Chapter 3Financial Reporting Council, Australian Accounting Standards Board, and Auditing and Assurance Standards Board
3.1This chapter considers the 2021–22 annual reports of the:
Financial Reporting Council (FRC);
Australian Accounting Standards Board (AASB); and
Auditing and Assurance Standards Board (AUASB).
3.2The AASB and AUASB combine their annual reports and financial statements into a single report. The two boards implement a shared operating model and share administrative staff. The annual reports of the offices of the AASB and AUASB are combined with the AASB and AUASB reports.
Financial Reporting Council
3.3The FRC is a statutory body responsible for overseeing the effectiveness of the financial reporting framework in Australia. The FRC provides broad strategic direction and advice to the AASB and AUASB and advises, and reports to, the Minister on these matters.
FRC Annual Report
3.4The FRC is not subject to the annual reporting requirements under the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and the Public Governance, Performance and Accountability Rule 2014 (PGPARule). However, the 2020–21 annual report provides information on many of the annual reporting requirements for non-corporate Commonwealth entities set out in sections 17AA to 17AJ of the PGPA Rule.
3.5Under section 235B of the ASIC Act, the FRC is required to report on:
the operations of the FRC and its committees and advisory group;
the achievement of the objects set out in section 224 of the ASIC Act; and
any advice or feedback that the FRC gave under paragraph 225(2)(b) or (ba) or (2A)(b) or (ba).
3.6The activities described in the FRC Annual Report 2021–22 include:
consultation alongside AASB and AUASB into draft climate and sustainability related disclosure standards;
communication with stakeholders to monitor and seek views on the impact of global economics conditions on financial reporting;
communication with stakeholders to identify gaps in audit quality as part of the FRC’s auditor disciplinary processes; and
leading the implementation of the Parliamentary Joint Committee on Corporations and Financial Services’ recommendations in its final report of its inquiry into the regulation of auditing.
3.7The FRC stated that an internal review found that the FRC satisfied its obligations under section 224 of the ASIC Act,
3.8The FRC provided the following examples (among others) to demonstrate its compliance with its statutory obligations:
board appointments to:
the AASB, with the added expertise facilitating ‘the development of relevant, reliable, comparable, understandable and usable accounting standards’; and
the AUASB, which ‘facilitated the development of auditing and assurance standards and related guidance materials that provided relevant and comprehensive guidance and support reliable and understandable auditor reports’;
supporting the adoption of digital financial reporting, monitoring developments in international standards and promoting a coordinated approach to Australian standards, which facilitates investor confidence in Australian firms, promotes cross-border comparisons by investors, and facilitates Australian firms accessing international markets at lower cost;
facilitating the development of financial reporting standards and supporting investor confidence by identifying and addressing impacts of macroeconomic conditions and skill shortages on the financial reporting system and audit quality;
supporting the AASB’s proposal to nominate an AASB member to sit on the Sustainability Standards Advisory Forum to be established by the International Sustainability Standards Board. This measure seeks to ‘enable Australian entities to compete oversees by expanding Australia’s influence on developments of sustainability-related financial reporting standards that meet the need of investors’; and
continuing to monitor financial reporting and auditing issues relevant to the public sector through its FRC Public Sector Working Group.
3.9To comply with subsection 235B(2) of the ASIC Act, the FRC annual report must include details of any advice or feedback that the FRC gave to the AASB and AUASB under paragraphs 225(2)(b) or (ba) or (2A)(b) or (ba).
3.10The annual report states that the FRC provided advice to the AASB and AUASB on a number of reports provided to it. This advice included subjects such as:
strategic priorities;
business plans;
emerging topics; and
staffing arrangements.
3.11The FRC has limited information-gathering powers relating to documents under section 225A of the ASIC Act.
3.12In its Annual Report 2021–22, the FRC advised that it did not utilise its information gathering powers in 2021–22.
Committee view—Financial Reporting Council
3.13The committee considers the FRC has fulfilled its annual reporting responsibilities regarding its operations under subsections 235B(1) and (2) of the ASIC Act. The annual report clearly identifies these obligations and responds comprehensively to each of them. The committee welcomes the FRC’s provision of information on both how its work furthers the achievement of the objects set out in section 224 of the ASIC Act and on instances where advice was given to the AASB and AUASB.
