Trans-Tasman Accounting and Auditing Standards Advisory Group
2006 Report to Ministers

1. Overview

In 2006, the main activities and achievements of the Trans-Tasman Accounting and Auditing Standards Advisory Group (the Group) comprised:

  • work to identify means to facilitate the mutual recognition of auditors in Australia and New Zealand;
  • commencement of a review of the auditor regulation frameworks in Australia and New Zealand;
  • analysis of the differential financial reporting regimes for unlisted companies in both countries;
  • ongoing work by the accounting standard setters in Australia and New Zealand in contributing to the development of International Financial Reporting Standards; and
  • the Australian Accounting Standards Board and the New Zealand Financial Reporting Standards Board receiving a 2006 Trans-Tasman Business Award for their joint work.

In 2007, the main priorities of the Group will be to:

  • finalise initiatives to facilitate the mutual recognition of auditors in Australia and New Zealand to promote trans-Tasman business activity;
  • contribute to the development of an accounting standard for small and medium enterprises by the International Accounting Standards Board and identify its potential application in Australia and New Zealand as a means of reducing the financial reporting burden on business;
  • review outcomes from the next regional policy forum on International Financial Reporting Standards to be held in Tokyo in March 2007 including arrangements for future forums;
  • investigate initiatives to ensure that Australia and New Zealand’s level of influence in the development of international accounting and auditing standards is maintained; and
  • continue to review proposed reforms to the financial reporting frameworks in Australia and New Zealand to ensure that they do not impede trans-Tasman business activity. 

The Group will hold a strategic planning session as part of its first 2007 meeting to consider how it can most effectively meet its objectives as set out in its terms of reference.

2. Background

On 30 January 2004, the Australian Treasurer and the New Zealand Minister of Finance announced the formation of the Group. The announcement was made in the context of the business regulatory environment becoming an increasing focus for the Closer Economic Relations (CER) framework that has assisted the development of the Australia/New Zealand relationship since 1983. The Memorandum of Understanding (MoU) on the Coordination of Business Law, signed by the two Governments in 2000, and the special Ministerial forum held in August 2003 to mark the 20th anniversary of CER, affirmed the commitment of both Governments to increase transTasman business activity including by harmonising accounting standards.

The overriding goals of the Group are to advise the respective Governments and standard-setters on ways to reduce business costs and improve efficiency through:

  • identifying inconsistencies in the accounting standard-setting framework and assisting the move to a single approach to accounting standard-setting to apply in both jurisdictions; and
  • identifying areas where audit and assurance standards and auditor regulation create impediments to trans-Tasman business activity, and assisting in the removal of those impediments.

The other major goal of the Group is to enhance the influence of the two countries in the development of international accounting and audit and assurance standards.

Terms of Reference

The Group is given the task of providing advice under four broad headings:

  • Standard-setting – advice primarily to the oversight and standard-setting bodies on achieving greater coordination and information exchange between the countries, including how to progress the alignment of Australian and New Zealand financial reporting standards in light of the adoption of international accounting standards;
  • Policy coordination – advice primarily to the Australian and New Zealand Governments on the broader policy and legal framework for financial reporting, with a view to ensuring that, amongst other things, a consistent approach is taken to the application, monitoring and enforcement of standards where appropriate;
  • Joint institutions – advice primarily to the Australian and New Zealand governments on the specific institutional arrangements that might be established over time to ensure 1) that the objective of a single set of trans-Tasman accounting standards is achieved and maintained effectively and efficiently; and 2) audit and assurance standards and auditor regulation do not create unnecessary impediments to trans-Tasman business activity; and
  • International influence – advice to both the Australian and New Zealand Governments and to the oversight and standard-setting bodies on strategies to maintain Australia’s and New Zealand’s influence in the development of international accounting standards and international standards on auditing through involvement in relevant fora, such as the International Accounting Standards Board (IASB).

The Group includes representatives from Australia’s Financial Reporting Council (FRC), Australian Accounting Standards Board (AASB), and Audit and Assurance Standards Board (AUASB), and New Zealand’s Accounting Standards Review Board (ASRB), Financial Reporting Standards Board (FRSB), and Professional Practices Board (PPB), as well as representatives from the professional accounting bodies in Australia and New Zealand, and officials from the Australian Treasury and the New Zealand Ministry of Economic Development.

