Trans-Tasman Accounting and Auditing Standards Advisory Group (TTAASAG)

Minutes of Meeting

Friday 11 June 2010

Boardroom, Level 20 CPA Australia Offices, 28 Freshwater Place, Southbank, Melbourne


Kevin Simpkins – Chair Accounting Standards Review Board (ASRB) - NZ
Merran Kelsall Auditing and Assurance Standards Board (AUASB) - Aust
Mark Shying Certified Practising Accountants (CPA) - Aust
Genevieve Watson Financial Reporting Council (FRC) - Aust
Joanna Perry Financial Reporting Standards Board (FRSB) - NZ
Kerry Hicks Institute of Chartered Accountants Australia (ICAA) - Aust
Patricia McBride NZ Institute of Chartered Accountants (NZICA) - NZ
Geoff Connor Ministry of Economic Development (MED) - NZ
Nadine Brown Ministry of Economic Development (MED) - NZ
Vicki Stylianou National Institute of Accountants (NIA) - Aust
Ronita Ram Australian Treasury - Aust
Neil Cherry Professional Standards Board (PSB) – NZ
Charles Macek (from 12:00) IFRS Advisory Council (Guest)
Geoff Miller Australian Treasury - Aust
Mark Sewell Australian Treasury - Aust
Kevin Stevenson Australian Accounting Standards Board (AASB) - Aust
Jeffrey Lucy Financial Reporting Council (FRC) - Aust
Lee White Institute of Chartered Accountants Australia (ICAA) - Aust
David King Ministry of Economic Development (MED) - NZ
Andrew Jackson Ministry of Economic Development (MED) - NZ

Agenda Items

1. Welcome from the Chair

The TTAASAG Chairperson, Kevin Simpkins, welcomed members to the meeting and expressed his gratitude to the meeting hosts, CPA Australia. He also introduced Nadine Brown as the new TTAASAG secretariat at MED.

2. Minutes from the meeting of 25 February 2010

The minutes from the previous meeting, held in Wellington on 25 February 2010, were confirmed without alteration.

3. Action Items from the previous meeting

The Chair noted that it was the usual practice of the Group to have a list of previous action items and subsequent actions circulated with the agenda papers for each meeting. Nadine noted this and will provide a list for the next meeting in Wellington.

The Group noted the action items from the February meeting. There were two items that were not covered in agenda items later in the meeting. The first involved MED and Australian Treasury clarifying what type of entity is included in the not-for-profit outcome agreement. It was clarified that the agreement includes only private sector not-for-profit entities. The Chair thanked MED and Australian Treasury for the clarification and expressed the view that TTAASAG should continue to think about the public sector, even if it is not within the context of the outcome agreements. A query was raised about how government business enterprises/state-owned enterprises are viewed. The Chair responded that they are considered to be for-profit, regardless of their institutional structure.

The second action item not covered elsewhere was a report requested from MED and Australian Treasury regarding the issues relating to consolidated financial statements of domestic groups and disclosure of KMP equity holdings and loans. Whilst MED and Australian Treasury had provided a report back on the issue of consolidated financial statements (agenda item 6.4.1), the report back did not deal with the issue of KMP equity holdings and loans.

Action item

MED and Australian Treasury will consider the issues relating to the disclosure of KMP equity holdings and loans and report back to the next meeting of TTAASAG.

4. TTAASAG 2009 Report to Ministers

The Group noted that the 2009 report has been submitted to both the relevant Ministers but that neither Minister has officially signed the report off as yet. Neither Australian Treasury nor MED anticipate that there will be any issues around getting sign off but until official sign off is obtained the report should be regarded as being for members of the Group only.

Action item

Secretariat to advise members when the 2009 Report to Ministers has been signed off.

5. TTAASAG Terms of Reference Update

The Group agreed at the February meeting that it was timely to review the TTAASAG Terms of Reference. The Chair had circulated a short paper outlining the key issues. He suggested that the Terms of Reference were not up to date in terms of the way TTAASAG is currently operating and advised also that any changes would require ministerial approval. The Group agreed with this assessment of the situation.

The Chair also pointed out that changes to the TOR will be needed in early 2011 as a result of the structural changes occurring in New Zealand and asked whether the Group would be better to wait and do all of the updates at the same time. The Group agreed that it would be better to make changes now and any further updates needed in 2011.

With regard to specific parts of the current TOR, the Group agreed with the proposal that the third paragraph of the current TOR be updated to reflect the principles enunciated by the Prime Ministers in relation to SEM in August 2009. The Group also agreed that the first two bullet points in the current TOR should be re-stated to align with the terms of the outcome statements and to demonstrate a more ambitious, high-level role for the Group. The Group agreed that the third bullet point, relating to international influence, remained appropriate. The section describing the three broad areas of advice to be provided by the Group will be replaced with the four bullets included in the 2009 Report to Ministers (with any consequential changes from changes earlier in the document).

