Division 5 of Part XI of the Companies Act 1997 creates the body that sets the accounting rules.
Section 204 — establishment and membership
A body called the Accounting Standards Board is established. It is a body corporate with perpetual succession and a common seal, capable of acquiring, holding and disposing of real and personal property, entering into contracts, suing and being sued.
(a) the Auditor-General; and
(b) the Registrar; and
(c) two representatives of the Papua New Guinea Institute of Accountants, Inc., appointed by the Minister by notice in the National Gazette on the Institute’s advice; and
(d) one representative of the Accountants Registration Board established under the Accountants Act 1996, appointed in the same way on that Board’s advice; and
(e) two persons appointed by the Minister by notice in the National Gazette.
Under section 204(4) the Minister shall not appoint a person unless satisfied they are qualified by reason of knowledge of, or experience in, business, accounting, finance, economics, or law. Under section 204(5) the Registrar is the Chairman. Schedule 5 contains the Board’s procedural provisions (s 204(6)).
The membership balances public office — the Auditor-General and the Registrar — against professional representation from the Institute of Accountants and the Accountants Registration Board, with two Ministerial appointees. Standard-setting is thereby neither wholly governmental nor wholly professional.
Section 205 — functions and powers
(a) to develop, approve, amend and revoke financial reporting standards for the purposes of this Act, in respect of reporting companies, exempt companies, or all companies;
(b) to make determinations on the application of any approved financial reporting standards;
(c) to give directions as to the accounting policies that have authoritative support within the accounting profession in Papua New Guinea; and
(d) such other functions as it is given by this or any other Act.
The Board has such powers as are reasonably necessary to carry out its functions.
Section 172 defines generally accepted accounting practice as compliance with applicable financial reporting standards and, for matters not covered by them, accounting policies that are appropriate to the company’s circumstances and have authoritative support within the accounting profession in Papua New Guinea.
Section 205(1)(c) gives the Board power to say what has that support. So the Board governs both limbs of the section 172 test.
Section 206 — approving and applying standards
be expressed to apply to (a) all reporting companies or groups; (b) specified reporting companies or groups; or (c) accounting periods or interim accounting periods; and may have general or specific application or differ according to differences in time or circumstance.
An approved standard may classify a company as a subsidiary of another company where, although it is not a subsidiary for the purposes of section 5, it is in effect controlled by that other company — so as to render it, in substance, a subsidiary.
Section 5 uses precise mechanical tests — control of the board, more than half the votes, more than half the shares, more than half of every dividend. Section 206(5) lets a reporting standard reach a company that fails those tests but is in effect controlled, and require it to be consolidated in the group financial statements.
Under section 206(7), “company” in subsection (5) includes an association of persons whether incorporated or not — so a controlled trust or unincorporated vehicle can be brought into consolidation.
Note the limit: this operates for accounting purposes. It does not make the entity a subsidiary for section 64, section 349 or the other statutory purposes that turn on section 5.
Under section 206(6) the Board may determine that a standard not approved for a particular company or category shall apply to it, or that one which applies shall cease to apply, for such periods as the Board determines.
Sections 206(8), (9) and 207 — when standards take effect
An approved standard, an amendment, or a determination under subsection (6) takes effect one month after the date of its publication in the National Gazette.
It commences to apply to such accounting periods as the Board specifies, which (a) may be periods that have commenced or commence before the standard takes effect; but (b) shall not be periods that have ended or end before it takes effect.
A new standard can apply to a period that is already running — so a company mid-year may find its reporting requirements changed. It can never apply to a period that has already ended. Accounts once prepared cannot be made non-compliant by a later standard.
Section 207 applies the identical structure to revocation: revocation takes effect one month after publication, and applies to periods that may have commenced but not to periods that have ended.
Section 208 — certificates of the Board
A certificate signed by the Chairman as to the approval of a standard or amendment, the making of a determination under section 206(6), a revocation, or the periods in relation to which a standard or determination commences, ceases, or was in force, is — in the absence of evidence to the contrary — sufficient evidence of the matters stated.
All courts and persons acting judicially shall take judicial notice of the signature of the Chairman on such a certificate.
Several offences turn on whether statements complied with an applicable financial reporting standard — section 185(2) makes non-compliance an offence by every director. Proving which standard applied to which period would otherwise require detailed evidence of gazettals and determinations. Section 208 allows a single certificate to establish it.
What reaches the Board
Under section 200(2), where an auditor’s report on a reporting company indicates that the requirements have not been complied with, the auditor must within seven days send a copy of the report and the statements to the Registrar, who shall forthwith send copies to the Accounting Standards Board.
So the Board sees every qualified audit report on a reporting company — a direct feed of information about where the standards are not working or not being followed.
Sources
- Companies Act 1997 — ss 5, 64, 171, 172, 180, 182, 185, 200, 204–208, 349; Schedule 5
- Accountants Act 1996
Before relying on anything here, read the current text of the Companies Act 1997 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.