Is the AASB Truly Independent - Essay Example

The AASB The AASB was established in 1991 under the Australian securities commission Act 1989.In 2000, the AASB merged with the PSASB and subsequently re-established under the Australian securities and Investments commissions Act 1989. The Financial Reporting Council (FRC) was also established along with the above merger by the Australian Government with a major purpose to act as the body that will oversee the activities of the AASB standard making and interpretations. The AASB’s standards now apply under the Corporations Act 2001.The AASB itself operates under the Australian Securities and Investments commissions 2001. The AASB was formed primarily to develop accounting standards applicable and specific to Australia both for the private sector and public sector organization. The AASB also seek to harmonize and converge its standards with those of the IASB In 2002, the FRC acted within its authority by giving the AASB a broad strategic directions requiring it to adopt the standards and pronouncements issued by the IASB; the International financial Reporting Standards (IFRS) In 2003, the FRC issued further direction to the AASB in relation to harmonization of Government Finance Statistic GFS and generally accepted accounting principles.(GAAP) reporting in the public sector. Is the AASB truly Independent? The AASB seem to be sandwiched between the FRC which dictates what strategic policy it is to adopt. The FRS is a parallel of the AASB and both are answerable to Minister for Financial Services, Super annuations and corporate Law. One of the FRC main objectives is to oversee the affairs of the AASB in the domestic arena standards making and interpretations. In the international arena, the AASB is subordinate to the IASB which formulates all standards for profit making organizations subsequently limiting the AASB to make standards for not for profit making organizations and only for Australia. The AASB and AUASB are Financial Management and Accountability Act 1997 (FMA Act) The FRC will monitor reports by the Chairs of the AASB and AUASB concerning the projected budgetary outcomes for the Offices of the AASB and AUASB. 1. The following criteria will be used by the FRC to assess candidates for appointment to the AASB: A standard setting culture that recognizes the importance of accounting standard setting and accepts that, at times, standard setting requires leadership thinking on issues that may not necessarily be the popular view. An understanding of Part 12 of the Australian Securities and Investments Commission Act 2001 including the AASB’s functions and powers as set out in section 227, one of which is to participate in and contribute to the development of a single set of accounting standards for world-wide use having regard to the interests of Australian corporations which raise or propose to raise capital in major international financial centre. Recognition that standard-setting requires a balance of strategic considerations with decision-making relating to technical accounting issues, and the capacity to make effective judgments in striking that balance. Relevant accounting knowledge and experience, that may include academic and general management and business or public sector experience. Willingness and capacity to understand the needs of users and the financial reporting environment in the for-profit, not-for-profit and public sectors, and to effectively apply that understanding to decision-making about financial reporting standards applicable in each of those sectors. A collegiate style that accepts the importance of a collective contribution to the standard setting process. Willingness to accept the existence of differing viewpoints and to work to a consensus viewpoint that may involve compromise while maintaining the highest standards of accounting standard setting. Willingness and capacity to commit time to study agenda papers in preparation for Board meetings. A strong desire to be output oriented. A willingness to accept that accounting standard setting involves working for the overall public good, ahead of sectional or vested interests. Access to relevant technical support. 2. In addition to the above criteria, the following supplementary criteria will be used by the FRC in regard to the assessment of the performance of AASB members: Attendance performance. Timeliness of meeting Board requirements. Contribution at meetings. Ability to get along with others. About the IASC Foundation and the IASB  The IASC Foundation is an independent, not-for profit private sector organization working in the public interest with the following key objectives The IASB is the independent standard-setting body of the IASC Foundation; to develop a single set of Internationally high quality, understandable, enforceable financial reporting standards (IFRSs) through its standard-setting body, the IASB; to promote the application and rigorous application of those standards; to take account of the financial reporting needs of emerging economies and small and medium-sized entities (SMEs); and to bring about convergence of national accounting standards and IFRSs such as those developed by the AASB. The International Accounting Standards Board (IASB) is part of the International Accounting Standards Committee Foundation (IASCF), which is an independent private-sector organization based in London. The Australian Government provides a significant annual monetary contribution to the activities of the IASCF. The IASB co-operates with national accounting standard-setters (like the AASB) to achieve convergence in accounting standards around the world. The IASB require the AASB to issue submissions in regard to any new accounting standard then they intend to issue. The AASB does not have its own power to formulate standard without first consulting with big brother the IASB. All issues identified in relation to for profit making entities, standards are beyond the authority of the AASB. Such matters are usually referred to the IASB to deliberate on such standards. The AASB is only left with authority to make and formulate standards in relation to not for private organization and private organization however these standards have to be in harmony with the IASB not for profit organizations standard formulation polices. This is great inhibition to the independence of the AASB. When the AASB regard an issue that has come to its attention as an issue that require its scrutiny, and adds it to its work program, The AASB is required to draw relevant material from other standard setters notes. Includes in the list is the IASB, IPSASB and the New Zealand Financial Reporting standards Board