ACSI's submission to Treasury's consultation on draft legislation merging the FRC, AASB and AUASB.

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Summary position

ACSI welcomes the introduction of draft legislation to merge the Australian Accounting Standards Board (AASB), the Auditing and Assurance Standards Board (AUASB), and the Financial Reporting Council (FRC), into External Reporting Australia (ERA). It will be important for ERA to be sufficiently resourced to carry out its functions, appropriately consult with market and provide guidance and other materials to support effective reporting. ACSI broadly supports the draft legislation and includes some recommendations to further enhance the reform design, in particular to further support the presence of relevant experience and knowledge in the Governing Council and specialist boards. 
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Strengthening support for the appropriate mix of knowledgeand experience in Council and boards 

ACSI supports the draft provisions establishing a Governing Council and specialist boards that possess an appropriate mix of knowledge and experience (sections 227A(4), 230(4)and 230(6)). 

ACSI broadly supports the list of knowledge and experience outlined in the draft legislation, which includes, “governance, business, financial markets, law, government, accounting, auditing, sustainability, or climate change, science…” We recommend explicitly including investors within this list. Investors, as primary users of financial and sustainability reporting, are an important part of the market and should be considered in appointments to the Council and boards. While investors are implicitly recognised in the reference to knowledge or experience in business or financial markets, it would improve the clarity of this section by referencing investors directly given their importance to the market and as primary users of disclosures. 

The consideration of appropriate knowledge and experience may also be further strengthened by specifying that:

• At a minimum, knowledge of or experience in accounting, auditing and assurance and sustainability disclosures should be present on the Governing Council. As these are the three categories of boards established in the legislation, it is important that the Governing Council contain experts in these specific areas.
• The individual specialist boards should contain relevant specific knowledge and experience. The list of relevant knowledge and experience outlined in the draft legislation is the same for the Governing Council and the boards, including “governance, business, financial markets, law, government, accounting, auditing, sustainability or climate change, science.” Given that boards are focused on specific categories, such as sustainability, some elements of the broad list of knowledge and experience will be more relevant than others. For example, the sustainability standards board should have members with knowledge and experience in sustainability, climate change and/or science. These boards will represent Australia internationally, consequently their members should possess a clear depth of expertise and experience in the specific area for which their board is responsible. 

Nuanced application of standards 

ACSI strongly supports the draft legislation's statement (section 232A)that a "standard made or formulated by External Reporting Australia may...be of general or limited application (including a limitation to specified bodies or undertakings); and… differ according to differences in time, place or circumstance." We further strongly support the requirement in the draft legislation (section 232B(3)) for ERA to "have regard to the suitability of a proposed standard for different types of entities," and that ERA "may apply different sustainability requirements to different types of entities." This draft legislation supports better consideration of fit-for-purpose standards design that recognises and reflects the different types of entities that have reporting obligations. 
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Institutional governance

We support the draft legislation’s approach to balancing access to relevant and recent experience with preserving the independence of the Governing Council and boards. ACSI considers that the principle for the Governing Council to include, “an appropriate level of representation of persons who are, and are seen to be, independent from Australian auditors,” (section 227A(5)) and the disclosure of interests requirements adequately balance independence and relevant expertise. We encourage the public disclosure of material personal interests. This will support a transparent process for balancing the inclusion of recent experience and preserving Council and board independence.