Trans-Tasman Accounting and Auditing Standards Advisory Group
2007 Report to Ministers

1. Overview

In 2007, the main activities and achievements of the Trans-Tasman Accounting and Auditing Standards Advisory Group (the Group) comprised:

  • The Australian and New Zealand accounting standard setters undertook a number of joint initiatives to further promote communication and co‑ordination, including co-ordinated submissions to the International Accounting Standards Board (IASB) and undertaking joint projects;
  • Work to identify means to facilitate the mutual recognition of auditors in Australia and New Zealand;
  • Initiating discussion and action on common policy issues between Australia and New Zealand to inform on policy developments in both countries; and
  • Maintaining international influence in accounting and auditing issues including contributing towards and representation at the 2007 IFRS regional policy forum.

In 2008, the main priorities of the Group will be to:

  • Continue to contribute to the development of an accounting standard for small and medium enterprises by the International Accounting Standards Board (IASB) and identify its potential application in Australia and New Zealand as a means of reducing the financial reporting burden on business;
  • Continue to review proposed reforms to the evolving financial reporting frameworks in Australia and New Zealand to ensure that they facilitate trans‑Tasman business activity;
  • Continue to work on common policy issues between Australia and New Zealand to provide efficiency and consistency between the two counties;
  • Progress work on a proposed regional network web-based network with the intention to serve as a central point for network members providing or seeking further information on financial reporting matters;
  • Continue to engage with the Asia‑Pacific region including a high level of participation at the next IFRS regional policy forum; and
  • Establishment of a subcommittee of the Group with the objective of determining potential candidates from Australia and New Zealand on international accounting and auditing bodies, with the intention of maintaining our influence in such bodies going forward.

 2. Background

  • On 30 January 2004, the then 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 countries to increase trans-Tasman 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, 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 forums, such as the 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 Standards Board (PSB), 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 (MED).

The Group met on four occasions in 2007.  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 2007

a) The Australian and New Zealand accounting standard setters undertook a number of joint initiatives to further promote communication and co‑ordination, including co-ordinated submissions to the IASB and undertaking joint projects

The AASB and the FRSB continued to jointly progress a range of financial reporting projects.  In 2007, this included:

  • contributing to an exposure draft released by the IASB for small and medium enterprises (SMEs) which has the potential to significantly impact on both countries’ approach to reporting by unlisted companies.  This work involved undertaking roundtable discussions in both Australia and New Zealand and developing co-ordinated submissions to the IASB’s exposure draft;
  • considering the appropriate accounting standards to be applied to public sector entities in both countries, and taking a co-ordinated approach on this issue;
  • undertaking a joint project to create a new standard on non-exchange revenue for the public benefit sector; and
  • maintaining communication and co-ordination between both countries.  The Chairs of both boards continue to hold cross appointments and the boards themselves hold an annual joint meeting to discuss issues of mutual interest.

This work is fundamental to maximising the influence of Australia and New Zealand in the international arena.  Both Boards will continue to update the Group on their activities in 2008, including the outcome of the submissions made to the IASB on the SME standard and the adoption of IFRS in the Australian and New Zealand public sectors.  Deliberations of the Group were influential in the development of an approach adopted in New Zealand that has seen the deferral of the mandatory adoption of IFRS by certain qualifying entities (generally small and unlisted) until such time as a longer term approach to SME reporting is finalised.

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

The Group continued to progress the work in relation to the mutual recognition of auditors in Australia and New Zealand.  MED and Australian Treasury have been working together to provide assurance as to the equivalent nature of the auditors in Australia and New Zealand.  MED is currently working on a proposal to establish a registration regime for auditors in New Zealand.  Consideration is currently also being given to developing a Memorandum of Understanding between registration bodies in New Zealand and Australia to provide added assurance and formality. 

Due to the MED review of auditor oversight,  Australian Treasury and MED agree that the implementation of the auditor mutual recognition regime should be delayed until such time as the New Zealand auditor oversight review has been completed.

c) Initiating discussion on common policy issues between Australia and New Zealand that can be progressed jointly; and

The Group decided that it would be beneficial to identify and discuss common policy issues in Australia and New Zealand and to act as a sounding board for these issues.  The following topics were discussed:

Auditor Regulation Oversight and Liability

MED has established an auditor regulation oversight group to determine the best way forward for auditor regulation oversight in New Zealand.  It is considered important for New Zealand to progress on this issue as there has been a global trend towards the establishment of audit regulation oversight bodies in recent times.  This includes the establishment of the International Federation of Independent Audit Regulation which is made up of 22 countries (including Australia).  This body examines and discusses a broad range of issues relating to the oversight of auditors.  MED will keep the Group updated in its progress throughout 2008.

IFRS in legislation

The Group discussed the option as to whether Australia and New Zealand should refer directly to IFRS in legislation as opposed to domestic accounting standards.  The Group decided that this issue should not be pursued at present but rather maintain a watching brief.  Consideration will need to be given as to whether a direct reference to IFRS in legislation would result in sovereignty issues as standards developed by the IASB could potentially be automatically binding on both countries without being subject to review or approval by the relevant national bodies.

Shareholder Friendly Reporting 

The Group has examined the use of shareholder friendly reporting in Australia and New Zealand and noted that this issue is gaining momentum, particularly as an increasing number of entities are producing  ‘shareholder friendly reports’ in addition to the full statutory annual report.  The Group agreed to monitor developments on this issue.

 Not-For-Profit Entities Financial Reporting Requirements

The Group looked at the overall position of not-for-profit financial reporting in Australia and New Zealand.  It was noted that both Australia and New Zealand were facing similar issues in relation to the potential to reform the financial reporting requirements of these entities and work should be progressed on a parallel basis with any options discussed in the Group prior to being taken to Ministers for consideration.  The Group will continue to work through the issues in future meetings in 2008.

Research Topics

The Group is well placed to determine potential research topics which could be examined further by an industry body.  Potential research topics that have been suggested include:

  • Fair value measurements in relation to subprime mortgages; and
  • Emission trading

The Group has agreed that emissions trading will become a standing agenda item in 2008.

d) Maintaining international influence on accounting and auditing issues including contributing towards and representation at IFRS regional policy forums

During 2007, the Group was active in maintaining Australia’s and New Zealand’s influence at the international level.

The Group was a key contributor to the second IFRS regional policy forum held in Tokyo, Japan in March 2007.  The Group was also well represented at the forum with three members involved in formal roles.

The forum provided a valuable opportunity for policy setters and accounting standard setters to exchange ideas and gain a better shared understanding of the financial reporting issues affecting the Asia-Pacific region.  Participants discussed a range of topics of interest to the region, including the interpretation of IFRS, financial reporting by SMEs and issues associated with IFRS branding.

During 2008 the Group will establish a subcommittee of the Group consisting of: the Chair of the ASRB, the Chair of the FRC and a senior member from the Australian Treasury and MED with the objective of determining potential candidates to represent Australia and New Zealand on international accounting and auditing bodies.

The Group have proposed to establish a regional network on financial reporting (modelled on the Regional Network on Asian Insolvency).  The network will include a web-based resource aimed at sharing information among policy makers about developments, potential reforms and capacity building relating to financial reporting issues in the Asia-Pacific region.