Calls Heard for More Independent IASC
FASB does not believe the International Accounting Standards Committee (IASC) is ready to issue accounting standards that will be accepted worldwide. In a letter to the IASC, FASB and the trustees of the Financial Accounting Foundation said the IASC must do more to improve its structure and process to ensure that future standards are of the highest possible quality. Specifically, FASB said the IASC should be structured as a self-sustaining standard setter with an independent decision-making body, an independent oversight body, secure funding and a single, technically competent and centrally located staff.
The letter was written in response to the IASC discussion paper, Shaping IASC for the Future , published in December, outlining proposals that would modify the IASC's internal structure and role in international accounting standard setting.
The AICPA seconds the motion
In a separate response, the AICPA, too, provided its vision of the IASC's role and structure. Many of its proposals for improvement paralleled the views expressed by FASB and the FAF. Signed by Olivia Kirtley, chairwoman of the AICPA, and AICPA President Barry Melancon, the letter said the IASC should acknowledge the goal of an independent standard-setting structure. And if the IASC is unable to adopt an independent structure immediately, "it should consider additional changes through a formal structure review within five years," the AICPA letter said.
The IASC has come a long way...
The IASC recently made final the last of its core set of international sta ndardsIAS no. 39, Financial Instruments: Recognition and Measurement , and many international governments and companies have already adopted them. In April, Dresdner Bank in Germany and Iscor, Ltd., in South Africa announced they would prepare their financial statements in accordance with the IASs, while the parliament in Austria enacted a law allowing all Austrian companies to follow IASs.
According to the discussion paper, the IASC is planning a restructuring to replace its steering committees with an 11-member standards development committee (SDC). The SDC would develop IASs that would be approved by the IASC board, and it would be advised by the standards development advisory committee.
The IASC also proposed replacing its current advisory council with 12 trustees who would appoint members of the SDC, the IASC board and the standing interpretations committee. The trustees would monitor and finance the IASC.
...but the journey is not over
Nonetheless, the IASC still has a lot to do before all the major international financial markets are sufficiently encouraged to adopt IASs for their listings. According to FASB chairman Edmund L. Jenkins, the IASC proposal "doesn't go far enough in creating a high-quality, independent standard setter that would be acceptable worldwide."
FASB and the FAF said the SDC should be more independent than the IASC is proposing. According to the two groups' letter to the IASC, the following changes are needed:
- The standards development committee (SDC) should have full and final authority to set its own agenda and to approve exposure drafts and standards.
- The IASC board should work closely with the SDC but have no authority to override SDC decisions.
- The IASC board of trustees should appoint members of the SDC and the IASC board, exercise oversight responsibilities over both entities and raise funding.
Such changes, said FASB and the FAF, would create a structure that preserves the most important elements of both an independent expert model and a constituency-based model. Also according to the letter, a more independent international standard setter would generate confidence in world markets that would foster participation, as well as a commitment to provide resources and sources of funding to support IASs.
The AICPA letter commended the IASC for its efforts to improve its structure. The AICPA agreed that the IASC's primary objective should be developing accounting standards "that provide transparency and comparability of information useful to investors and lenders."