In addition, the list of the Group's membership is out of date and needs to be altered to reflect the actual membership. The possibility of there being an issue with non-government members of the Group was raised, based on past experience. MED and Australian Treasury will clarify this. The Group agreed that it is important to ensure that membership is not restricted by the TOR. The Chair pointed out that it was also important to emphasise that it is a specific nominee of each organisation that is a member, with perhaps one nominated alternative. Consistency of attendance is important for the Group's success.

The Group also felt that it was important to retain the provision contained in the current TOR that the Group have the opportunity to produce discussion documents if considered necessary.

Action item

The Chair, in conjunction with the secretariat, to circulate a draft of suggested changes to the Group for comment. MED and Australian Treasury will clarify whether there is any issue with having non-government members of the Group.

6. Policy developments in Australia and New Zealand

6.1 Update on Australian corporate reporting reforms (verbal)

Ronita Ram reported that the Corporations Amendment (Corporate Reporting Reform) Bill was introduced two weeks ago and is likely to be debated on 16 June with passage ideally occurring by 30 June to enable relevant changes to take effect for the current financial year. The Bill encompasses several measures to reduce red tape, including streamlining for companies limited by guarantee and streamlined parent entity reporting.

It was noted that the legal professional privilege matter has been removed from the Bill to enable further consultation to occur. The group asked if there were any other aspects of the Bill that could either create or reduce impediments for Trans-Tasman business that it should be aware of. Confirmation was given that two key measures contained in the Bill would more closely align Australia and New Zealand's frameworks, in particular, streamlining parent-entity reporting and replacing the profits test for paying dividends with a more flexible balance sheet solvency test.

6.2 Update on New Zealand's financial reporting framework review

Geoff Connor updated the group on New Zealand's review. At present consultation with other government departments is being finalised and the aim is to report to the Minister in July. One outstanding issue which requires further work is around Maori land trusts. Issues around gaming machine societies and small not-for-profits have been resolved.

A query was raised about whether the use of the term 'government entities' in the update paper referred to just the Commonwealth in the Australian context or to the states as well. It was noted that the Victorian state government has a bill introducing tiered obligations in the government sector, which would not align with the statement that both countries require all government entities to publish audited financial statements. It was noted that comparing government entities may not be a case of comparing apples with apples as the arrangements can be different in the two countries.

The Chair noted that parent company reporting is an emerging issue. There are some differences between Australia's corporate reporting reforms and New Zealand's review of financial reporting. Both jurisdictions are proposing repealing the requirements but are filling the gap in different ways – Australia through regulation and New Zealand through standards. The Chair suggested that the Group continue tracking parent company reporting issues.

Geoff was asked where New Zealand was at with the basis for the net assets test for dividends where an entity is not required to prepare financial statements. He responded that it has become apparent that New Zealand needs to go further than had been proposed in the September 2009 discussion document. There will be some obligation to base the judgement on accounting information but it is likely to be special purpose and not a matter for the standard setters. It was noted that in Australia the determination of whether an entity has reporting requirements is based on the application of quantitative measures required to be determined under the accounting standards. The Chair noted that while there are obvious differences between the two countries on this matter overall they are moving closer together. The group agreed to encourage both governments to work together on this issue.

In relation to entities which are the equivalent of deductible gift recipients (i.e. have donee status in New Zealand) Geoff advised that such entities are publicly accountable (under the principles guiding the financial reporting framework review) and that the Charities Commission would be opposed to an exemption. The possibility of cash reporting for very small entities is being looked at however. It was noted that under the Australian proposals DGR status entities with less than $250,000 revenue would continue to prepare a financial report, which they could have reviewed instead of audited. The Australian professional bodies noted that there have not been member complaints about these obligations. The Chair noted that New Zealand is starting from a different point – there are currently no reporting obligations for these entities.

The issue of making auditing standards legally enforceable in New Zealand was raised. Geoff Connor advised that meetings held with a number of Australian groups in April gave New Zealand a sense that there had been concerns about the force of law issue but that in reality things had not turned out as people expected. A similar debate is now occurring in New Zealand and it appears to be more of a relationship/communications issue. Australian members reported that it was hard to separate the impact of the change to legal enforceability from the impact of new international standards which were adopted at a similar time and the audit inspection process itself, but that the general view is that it has improved the quality of audits. The Chair noted that there are two related issues in this sphere – the quality of audits and the Trans-Tasman relationship. He noted that it seemed New Zealand had to take that first step of enforceability but to address the concerns evident in New Zealand to also preclude the potential for a heavy handed regulator. Australian members agreed that such an approach would be equivalent in substance to the Australian situation even though the specific form of the legislation would be different to that in Australia.

