Structure, performance and operations
Operations
On May 23 2006, the Parliamentary Secretary to the Treasurer, the Hon Chris Pearce, MP announced the appointment of the inaugural Chairman and members of the FRP.
On July 3 2006, Mr Paul Power the Executive Director of the FRP was appointed and took up his appointment in the Melbourne office of the FRP and the FRP commenced operations.
The focus of activity during the first part of the 2006-07 year was the establishment of the Panel procedures and induction of the newly appointed Panel members.
Several Panel meetings were held during the year, the agenda of which included adoption of procedures, updates of trends and activity in financial standards, a mock case study to refine procedures and processes and included representation from ASIC to discuss some referral issues.
Some communication activity, attendance at seminars and speaker’s engagements also occurred. During the course of the year a number of possible referrals to the FRP arose although ASIC and the lodging entity were able to reach agreements prior to a formal referral to the Panel. It is considered that the existence of the FRP may have facilitated agreement by the lodging entities to the concerns raised by ASIC.
In July 2007, the FRP received its first case referral and a sitting Panel was established. The dispute was successfully resolved when both ASIC and the lodging entity agreed to changes to the disputed financial report.
An objective of the FRP is the resolution of the dispute, ideally by willing agreement as to how the accounting standards should apply to specific cases and facts.
The strong compliance culture of Australian companies, the newness of the Panel, the successful implementation of IFRS and the buoyant economic conditions leading to quality earnings growth by companies are all factors that may help explain the modest level of case load received to date.
With the increasing costs associated with legal action and possible reappraisals of some hereto accepted International Accounting Standards interpretations, the number of cases is expected to increase over time.
Liaison
The FRP is an independent body established under the Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004.
Referrals to the Panel can be made by ASIC or by a lodging entity if ASIC consents to the referral.
The FRP has agreed a mutual Statement of Expectations with ASIC. This Statement of Expectations is published on the FRP website.
The FRP conducts discussions with a wide range of industry and regulatory bodies.
As this is the first year of existence for the FRP an important task is to communicate to the business community about the role and function of the FRP.
The FRP has undertaken a number of market liaison initiatives during the year by attending and speaking at industry meetings and seminars. The FRP will be increasing its attention to liaison meetings in the coming year with the aim of improving awareness of its role and place within the governance of financial markets.
Confidentiality and informality
The rationale for the creation of the FRP is to provide a cost effective, informal and largely confidential process whereby disputes on financial statements can be heard. Whilst the cost of legal action may be prohibitive to some parts of the community, for the corporation or entity that is required to lodge a public set of accounts there is also the opportunity cost of management resource time and perhaps unnecessary publicity that could give rise to uncertainty regarding the entities financial position during a lengthy public court case. The FRP proceedings are undertaken in private until such time as a determination is made. This should assist in avoiding unnecessary concern of the company’s public reporting whilst the matter is undecided. However, listed corporations are still required to meet their continuous disclosure requirements.
Website and announcements
The FRP’s website http://www.frp.gov.au is a major mechanism by which the FRP communicates its decisions.
Panel meetings and hearings are held in private (unless requested and agreed to otherwise) but upon the release of a determination it will be published on the website and, as required by legislation, provided to all parties involved including the market operator usually the ASX.
The website also contains media releases and other announcements made by the FRP.
Organisational structure
The Panel’s funding is included in the Treasury budget and the Panel Executive staff are employees of Treasury. The Treasury provides administrative and information technology support services to the FRP.
Panel members
Panel members are appointed by the Minister under section 239 of the ASIC Act. All members have been appointed on a part-time basis, usually for a term of three years. Members are nominated on the basis of their experience and knowledge in one or more of the fields of accounting, auditing, business, and law or company administration. The Panel seeks to have a combination of skills to allow it to address the wide range of industries and financial reporting issues that may arise and to have an appropriate mix of professional, business, geographical and gender representation.
As at 30 June 2007, the Panel had a membership of eight. The Chairman of the Panel is Mr Paul Shannon — a senior audit partner with KPMG. The other members are: Mr Allen Craswell, Emeritus Professor of Accounting at The University of Sydney; Ms Brigid Curran, a financial reporting consultant; Mr Greg Ward, Head of Corporate affairs and CFO of Macquarie Bank; Mr Ken McKenzie, Financial Controller at Coca-Cola Amatil Ltd; Mr Martin Fensome, Partner at Bentleys MRI; Mr Michael Burgess, Adjunct Professor of Commerce at the University of South Australia and Mr Ted Rofe, previously a Director and Chairman of the Australian Shareholders Association.
During 2006-07, Ms Ruth Picker of Ernst and Young ceased her membership with the Panel.
Executive
As at 30 June 2007, the executive of the FRP consisted of two full-time staff based in Melbourne. The modest size of the executive is seen as appropriate given that this is the first year of operation of the Panel and it will take some time to become fully established as the preferred medium for resolving disputes on financial reports. However, the wide range of potential issues that the Panel may have to opine on and the commitment of the Panel to issue a determination within two months of referral will present some logistical challenges. Future staffing levels will be dependent on the number of referrals and the complexity of issues going forward.
The Executive is required to provide research on case matters and to undertake a liaison and communication role with the business community and practitioners in the accounting profession.
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