3.14In its Report on the 2020–21 annual reports of bodies established under the ASIC Act, the committee noted that the FRC did not report on the use (or non-use) of its information gathering powers in its 2020–21 Annual Report. The committee welcomes the FRC reporting on the use of its information gathering powers in its 2021–22 Annual Report.
3.15The committee notes and commends the FRC on its ongoing work to implement the recommendations arising out of the committee’s inquiry into the Regulation of Auditing in Australia.
3.16The committee will follow with interest the FRC’s ongoing work to better understand the relationship between auditor disciplinary outcomes and actual or perceived risks to audit quality in Australia. It supports the FRC’s efforts in seeking to expose any potential gaps or overlaps between the various disciplinary bodies in this space and looks forward to receiving the FRC’s findings on this exercise, and of the refresh of its 2019 Auditor Disciplinary Processes: Review.
3.17In 2019–20, the committee noted the FRC’s views on the paucity of applications referred to CADB by ASIC in recent years. The committee expected to see detail on what the FRC did in this follow-up process and what the outcomes were. However, this was not discussed in the 2020–21 or 2021–22 annual reports. The committee noted the significant increase in matters being reported to CADB in 2020–21 in Chapter 2 of its previous report on annual reports and noted the significant decrease in matters being reported to CADB in 2021–22 in Chapter 2 of this report. The committee hopes that future reports will include this information.
Australian Accounting Standards Board
3.18The AASB is a non-corporate government entity established under the ASIC Act. The AASB is responsible for developing, issuing, and maintaining accounting standards under section 334 of the Corporations Act for the purposes of the corporations legislation. The AASB also contributes to the development of a single set of international accounting standards for worldwide use. The Office of the AASB provides technical and administrative support to the AASB.
AASB Annual Report
3.19The AASB is subject to the annual reporting requirements for non-corporate Commonwealth entities under sections 17AA to 17AJ of the PGPA Rule.
3.20Appendix D of the AASB’s 2021–22 Annual Report provides a compliance index that indicates where the AASB has met its annual reporting requirements.
3.21In 2020-21, the AASB:
issued six Amending Standards;
compiled ninety-nine Standards/Interpretations;
issued ten Exposure Drafts; and
undertook the AASB Agenda Consultation process to obtain feedback on the workplan for 2022–26.
3.22In its 2020–21 Annual Report, the AASB noted its development of a new reporting tier, Tier 3, for the not-for-profit private sector. In its subsequent annual report, the AASB noted that the Tier 3 standard has received significant progress. It stated that a discussion paper would be released by November 2022 for public consultation on the new reporting standard. This paper was released in September 2022.
Committee view—Australian Accounting Standards Board
3.23The committee considers the AASB has fulfilled its annual reporting responsibilities during the 2021–22 financial year.
Auditing and Assurance Standards Board
3.24The AUASB is a non-corporate Government entity with functions and powers conferred under the ASIC Act. The AUASB is responsible for making auditing standards under section 336 of the Corporations Act for the purposes of the corporations legislation. The AUASB also contributes to the development of a single set of international auditing standards for worldwide use, and provides financial reporting guidance to Australian auditors. The Office of the AUASB provides technical and administrative support to the AUASB.
AUASB Annual Report
3.25The AUASB is subject to the annual reporting requirements for non-corporate Commonwealth entities under sections 17AA to 17AJ of the PGPA Rule.
3.26Appendix D of the AUASB’s 2021–22 Annual Report provides a compliance index that indicates where the AUASB has met its annual reporting requirements.
3.27The AASB focused on several key strategic priority areas, including:
driving initiatives which support audit quality;
seeking consultation in auditing less complex entities;
developing guidance to support the public sector;
developing guidance to support auditors in considering the use of technology; and
influencing the development of International Auditing Standards.
3.28In its 2020–21 Annual Report, the AUASB noted three new priority projects:
sustainability-related and climate-risk disclosure and assurance standards;
auditing standards for less complex entities; and
public sector auditing.
Committee view—Auditing and Assurance Standards Board
3.29The committee considers the AUASB has fulfilled its annual reporting responsibilities during the 2021–22 financial year.