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

Minutes of Meeting

9.00am-3.00pm, Wednesday 2 December 2010

Level 7, 600 Bourke Street, Melbourne

Participants:

Present
Patricia McBride New Zealand Institute of Chartered Accountants
Michael Lim Financial Reporting Council
Kevin M Stevenson Australian Accounting Standards Board
Kevin Simpkins Accounting Standards Review Board
Merran Kelsall Auditing and Assurance Standards Board
Mark Sewell Australian Treasury
Ronita Ram Australian Treasury
Mark Shying Certified Public Accountants Australia
Neil Cherry Professional Standards Board
Jeffrey Lucy Financial Reporting Council
Tom Ravlic National Institute of Accountants
Joanna Perry Financial Reporting Standards Board
Kerry Hicks Institute of Chartered Accountants of Australia
David King Ministry of Economic Development
Geoff Connor Ministry of Economic Development
Cristian Pardo Ministry of Economic Development
Apologies
Jim Murphy Australian Treasury
Vicki Stylianou National Institute of Accountants
Geoff Miller Australian Treasury
Lee White Institute of Chartered Accountants of Australia
Andrew Jackson Ministry of Economic Development

Agenda Items

1. Welcome from the Chair

The Chair welcomed members to the meeting and thanked MED for hosting the first TTAASAG dinner on the previous evening.

2. Minutes of the meeting of 11 June 2010

The minutes were approved with some minor amendments to the organisations each participant belongs to. It was agreed that future minutes should summarise meetings rather than provide the same level of detail. The minutes will name members only when they are reporting to the group in their official capacities.

3. Action items from the previous meeting

3.1 Trans-Tasman Convergence on specific reporting issues

3.1.1 Key Management Personnel Disclosures (Geoff Connor/Ronita Ram)

A different approach is employed on each side of the Tasman with regard to the disclosure of key management personnel disclosures in financial reports. The disclosure requirements in Australia are much more extensive and of a different nature. Some of the Australian requirements appear in a financial reporting standard. There was general discussion that KMP disclosures are a governance matter rather than a financial reporting matter. It was agreed in principle that KMP disclosures should not be in accounting standards.

It was suggested that New Zealand and Australia should align their KMP disclosure requirements and the officials were asked to consider this. No commitments were given in this regard by MED or Treasury.

Action item

TTAASAG to keep a watching brief on developments.

4. TTAASAG Terms of Reference Update (Kevin Simpkins)

It was agreed that the review of the Terms of Reference (TOR) should be targeted at achieving a revised, approved TOR with effect from 1 July 2011. The draft TOR were discussed and a small number of changes were proposed. Mr Simpkins will circulate a revised TOR incorporating the comments made to members for consideration. Once accepted by members, MED/Treasury will submit them to their respective Ministers for approval.

There was discussion about non-government members of TTAASAG and whether they could be appointed in their own right. Treasury and MED stated that in principle there is no reason why they cannot. There is currently no formal appointment process, as TTAASAG is not a statutory body. Accordingly the revised TOR will specify precisely the intended members.

5. Policy Developments in Australia and New Zealand

5.1 Update on Australian corporate reporting reforms (Ronita Ram)

The corporate reporting reforms were enacted in June 2010 and were effective for the financial year ended 30 June 2010. The key reforms included:

  1. Streamlining reporting by companies limited by guarantee. Small companies that do not seek tax deductible donations are exempt from reporting. Mid-sized companies are subject to streamlined reporting and auditing requirements. Large companies continue to prepare full financial statements.
  2. Generally consistent with the New Zealand Companies Act, the test for paying dividends is now linked to a solvency test.
  3. Parent entity disclosures have been streamlined and are now prescribed in regulations. (MED indicated that it is likely to recommend to the New Zealand Government the removal of the requirement for parent financial statements from the Financial Reporting Act. It would be for the standard setter to determine what parent entity disclosures are appropriate. In the interim there is a difference which may have an impact on Australian corporations required to file financial statements in New Zealand. Mr Simpkins indicated his willingness to assist where issues arise due to the different requirements in each country.)

5.2 Update on New Zealand's Auditor Regulation and External Reporting Bill (Geoff Connor)

Ten written submissions were received with 3 submitters also giving oral submissions. The Commerce Select Committee has heard two oral submissions, with the last to be heard on 9 December. No concerns have been raised regarding the proposals to establish the External Reporting Board and regarding its proposed overall functions.

Key issues raised by submitters include:

  1. Auditor Regulation
    1. To remove the provision making it an offence to not comply with auditing standards.
    2. To license firms rather than individuals.
    3. Concern from submitters that the issue of joint and several liability is not being addressed. Submitters have expressed a preference for proportionate liability and/or removal of the prohibition on bodies corporate carrying out audits.

    There was a discussion about the extent to which limited liability improves audit quality and the supply of auditors.

  2. External Reporting Board
    1. To apply professional and ethical standards to all statutory audits, not just issuer audits.

5.3 Update on New Zealand's review of the Financial Reporting Framework (Kevin Simpkins)

For profit entities have been a focus of the ASRB's work. The ASRB has agreed tentative proposals in relation to Tiers for for-profit entities and supportive of a reduced disclosure regime for Tier 2 entities.

The FSRB has agreed to review the Australian reduced disclosure regime and its possible application in NZ. The FSRB will be commencing considering of this at their next meeting in December 2010. There is likely to be an exposure draft issued jointly by the ASRB and FRSB at the end of the first quarter of 2011.

