulation of auditors is likely to have a positive impact on the work to establish the mutual recognition of auditors between Australia and New Zealand.

Action Points – agenda item 3

  1. Following individual discussions with NZICA, ASRB, Registrar of Companies and the Securities Commission, MED will arrange a roundtable discussion with these four bodies to determine whether a general consensus as to a way forward can be determined.

Auditor Liability

MED and Australian Treasury prepared a report on auditor liability in New Zealand and Australia. The report was taken as read. The key points arising from the discussion of this issue were:

  • That it is important to consider what the consequences are of New Zealand auditors being subject to joint and several liability, while Australian auditors are subject to proportionate liability (and capped liability in some states);
  • That MED should consider the analysis done in Australia leading to the adoption of proportionate liability by the Commonwealth government;
  • That NZICA has already done some research into auditor liability that may be helpful in furthering discussion on this issue;
  • That by having different liability regimes Australia auditors are generally more prepared to audit riskier clients than New Zealand firms. Therefore, the nature or scope of work by the same firm in each jurisdiction may end up being different;
  • That reducing the exposure of auditors to liability potentially increases the exposure to liability of directors;
  • That there are potential trade offs between the auditor liability and auditor regulation proposals and that it may be appropriate to review them at the same time, rather then separately.

Potential Research Topics

  • It was noted that TTAASAG is not a research organisation but given the group’s interests and contacts, TTAASAG would be a good forum to promote research into public policy issues;
  • It would be useful to consider research into the causes of recent corporate collapses;
  • It would be useful to consider research into the financial reporting process taken as a whole.

Action Points – agenda item 3

  1. The Secretariat will discuss with members and stakeholders potential research topics and case studies and report back to the group at 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 discussion were as follows:

  • That depending on the outcome of any auditor regulation review in New Zealand there might be scope to consolidate the registration of New Zealand auditors, and overseas auditors operating in New Zealand, into the proposed statutory register;
  • That New Zealand auditors registered in Australia under the TTMRA would be subject to the Australian auditor liability regime for work they carry out in Australia, and vice versa for Australian auditors registered in New Zealand under the TTMRA;
  • That most previous outstanding issues had been worked through and all parties were relatively comfortable in the progress to date.

Actions points – agenda item 4

  1. Australian Treasury, MED and NZICA will update the group on further progress towards mutual recognition at the next meeting of TTAASAG.

Agenda Item 5: Future IFRS Regional Policy Forum

The group discussed future IFRS regional policy forums. The key points arising from this discussion were as follows:

  • It was noted that at the forum held in Tokyo in March 2007, China had indicated that they would be interested in holding the next forum;
  • It was noted that there had been some prior interest from Singapore;
  • It was noted that China hosted a Symposium on International Convergence of Accounting in Emerging Economies in July 2007;
  • It was noted that David Tweedie was keen for Australia and New Zealand to continue to promote our regional policy forum.

Action Points – agenda item 5

  1. The Australian Treasury will write to China (Mr Wang Jun, Vice Minister, Ministry of Finance) to ascertain China’s interest in hosting the next forum, after confirming with Japan that they are happy with that approach.

Agenda Item 6: 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:

  • Included on the register of information on Australian and New Zealand international representatives should be Australians and New Zealanders on secondment to the IASB and/or working on IASB projects. However, people working in their home country on projects related to the IASB in some way should not be included on the list;
  • It was agreed that identifying and approaching people who might potentially be able to be members of international boards should be one focus for the group;

Action Points – agenda item 6

  1. The Secretariat will update the list of international representatives from New Zealand and Australia for the December meeting to include the representatives on secondment to the IASB and/or working on IASB projects.
  2. The Secretariat will prepare a list of potential international candidates taking into account a list already prepared by the FRC and consultation with NZICA.

Agenda Item 7: 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 discussion of the reports were:

  • It was noted that both governments are interested in emissions trading. Currently there are accounting standards that apply but there is inconsistency in interpretations. IASB guidance has been sought on this issue;
  • It was noted that in its report to the group the AASB had quantified the time commitment of its staff to work with, or for, international bodies;
  • It was noted that the application of IFRS to the public sector is a topical issue;
  • The FRSB and the AASB have a joint meeting in Sydney in October 2007. Michael Hawthorne will be attending the meeting and the financial reporting of the public sector will be discussed.

Action points – agenda item 7

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

Agenda Item 8: Australia and New Zealand’s audit regulation frameworks

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

  • It was noted that the Australian Government’s plan to have a ’cap and trade’ emissions trading scheme operating by 2011 will raise significant financial reporting and auditing issues;
  • It was noted that the AUASB has a consultative meeting with stakeholders planned in December 2007 in order to monitor the application of auditing standards;
  • It was noted that the PSB has a very full workload and their key focus is on the adoption of International Standards on Auditing;
  • It was noted that positive feedback had been received from the IASB on the approaches of Australia and New Zealand to audit reporting on IFRS.

Action points – agenda item 8

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

Agenda Item 9: General Business / Next meeting

Chair and Secretariat: Rotation

  • It was noted that the rotation of the group’s Chair and Secretariat will occur following the next meeting of the group.
  • An announcement as to whom will take over as Chair of the group will occur at the next meeting of the group.

Congratulations

  • The group extended their congratulations to Merran Kelsall on her reappointment of Chair of the AUASB.

Next Meeting

  • The next meeting of the group will be held in Sydney on 6 December 2007.