The key players in standard setting in Australia are the Financial Reporting Council (FRC) and the Australian Accounting Standards Board (AASB). Other key players in financial reporting regulation include the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA), and the Australian Securities Exchange (ASX).[Fill in the blank]
Compare briefly between the roles of the FRC and the AASB.[Fill in the blank]
Discuss briefly the relationship between FRC and the AASB in Australia.[Fill in the blank]

Question

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The prompt presents three fill-in-the-blank prompts and provides two candidate responses in the answer list. The task is to compare roles of the FRC and AASB and describe their relationship.

Option 1: The FRC is responsible for providing broad oversight and strategic direction for accounting and auditing standard setting in Australia, including appointing members and setting priorities. The AASB, on the other hand, is tasked with the development, formulation, and issuing of Australian Accounting Standards in accordance with the guidelines set by the FRC.
- This option correctly captures the descriptive distinction where the FRC acts as the governance body that sets priorities and oversees the standard-setting landscape, while the AASB is the technical body that actually creates and issues standards.
- The emphasis on the FRC appointing members and setting priorities aligns with the typical governance role of a standards oversight council, and the AASB’s mandate to develop and issue standards follows those directions. 
- A potential misconception to watch for is treating the FRC as a standard setter itself; in this framing, the FRC guides policy and oversight, whereas the AASB performs the technical standard-setting work.

Option 2: The FRC oversees and monitors the work of the AASB, providing the strategic framework within which the AASB operates. The AASB is accountable to the FRC, ensuring that its standards-setting activities align with the policy directions and priorities established by the FRC.
- This option conveys the governance relationship clearly: the FRC provides strategic framework and oversight, and the AASB operates within that framework.
- The notion that the AASB is accountable to the FRC captures the supervisory dynamic typical of such arrangements, ensuring alignment with policy directions and priorities.
- A common pitfall would be to imply that the FRC directly sets or issues standards; instead, this option appropriately places the FRC in an oversight and strategic role relative to the AASB’s technical work.

In summary, both statements describe complementary aspects of the governance and relationship between the FRC and the AASB: the FRC provides broad oversight, strategic direction, and accountability, while the AASB conducts the actual standards development under that framework, with accountability to the FRC. The first option emphasizes the functional distinction between oversight and technical development, and the second option emphasizes the governance relationship and alignment with policy directions. The explanations highlight typical misconceptions and clarify the division of labor between these two key Australian standard-setting bodies.

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