5.4 Not For Profit/Public Benefit Entities

The ASRB is continuing to consider IPSAS as a basis for standards for the public sector and potentially the private not-for-profit sector. It was acknowledged that this approach would be different to that being pursued by the AASB in Australia.

The importance of NZ and Australia working further to align their regimes was discussed, including facilitating Ministerial engagement to keep them informed of issues TTAASAG are dealing with.

6. Outcomes Agreement between Australia and New Zealand

6.1 Trans Tasman Outcomes Implementation Group

6.1.1 Bi-Annual Report

A draft bi-annual report from TTOIG was noted. The private not-for-profit entities commentary on page 5 of the report will be amended insofar as it relates to the relevance of IFRS to this sector to be consistent with both countries' views.

6.1.2 Verbal Report on recent meeting (David King)
  1. There has been no formal meeting between Prime Ministers since the election of the new Government in Australia. A meeting is planned for February 2011. NZ's Minister of Commerce has established contact with his Australian counterpart and is keen to progress the Single Economic Market agenda. 2011's focus will be on setting new milestones. A new Memorandum of Understanding has been signed on Business Law. It is flexible and allows outcomes to be revised depending on priorities.
  2. TTMRA issues lie across a number of outcomes. Where licensing is being considered, officials will need to consider the TTMRA. Individual licensing is preferred and considered to be more effective.

6.2 Review and discuss proposed revision to outcome statements (Kevin Simpkins)

Mr Simpkins reported on a helpful meeting with TTOIG. There was discussion of the proposed revised outcomes statements circulated by Mr Simpkins and the revised outcomes were endorsed for passing on to TTOIG. There was discussion about whether there are other matters that can be added to TTOIG's list and it was agreed to consider this explicitly at the next meeting of TTAASAG.

6.3 Review of progress on outcome statements (Kevin Simpkins)

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

Noted that this outcome is on track.

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

This outcome statement will be superseded in the revised outcome statements.

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

This outcome is pending further progress in the New Zealand Financial Reporting Framework review. The AASB and FRSB have a current project considering service performance reporting which is a part of this outcome.

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

An aim of the Auditor Regulation and External Reporting Bill is to facilitate this outcome. It is expected this will be enacted in mid-2011.

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

New Zealand remains on target for establishing the XRB on 1 July 2011.

An aim of the Auditor Regulation and External Reporting Bill is to facilitate this outcome. It is expected this will be enacted in mid-2011.

7. Reports from International Representatives

7.1 Ken Warren's reports on the IPSASB meetings in Vienna, June 2010 and Jakarta, November 2010

Members agreed that these reports will no longer be tabled in this forum, noting that they are considered by the bodies represented at TTAASAG where the reports are relevant to them.

8. Professional accounting bodies' joint report on activities

ICAA

Projects: Audit quality; Legislative Group examining liability issue; Global Development Group examining EU Green Paper and House of Lords paper; Expectations Gap Project.

NZICA

Extremely busy with the establishment of the XRB and transition work.

9. Auditing standard setters

9.1 Report from the AUASB

The format and content of future reports will be changed to align with the revised TTAASAG TOR. (This will apply to all reports.)

9.2 Report from the PSB

The work of the PSB is highly aligned with the establishment of the XRB. Trans Tasman issues have been carefully considered in the various issues which are arising during the transition.

10. Accounting standard setters

10.1 Joint report from the FRSB and AASB

Future reports to provide updates on Trans-Tasman endeavours and regulatory matters of interest to TTAASAG rather than report on all technical matters.

11. Neil Cherry's report on the interface between Auditing and Ethical/Professional Standards

There is a need to have an effective and efficient standard setting framework that avoids duplication. NZICA will need to continue to be responsible for most ethical standards.

12. Nominations Committee (Kevin Simpkins)

The Nominations Committee has not met since the last TTAASAG meeting. Expressions of interest are being sought for international vacancies that will arise next year.

Action item

Secretariat to prepare updated list early in New Year to circulate to members. Nominations Committee meeting to be held thereafter.

13. Future issues/work programmes (Treasury/MED)

This is a new standing item, to enable TTAASAG to be kept informed of future policy initiatives that are being considered so that TTAASAG might seek to contribute in a timely manner to outcomes.

MED

Regulations will need to be made after the enactment of the Auditor Regulation and External Reporting Bill.

Treasury

Treasury is currently progressing reforms to implement the Government's response to the Productivity Commission's report on Executive Remuneration. The reforms are intended to take effect from 1 July 2011.

Treasury is also working on a discussion paper seeking comments on a proposal to claw back director and executive remuneration where a company's financial statements are materially misstated.

The Corporations and Markets Advisory Committee (CAMAC) is undertaking a review of Australia's remuneration disclosure framework. CAMAC is expected to make recommendations to Government on this issue early next year.

The Financial Reporting Panel has made its first decisions since it was established in 2006. ASIC was successful in 2 of 4 cases. ASIC is not challenging the other two decisions.

The FRC is undertaking the following projects that may be of interest to TTAASAG:

  • Integrated reporting
  • Stock take of the Australian regulatory framework

14. Other business

There was no other business.

15. Next meeting – TBA

Action item

Secretariat to nominate possible dates for next meeting. Perhaps early April.