Undertaking Thought Leadership Initiatives

The benefits of our lobbying and thought leadership activities were in evidence this year with a number of important developments.

Lobbying

The Institute focuses its lobbying efforts on advocating public policy that is not only in the interests of members and the accounting profession but also in the national interest. This year saw a change of federal government and the opportunity to engage with new ministers and political stakeholders on their policy priorities.

The government has initiated several major policy reviews which are still ongoing. Some of these, such as the Henry Review of Australia’s taxation system and the introduction of a carbon emissions trading scheme, have potentially wide-reaching and long-lasting impacts on our economy. The Institute is an active participant in these reviews and is also involved in the work that the government has initiated on the governance of SMSFs and the disclosure regime for not-for-profit organisations.

Liability capping schemes

Members received the good news that the schemes had received Commonwealth prescription in all states and territories except Tasmania.

Commonwealth prescription makes the schemes effective in relation to claims under the Trade Practices Act 1974 (Cwlth), as well as in relation to any state-based claim, something that will give members and the public added peace of mind.

This represents the final stage in the establishment of an effective national framework for limitation of liability for the schemes in Queensland, Victoria, Western Australia, New South Wales, South Australia, the Northern Territory and the Australian Capital Territory.

We will continue to lobby to achieve the legislative reform that will allow a consistent scheme to be approved in Tasmania.

Simplifying business for SMEs

In June 2008 the Minister for Small Business Craig Emerson announced that the government would consider two new measures to simplify taxation and reduce compliance costs for small business.

One, the Entity Flow-Through (EFT) taxation regime, developed jointly by the Institute and Deloitte, has been referred to government as part of the Australia’s Future Tax System review, headed by Treasury Secretary Ken Henry.

This was a major win for the Institute, given that we have long advocated for the simplification of tax laws and easing of the compliance burden for small and medium enterprises (SMEs).

We have also been active on other fronts in the financial reporting area. Earlier in the year, we produced a report, in conjunction with CPA Australia and the National Institute of Accountants, calling on the International Accounting Standards Board (IASB) to further reduce the burden on SMEs in its Proposed International Financial Reporting Standards for SMEs. The field tests of the proposed international SME standard, commissioned by the three bodies and conducted by mid-tier accounting firm Moore Stephens, actually reviewed three entities in Australia and converted them into the newly proposed Financial Reporting Standard for SMEs. The report summarised the outcome of these tests.

All three accounting bodies agree that the proposed IFRS for SMEs (or IFRS for private entities, as it is now known) raises issues for some enterprises who may not have the skills or capacity to transition to the proposed standard without some external assistance.

The field tests were conducted in addition to the separate submissions made earlier this year by each of the professional bodies to the IASB and the Australian Accounting Standards Board (AASB) with regard to the proposed standard, demonstrating the commitment of the Australian accounting profession to have a voice in the international and Australian debates.

These submissions, as well as the report based on the field tests, and our submission on the Australian differential reporting proposals, argue that the burden on SMEs will only be reduced if the proposed reporting standards significantly reduce the disclosure requirements.

Further activity on reducing the burden on small business has seen the Institute become involved in the government’s Standard Business Reporting (SBR) initiative; in fact become a key member of the Business Advisory Forum. The Business Advisory Forum acts as a reality check on the activities of the SBR team, ensuring effective communication with the business community and ensuring it remains on track to meet its objective of reducing the reporting burden on business.

Carbon emissions trading

The release of an Institute leadership report shortly after year end calling for the inclusion of a global assurance framework for carbon emissions disclosures was the latest in a suite of leadership and lobbying initiatives we undertook in 2008 in the area of carbon emissions trading. The report, entitled The Benefits of Assuring Carbon Emission Disclosures, was produced in association with Professor Roger Simnett, Head of Accounting at the Australian School of Business, and argued for generally accepted international reporting criteria to ensure consistency between jurisdictions and facilitate understanding of the depth of the issues.

The Institute also hosted the first of two round table forums on the topic of ‘Assurance on Disclosures of Carbon Emissions Information’, which were conducted under the auspices of the International Auditing and Assurance Standards Board to hear from users, preparers and assurance providers. The intention is to inform the planned development of an International Standard or Practice Statement on assuring carbon emissions information.

We responded to the Garnaut Report with a submission in April and in the same month released a leadership paper, produced jointly with Ernst & Young, on the tax treatment of carbon emissions trading.

This paper argued that the existing regime would not properly deal with an emissions trading scheme. Consideration should be given to amending legislation relating to income tax, the GST, Petroleum Resources Rent Tax, state stamp duties and other taxes and charges. It also identified potential tax incentives to reduce the burden on business of the significant capital expenditures and adjustments that will be required following the introduction of mandatory targets and an emissions trading scheme.

