Accounting Leaders Recommend Changes to IASB's Constitution


To be most effective, international financial reporting standards should be field-tested prior to adoption, and the international standard setter needs to more clearly communicate its processes while gathering stakeholders’ opinions, a group of global accounting leaders including AICPA President and CEO Barry Melancon told the representatives of the International Accounting Standards Board during a roundtable discussion in New York City on Tuesday.

The roundtable was one of several taking place around the globe as the second part of a two-part review and public comment period of the constitution of the International Accounting Standards Committee Foundation (IASCF), the oversight body of the IASB that is required to review its constitution every five years.

Based in London, the IASB sets International Financial Reporting Standards (IFRS), which are recognized in 113 countries. The SEC is considering whether to require U.S. publicly traded corporations to use IFRS for financial reports in U.S. markets as soon as 2014, according to its proposed road map.

The first part of the IASCF constitutional review process was completed Jan. 29 and included creation of a monitoring board made up of securities regulators as well as a provision that will increase the IASB from 14 to 16 members by 2012, with criteria added to ensure geographical diversity.

The second part includes proposed changes such as allowing greater flexibility in liaisons with other stakeholder organizations, changes to the length of IASB member terms, inclusion of trustees from Africa and South America, establishing a procedure for the possibility of an accelerated due process, and changing the name of the IASC Foundation and the IASB to the IFRS Foundation and IFRS Board, respectively, to better reflect its mission.

Field testing has been discussed in the past, but attendees at Tuesday’s roundtable stressed the importance of doing so when setting financial reporting standards. Philip Bancroft, CFO of ACE, a member of Group of North American Insurance Enterprises, went as far as to suggest it should be mandated.

“Moving forward without it doesn’t make sense because we don’t understand the implications,” Bancroft said. “It ought to be embodied in the constitution to say that should be a part of due process to have comprehensive field testing to understand the effects of a far-reaching standard. It should be mandated.”

Though he offered no comment as to whether he believed inclusion in the constitution is necessary, Dave Kaplan, a partner in PricewaterhouseCoopers LLP and leader of the firm’s International Accounting and SEC Services Group, agreed with the importance and benefits.

“Field testing is one of the best ways to apply (standards) to procedures various companies have. It’s very effective in understanding where some of those operational challenges are and how those standard setters need to monitor the processes,” Kaplan said. “Deep field testing hasn’t been as comprehensive as it may have been in the past. It’s something the board may want to think about.”

Melancon agreed.

“The complexity of a worldwide standard makes this concept even more important to understand if it’s implementable in different cultures with different standards,” he said.

When it comes to transparency, Bancroft believes almost nothing should be kept behind closed doors. “Everything should be made public except very narrow personnel matters,” he said.

IASCF trustees explained that they have improved their feedback process to be more comprehensive and to deal with all the key substantial points made by commentators, but said they remain open to stakeholder feedback on how they can improve the process.

Kaplan said he would like to see even more done.

“Providing underlying logic and reasoning for decisions that get made would be very helpful to constituents for understanding the perspective of the board and future considerations to be made.”

Antonio Vegezzi, former president and director of Capital International (Switzerland) and an IASCF trustee for five years, acknowledged that the trustees previously did not focus as much on communication but that they have hired a director of communication and are focusing on making sure trustees listen to stakeholders, reply to their questions and connect with them.

“In selection of candidates to IASB positions, we as trustees look at people with outstanding technical skills but also who have this willingness to reach out and communicate,” he said.

A much-debated proposal during the roundtable was allowing for a public consultation process of less than 30 days in “exceptional circumstances… when major unforeseen developments arise.”

Such circumstances should be “rare,” Bancroft said, adding that making decisions quickly rather than with a comprehensive process won’t produce better results.

Kaplan went further, saying that 30 days should be a minimum because larger global organizations cannot adequately assess and comment in less time than that.

A separate area of particular importance to the AICPA is the need for a permanent independent funding source for the IASB.

The IASB’s 14 members come from nine countries, including the United States. It is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, and other international and professional organizations throughout the world.

During the roundtable, Melancon reiterated the AICPA’s point of view, stating, “a permanent funding solution would ensure that the IASB has appropriate resources to carry out its mission and would lead to worldwide confidence in the IASB’s role as an independent accounting standard setter.”

In an April 9 comment letter to the SEC, Melancon encouraged the commission to use part of the current levy on U.S. public companies for accounting standard-setting activities as a permanent funding source for the IASB.

Asked whether trustees would have the ability to determine the budget if granted this funding, Melancon said yes, to a degree.

"If (the board has) an automatic funding mechanism, I don't think a checks and balances process is unreasonable," he told them. "Trustees would have to be able to defend their budget. I don't think anyone would give you carte blanche."

The consultation document Constitution Review - Proposals for enhanced public accountability can be viewed on the Open for Comment section on the IASC Foundation Web site ( The closing date for comments is Nov. 30, 2009.

Alexandra DeFelice and Matthew G. Lamoreaux are JofA senior editors. Their e-mail addresses are and .

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