CPA Australia calls for stronger integrity safeguards in standards-setting merger

CPA Australia has raised concerns with the federal government’s proposed restructuring of standard-setting bodies, warning that the draft legislation could undermine the integrity and independence of standard-setting.

The reforms would see Australia’s three existing bodies, the Australian Accounting Standards Board (AASB), Auditing and Assurance Standards Board (AUSB) and Financial Reporting Council (FRC), amalgamated into a new entity called External Reporting Australia.

The new entity would have an overarching Governing Council and three standard-setting bodies across accounting, audit and assurance, and sustainability reporting.

While CPA Australia said it supports the modernisation of Australia’s reporting framework and the inclusion of a sustainability standards board, it warned the proposed model could introduce issues with governance and due process.

“The current draft legislation gives the Governing Council significant powers without adequate safeguards, including the ability to make or vary standards and determine the structure and composition of the standard-setting boards. This creates a real risk of undue influence and erodes the integrity of the process,” Ram Subramanian, CPA Australia’s financial reporting lead, said.

CPA Australia and CA ANZ warned that the draft bill contained insufficient due process and recommended that a detailed due process framework be established and referenced in the bill. Furthermore, it warned that the Governing Council and ministerial involvement in technical standard-setting could undermine transparency and confidence in the system.

To combat these issues, CPA Australia called for minimum board sizes and multi-stakeholder representation, recognition of a detailed due process framework and the removal of provisions that undermined the balance between overall governance needs and technical standard-setting work.

In November 2023, when the proposed restructure was first announced, Treasurer Jim Chalmers said the body would support the implementation of climate-related financial disclosure standards and minimise regulatory duplication.

“In addition to accounting and auditing standards, this new integrated body will better support the ongoing implementation of climate‑related financial disclosure standards in Australia,” Chalmers said.

“Business, investors and other stakeholders will benefit from engaging with a single entity, helping to increase regulatory consistency, reduce red tape and unnecessary costs and avoid duplication.”

CPA Australia said the new model would provide welcome flexibility to the system, but warned that this should not come at the expense of accountability and integrity.

“Independence and transparency are fundamental to credible standard-setting, and while we welcome the flexibility that comes with the new model, every effort must be made to ensure that accountability and integrity are evidenced at all times,” Subramanian said.