or other organizations. The AASB It cannot by its self changes to a rogue IASB standard no matter how much needed and favorable the changes may be to Australia the AASB considers the work of the IPSASB in developing and issuing accounting standards for public sector entities in Australia. The AASB and the FRC The FRC can qualify as a big brother to the AASB. The FRC is responsible for providing broad oversight of the process for setting accounting and auditing standards its ) is a statutory body under the Australian Securities and Investments Commission Act 2001 (ASIC Act), as amended by the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004. The FRC operates within a framework set out in the ASIC Act. The Act sets out core objectives for the FRC to include the following: Accounting standards should require the provision of information that: allows users to make and evaluate decisions about allocating scarce resources; assists directors to discharge their obligations in relation to financial reporting; is relevant to assessing performance, financial position, financing and investment; is relevant and reliable; facilitates comparability; and is readily understandable. Auditing standards should require the provision of information that: Provide Australian auditors with relevant and comprehensive guidance in forming an opinion about, and reporting on, whether financial reports comply with the requirements of the Corporations Act; and Require the preparation of auditors’ reports that are reliable and readily understandable by the users of the financial reports to which they relate. Accounting standards should facilitate the Australian economy by reducing the cost of capital and enabling Australian entities to compete effectively overseas. Accounting and auditing standards should facilitate the Australian economy by having accounting and auditing standards that are clearly stated and easy to understand. Accounting standards should maintain investor confidence in the Australian economy, including its capital markets. The Act expressly limits the FRC's ability to become involved in the technical deliberations of the AASB and AUASB. It provides that the FRC does not have power to direct the AASB or AUASB in relation to the development, or making, of a particular standard, or to veto a standard formulated or recommended by the AASB or AUASB. This provision is designed to ensure the independence of the standard setter Some of the role of the FRC that seem to overlap the Independence of the AASB as spelt out in the Act are; The FRC will oversee the accounting and auditing standard setting arrangements by: (a) Appointing the members (other than the Chairmen) of the Australian Accounting Standards Board (AASB) and the Australian Auditing and Assurance Standards Board (AUASB); (b) Giving advice or feedback to the AASB and AUASB on their priorities, business plans and procedures; (c) giving advice or feedback to the Offices of the AASB and AUASB on their budgets and staffing arrangements; (d) Determining the broad strategic directions of the AASB and the AUASB; and (e) Monitoring the effectiveness of the consultative arrangements of the AASB and AUASB. The FRC will monitor the AASB's and AUASB's consultation and communication processes and the extent to which the Boards report on their consultation measures and due processes on their websites and in their annual reports. The ASIC ASIC is Australia’s corporate, markets and financial services regulator. It is an independent Commonwealth Government body set up under and administer the Australian Securities and Investments Commission Act (ASIC Act),to carry out most of their work under the Corporations Act. The Australian Securities and Investments Commission Act 2001 requires the ASIC to maintain, facilitate and improve the performance of the financial system and entities in it promote confident and informed participation by investors and consumers in the financial system administer the law effectively and with minimal procedural requirements enforce and give effect to the law receive, process and store, efficiently and quickly, information that is given to them Make information about companies and other bodies available to the public as soon as practicable. ASIC currently comes under the portfolio responsibilities of the Minister for Financial Services, Superannuation and Corporate Law, the Hon Chris Bowen MP. In the process of executing its mandate the ASIC can be said to have a supervisory role it plays on the AASB since it’s the body that is likely to affect or trigger the duties of the ASIC to be needed. Both the ASIC and the AASB are under the same minister but report independently. Conclusion The AASB is in a way independent to a given extent but it cannot be said to enjoy full autonomy. It work is limited to formulate financial standards only for the Private sector will looking critically the public sector and Profit making forms a majority of business organizations. Profit making organizations are also dynamics many may require the AASB to formulate more flexible standards for them. The formulation of standard for profit making organization is a preserve of the IASB and the AASB can only make recommendation for such a standard to be changed. Even when the AASB is making standards for not for profit originations it is required to refer to material provided by the AASB, It also pay copy right money to this big brother. Comparing the AASB and the IASB one can conclude that the AASB does not have any biting teeth. Back home the AASB has been overlapped by two bodies which monitor and make proposal to it. These bodies are the FRC which not only appoints persons to sit in the AASB board but also give strategic direction to be followed by the AASB. This is a perfect way to deny any body autonomy. The AISC is the body that has been empower by the Act to see that the AASB operated with their Act. The AASB is hardly an independent accounting standard setting body. Its policies and activities are subjected to the dictation and supervision by at least two big brothers – the IASB and the FRC, not to mention the ASIC.” Reference Corporate Law Economic Reform Programme (Audit Reform and Corporate Disclosure) Act 2004. Australian Securities and Investments Commission Act 2001. www.asic.gov.au http://www.aasb.gov.au/About-the-AASB/For-students.aspx http://www.frc.gov.au/ Australian Securities and Investments Commission Act 2001 Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 http://www.iasb.org/How+we+develop+standards/How+we+develop+standards.htm http://www.iasb.org/The+organisation/IASCF+and+IASB.htm http://www.accc.gov.au/content/index.phtml/itemId/142 Read More