The Chair noted that paragraphs 13 and 14 (remuneration disclosures) in the update paper suggest a half step toward the Australian position from New Zealand. A question was raised as to whether remuneration disclosure was a standards issue or a legislative issue. It was noted that the Australian Institute of Directors recently issued a paper on this topic. The Group noted that, in Australia, the remuneration disclosure requirements in the Corporations Act 2001 are currently being reviewed by the Corporations and Markets Advisory Committee, which is due to report in November 2010. The Chair noted that this issue also has linkages with the KMP equity holdings disclosure action item (see section 3 above).

6.3 Update on New Zealand's auditor regulation review

The Chair noted that there had been a constructive discussion about this item at the February meeting. Geoff Connor reported that the key change since February is the New Zealand government's decision to establish the Financial Markets Authority (FMA), which will be responsible for auditor oversight. Only issuer audits will be covered. The FMA will take over the Securities Commission functions and some from the NZX and the Registrar of Companies. Geoff clarified that it will only be issuer audits that need to be performed by licensed auditors and statutory audits by chartered accountants. It was also clarified that it will be up to the FMA to decide how best to conduct practice reviews. A query was raised as to why it was decided to apply the regime to issuer audits and not all statutory ones. Geoff responded that it was based on an assessment of risk and the costs and benefits of regulation. A query was raised about the status of the Auditor General under the regime. Geoff responded that the lead auditor of any issuer required to be audited by the Auditor-General will have to be licensed but that the Auditor-General's office would not be subject to practice review.

The Chair noted that the proposed regime will be close to Australia even if it is not identical and many of the earlier concerns raised by the Group have been addressed. The group asked whether New Zealand's proposed arrangements have been accepted by Australian bodies and Geoff responded that they have not been officially accepted. ASIC have not previously had to consider recognition of another country's regime so it is uncertain how the matter will be progressed. From a New Zealand perspective the model is equivalent to that of the EU so it falls within the range of international acceptability. Further work will be needed once the FMA has been established.

6.4 Trans-Tasman convergence on specific reporting issues

6.4.1 Consolidated financial statements

Australian Treasury and MED provided a joint paper on consolidated financial statements. The group asked if it would be possible to have an Australasian set of consolidated financial statements to meet requirements in both countries. Whether this was dependent on a common set of standards was raised. The group noted that both countries use IFRS as a minimum so even now this should not be an impediment to the idea. The Chair suggested officials consider this further, noting it could be a flag bearing issue for Trans-Tasman mutual recognition and cooperation.

7. Outcomes Agreement between Australia and New Zealand

7.1 ASRB Paper

The Chair advised the group that as a result of earlier TTAASAG discussions and its own deliberations the ASRB had put together a paper with suggestions aimed to clarify the outcome statements so that they represent what is intended and facilitate earlier achievement of some statements. In the interests of time, the Chair asked for general comments on the paper.

One member noted that the proposed revised outcome statements were somewhat narrow in that they only referred to those who trade or have reporting obligations across the Tasman. A broader approach was suggested. It was also noted that the FRSB and AASB were working to a bigger and more ambitious picture. However it was acknowledged that the suggestions were not intended to significantly broaden the statements agreed by the Prime Ministers but to clarify them and that there is a desire to have achievable outcome statements.

It was also suggested that in addition to the financial reporting bodies having equivalence the auditing bodies should also target equivalence. This was supported by the Group.

Following discussion the Chair noted that there was general support for restructuring the outcomes and that the wording of the first three proposed revised outcomes needed to be further considered. In response to concerns about the breadth of the statements, there was also agreement that the Group should aspire to achieve results beyond those captured by the outcome statements.

Action item

The Chair and MED to prepare an update of the proposed revised outcome statements for consideration by the Group and thereafter discussion with TTOIG.

7.2 For-profit entities are able to use a single set of accounting standards and prepare only one set of financial statements; and

7.3 Trans-Tasman companies have to prepare only one set of financial statements to one set of standards

On behalf of the FRSB and AASB, Joanna Perry updated the Group on progress towards this outcome. With regard to tier one, there will be an exposure draft released within the next four weeks which looks at harmonising New Zealand and Australia's IFRS for for-profit entities. This will bring the countries closer together and move both closer to pure IFRS. There will be a three month period for comments.