Financial planning industry

In July, the Institute released a white paper following a financial planning industry forum we facilitated to discuss Reinventing financial planning, a paper we had commissioned. The forum brought together industry associations, consumer advocates, regulators, product manufacturers, ‘dealer’ groups and practitioners.

We believe the adoption of a genuine, non-product-based fee-for-service model would improve the professionalism of the financial planning industry and the trust between financial advisers and their clients. This in turn would lead to less prescriptive legislation, lower costs for advice, and wider access to affordable, independent advice.

Sub-prime mortgage market and international reporting standards

In April, the Institute released a report on the Collapse of the United States sub-prime mortgage market and the impacts under International Financial Reporting Standards (IFRS).

The report detailed how the collapse occurred and affected the financial statements of banks, other financial institutions and investors in mortgage-backed securities around the world. A number of lessons can be learned from the experience in areas of regulation and legislation, financial reporting, bank lending practices, indebtedness of individuals and in the area of investment decision making. Discussions are already in progress at both the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to improve financial reporting and disclosures in the areas impacted by the credit crisis.

Anti-money laundering

The latest in a number of meetings between the Institute and government took place in May this year. These discussions are helping to shape the second tranche of anti-money laundering legislation, which should be released later this year.

Government procurement

The Institute instigated and drove the development of a submission to address ongoing procurement issues within government. We hosted several roundtable events attended by senior government officials, key stakeholders and members in the Big 4. The submission was presented to the Department of Finance and Administration in November 2007. The Department has acknowledged receipt of the submission and negotiations are continuing.

Governance of superannuation funds

A survey undertaken by the Institute and Deloitte between October and December 2007 to understand the governance of super funds and recommend further improvements, found most industry experts believe governance practices and standards had improved.

The drive for continuous improvement in governance practices is important given that funds under management have almost doubled in three years, growing from $631bn in July 2004 to $1,187bn towards the end of 2007 when the survey was initiated.

Moreover, the forecast is for this figure to more than triple by 2021, reaching in excess of $4,000bn. An Institute report based on the survey, The Governance of Superannuation Funds – three years on from trustee licensing, identified three areas where training was required: the need to understand the difference between directing and managing; alternative investments; and the value of risk management.

Self-managed superannuation funds (SMSFs)

The self-managed funds industry has enjoyed significant growth over the past year. There are now 372,000 SMSFs in Australia representing the interests of 718,000 individuals. Assets grew to $300.2bn in the last year alone.

In February this year, the Institute, in association with CPA Australia Limited and the National Institute of Accountants, developed and released a set of competency requirements that clarify the skills auditors need to ensure trustees are fulfilling their legal obligations.

These requirements prescribe the competencies for members of the three professional accounting bodies who audit SMSFs. They provide clarification, guidance and assistance to auditors of SMSFs, and are expected to contribute greatly to the assurance that trustees, beneficiaries and the regulator gain.

This was followed in April by a forum which discussed the key recommendations made in a discussion paper entitled Review of the existing regulatory and governance framework. We used the issues raised at the forum, and in the discussion paper, to develop policy positions in a submission to Senator the Hon Nick Sherry in the same month. The submission also included data collected from a recent member questionnaire.

Legislative Instruments Act

In May this year, the Institute, with the other professional accounting bodies, lodged a joint submission on the review of the Legislative Instruments Act 2003. Since the Australian Auditing Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) standards are legislative instruments, this review affects those involved in financial reporting and assurance.

The submission suggested ways of streamlining the process of reviewing legislative instruments to provide certainty for those wishing to adopt standards based on international equivalents earlier than their mandatory applicable date. The review is still in progress.

Threshold for unlisted public companies

We continue to hold talks with Treasury on the subject of introducing a threshold for financial reporting and auditing requirements for unlisted public companies, including companies limited by guarantee, similar to that used for proprietary companies. Last year, the Institute, with the other professional accounting bodies, made a submission to Treasury supporting a reduction in red tape in this area.

The submission supported the introduction of differential lodgment which would eliminate the need for entities under a prescribed threshold to prepare general purpose financial reports. However, it also encouraged Treasury to set up a governance structure for these smaller unlisted public companies to maintain public accountability.

Auditing standards and registration

The IAASB is on track with its upcoming ‘Clarity Project’, which entails revising and reissuing all of the International Auditing Standards using the new clarified drafting style by December 2008. We maintain regular communication with the AUASB regarding changes to Australian Standards, which are planned to be effective for financial reporting periods from 1 January 2010. We are also engaged in discussions on auditor registration with relevant government stakeholders and will keep members informed as meetings progress.