Firm push for the FRC

Former PricewaterhouseCoopers partner Jeff Lucy has worn out a lot of shoe leather in recent months as he moves around motivating people. He talks about his quest with Tom Ravlic.

As the new chairman of the Financial Reporting Council Jeff Lucy, also a former president of the Institute of Chartered Accountants in Australia, is trying to mobilise the combined interests of all constituents in standard setting to participate more fully in the process undertaken by the Australian Accounting Standards Board. Lucy, who replaces the inaugural chairman after Paul Rizzo's resignation last February, acknowledges the challenge of bringing it all together must involve the entire membership of the FRC. This is a part of push by the FRC to boost its profile, something it has lacked right from its inception. The new chairman argues the time is now right for the council to talk about matters in the public arena, given that the set-up phase has passed and the system has been running since mid-2000. "Paul managed all that extremely well," says Lucy. "In any event, the FRC has gone through a process where it is now that we have to concentrate on some of these issues, Back then we had a different level of work to address.

"The truth is we're not going to be on everybody's lips because we have a very background role. It's not a sensational role. The FRC won't be seeking regulatory comment or expressing regulatory opinions." Lucy cites recent comments made to him by some constituent groups about auditor independence, indicating those individuals felt the FRC should say something on the matter. "Several groups that I've met have raised the Professor Ramsay report that's being worked on regarding auditor independence," he says. "The simple facts are under the legislation we have no jurisdiction on that topic." What is within the FRC's framework is the requirement to monitor and approve the AASB's work program and agenda, the approval of funding and staffing arrangements. The new FRC chairman is particularly anxious to ensure Federal Parliament better understands the manner in which the council operates and the fact it has not engaged in any type of interference that was a primary concern when CLERP legislation was initially debated in the Senate.

Concerns were raised during the October 1999 Senate debates about the proposed remit of the FRC and its ability to approve and monitor the agenda of the AASB. Those concerns were primarily raised by the ALP along with some sympathy from the Australian Democrats. The primary issue raised by the ALP was the prospect of corporate interests seeking to manipulate the process for their own gain. Having the capacity to approve the work program was seen by the ALP as a mechanism that would delay or cause the AASB to lower the priorities if FRC pressure ever came to bear on the board. Jeff Lucy says the council's role has been misunderstood. "There is a view expressed from time to time from some parts of the Parliament that the FRC is exercising an inappropriate or undue level of influence on the AASB," he says. "That is just absolute nonsense. I am aware fully of the role the FRC has taken and it's just not the case." He says Senate committee hearings have raised the issue of independence with AASB chairman Keith Alfredson and that the AASB chair has indicated the assertion

The council is also busy preparing itself for a significant tin-rattling exercise in order to attract funding from the corporate sector for the standard-setting structure. It is an activity that Lucy is keen to intensify. He believes the funding issue must be confronted by the business community because the Federal Government proceeded with the reform of accounting standard setting on the basis that it would be a partnership. Lucy and his FRC fellows want to strengthen that partnership with a real funding commitment. No corporate funding exists within commitments made to the AASB in the past 18 months. AASB activities are currently funded by state and federal governments, the Australian Stock Exchange and three of Australia's professional accounting bodies. State and federal governments are responsible for $2 million of the $2.97 million set down in minutes of the FRC obtained late last year under the Freedom of Information Act. The $2 million has been pledged as an annual contribution for a three-year period.

That was funding promised when the new Australian standard setting structure was being put in place. Funding commitments from the two main accounting bodies, the Institute of Chartered Accountants in Australia and CPA Australia, total $650,000 a year. The other accounting body, the National Institute of Accountants, has entered the standard-setting fray for the first time, committing itself to providing $100,000 a year over the next two years. An initial $50,000 contribution was made by the NIA for the financial year ending 30 June 2001. Contributions from the ASX have come in two forms: cash left over from the initial $1 million harmonisation project that has stretched well beyond the initial two-year period the promoters had business believe and a donation of accommodation for the board within the ASX building on Collins St, Melbourne. The accommodation on Level Three of the ASX building has been valued at $60,000 and that has been factored into the total funding figures for the 2000-01, 2001-02 and 2002-03 financial years. The ASX's 2000-01 contribution of $175,000 consisted of the $60,000 "in kind" provision Chairman Lucy wants to expand the funding base in part to ensure the partnership vision becomes a reality. Another aim is to enable the AASB to get more resources so it boosts the level and speed of output in a time when it is envisaged that the International Accounting Standards Board (IASB) will move fairly rapidly to patch up older standards in their improvements project and deal with topics such as share-based payment. He says the initial reaction from business to requests for funding the process has been to demand the Federal Government take the funding responsibility in its own right. Lucy says the quick response has been that the Government should provide the funding necessary to support the FRC and AASB structure through ASIC revenue raising. "I don't agree with that," he says. "If you look at the Corporate Law Economic Reform Program process it was very clear at that time the Government was looking for a partnership with regards to funding."

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