In relation to tier two, the AASB is continuing on the basis of issuing a final standard by 30 June and allowing the option for entities to elect not to follow full IFRS but to follow the reduced disclosure regime instead. Phase two will address other issues raised in the exposure draft. The Chair reported that in New Zealand the preference is for a common Trans-Tasman approach. The Chair also noted a desire for consistency in tier setting.

7.4 Not-for-profit entities are able to use a single set of accounting standards and prepare only one set of financial standards

Joanna Perry reported that the FRSB and AASB are working on a joint project in this area but that the outcome of New Zealand's review of financial reporting is a crucial factor in determining how to progress.

7.5 Auditors registered in one country can operate in the other country

This outcome statement was addressed during MED's update on New Zealand's auditor regulation. The issue of non-issuer auditors from New Zealand who want to perform audits in Australia was brought to MED's attention for consideration.

7.6 Financial reporting standards bodies in Australia and New Zealand have functional equivalence

It was noted that this outcome statement will be addressed by the legislation to be introduced in New Zealand in the near future.

8. Organisational Structures

8.1 Issues and impediments of cross appointments between the AUASB and PSB

Merran Kelsall and Neil Cherry advised the Group that they have had several discussions since the last TTAASAG meeting. In the light of the changes happening in New Zealand, they did not feel it appropriate to take the discussions further at this stage. Specifically they suggested cross-appointments be considered from 1 July 2011 to align with the date of establishment of the XRB. The Chair advised that he was sure the ASRB/XRB would support cross appointments but agreed that a date of 1 July 2011 was sensible. At that time the current differences in the scope of responsibility of the two boards would be removed. The Group supported this timing for establishing cross-appointments.

9. Reports from International Representatives

9.1 IFRS Advisory Council Vice Chair, Charles Macek

Charles Macek briefed the Group on his role as Vice Chair of the IFRS Advisory Council. He noted that the council had been re-launched in January 2009 with a new composition, a different scope and more strategic focus. The Council meets three times a year and provides a forum for each member to provide updates. Educational and focus sessions are held and feedback is developed. The last two meetings have focused on the post-2011 agenda, when there will be a new IASB chair and various projects will have been completed. The Council's high level view is that a period of calm is necessary as there have been many changes recently. The Council also supports a focus on adoption rather than conversion initiatives and giving attention to those jurisdictions which have adopted IFRS. There is also a high priority attached to completing the conceptual framework. There is an ongoing commitment to ensuring standards are of a high quality and discussion around technology's impact on reporting.

Charles also emphasised that the Asia/Oceania region is increasingly being seen as a role model for other regions. Whilst it is a diverse region, Asia/Oceania is still able to work together to discuss issues and be aware of its differences while moving forward. Voices from the region need to continue to be heard.

9.2 Ken Warren's report on the IPSASB meeting in Toronto, April 2010

The Group noted Mr Ken Warren's paper.

10. Professional accounting bodies' joint report on activities

The Group noted the report.

11. Auditing standard setters

11.1 Report from the PSB

The Group noted the report.

11.2 Report from the AUASB

The Group noted the report.

12. Accounting standard setters

12.1 Joint report from the FRSB and AASB

The Group noted the report.

13. Interface between auditing and ethical/professional standards

Neil Cherry updated the Group on work being done and meetings held on 10 June with the Chairs of both the APES and AUAS Board (attended by the ASRB, PSB and NZICA representatives). The meetings considered the division of responsibility with regard to ethical and professional standards in the context of New Zealand's proposed structural changes. The Chair noted that the Australian input was very helpful in developing New Zealand's thinking.

14. Report from Nominations Committee

The Chair reported that the Nominations Committee met on 3 March following the February meeting. The IASB Chairman appointment was discussed. It was felt at the time that there was not enough information to enable a candidate to be supported but that in the future the Group may be asked to support a candidate.

15. IFRS Regional Policy Forum, Singapore 12-13 May 2010

The Regional Policy Forum communiqué and programme were noted by the group. The contribution of various TTAASAG members to the Forum was noted, in particular that of Jeffrey Lucy who had made a major contribution to the development of the programme in a direction which TTAASAG members had sought. It was reported that the next Forum would be hosted by Indonesia.

16. Other business

There was no other business to discuss.

17. Next Meeting in August

The Group discussed the possibility of rescheduling the next meeting to align with the visit of Prof. Andreas Bergmann, the chair of the International Public Sector Accounting Standards Board, to Wellington in early October. It was decided that due to the range of issues under consideration an earlier meeting date would be preferable. The original August date was therefore confirmed.

Action item

MED will keep TTAASAG members up to date on scheduled meetings in 2010.