The Group met on four occasions in 2006. These meetings were chaired by the representative from the ASRB.

Information on the Group’s work has been placed on the websites of the FRC and the ASRB.

3. Major Activities and Achievements in 2006

a) Identification of means to facilitate the mutual recognition of auditors in Australia and New Zealand

The Group discussed the potential for the mutual recognition of auditors in Australia and New Zealand. The Group noted differences between the systems for registering auditors in Australia and New Zealand and recognised that any mutual recognition regime should not result in a diminution of audit quality in either country. The Group facilitated an initial discussion on the mutual recognition of auditors with the parties responsible for the registration of auditors in both countries as part of identifying the necessary steps towards establishing a mutual recognition regime.

The Group will continue to progress this issue in 2007.

b) Review of auditor regulation frameworks in Australia and New Zealand

In August and September 2006, the Australian Parliamentary Secretary to the Treasurer and the New Zealand Minister of Commerce agreed to enlarge the Group’s terms of reference to cover audit issues. The Ministers also agreed to the appointments of Merran Kelsall, Chair of the AUASB, and Craig Fisher, Chair of the PPB. The AUASB and the PPB are the bodies responsible for setting audit and assurance standards in Australia and New Zealand respectively.

Pursuant to its expanded terms of reference, during the year the Group commenced a review of the auditor regulation frameworks in Australia and New Zealand. This work will assist in informing a review of the legislative requirements in relation to auditing that is currently taking place in New Zealand. This work will continue into 2007.

The Group also discussed MED’s intention to consider auditor liability issues in a forthcoming discussion document. There have been auditor liability reforms in Australia and the Group encouraged MED to review the material prepared in Australia before finalising the discussion paper.

c) Analysis of the differential financial reporting regimes in Australia and New Zealand

The Group analysed the approaches taken in Australia and New Zealand to reporting for unlisted companies.  The analysis demonstrated that there are some differences in approach by the two countries.  For example, in Australia, some large unlisted companies are required to prepare financial statements in accordance with IFRS, whereas those companies can take advantage of substantial disclosure concessions in New Zealand.  In New Zealand some smaller and medium-sized companies have preparation requirements that do not apply to the equivalent Australian companies.

In addition, the IASB is intending to release an exposure draft of a standard for SMEs in early 2007.  This standard could potentially have a significant impact on both countries’ approach to reporting by unlisted companies and may assist in addressing the differences identified above. The Group will review this issue once the IASB releases its exposure draft on SME reporting.

The Group noted that:

  • notwithstanding some differences in the approach of both countries, companies with trans-tasman operations are only required to prepare one set of financial statements in accordance with International Financial Reporting Standards;
  • divergent Australian and New Zealand views on how to respond to the IASB SME standard would not be positive.  The Group encouraged the AASB and FRSB to consult closely on this issue; and
  • it would continue to discuss the response to the IASB draft standard on SMEs.

d) Ongoing work by accounting standards setters in Australia and New Zealand in contributing to the development of International Financial Reporting Standards

The AASB and FRSB continued their active role in contributing to the development of International Financial Reporting Standards. This work includes:

  • liaising with IASB Board Members on items of significant interest in Australia and New Zealand;
  • commenting on IASB exposure drafts and monitoring IASB projects to ensure that the views of Australia and New Zealand are heard when new standards are being developed; and
  • providing AASB and FRSB staff resources to a number of IASB projects.

This work is fundamental to maximising the influence of Australia and New Zealand in the development of IFRS. Both Boards will continue to update the Group on their IASB involvement in 2007.

e) The Australian Accounting Standards Board and the New Zealand Financial Reporting Standards Board receiving a 2006 Trans-Tasman Business Award for their joint work

In September 2006, the AASB and the FRSB were announced as joint winners (along with the Australian Customs Service and the New Zealand Customs Service) of the Environmental, Social, Government and Community Award at the Trans-Tasman Business Awards. This was recognition of the significant initiatives progressed through TTAASAG towards a single set of trans-Tasman accounting standards. These include:

  • cross-appointments between the Australian and New Zealand accounting standard setters;
  • the development of a protocol of cooperation between the Australian and New Zealand standards setters; and
  • holding joint meetings of the AASB and FRSB.