In a move that will be closely scrutinized in the United States, the IFRS Foundation Monitoring Board and trustees announced Thursday joint plans for improving the governance and financing of the IASB’s parent organization and setting its strategy.
The monitoring board, a group of public authorities, will begin making the improvements, and the trustees will launch the process for considering revisions to the foundation’s constitution.
The SEC is considering incorporating IFRS into the financial reporting system for U.S. issuers. SEC Deputy Chief Accountant Paul Beswick said in December that the commission is evaluating the governance structure that supports the IASB and its parent organization, the IFRS Foundation, and expected the recommendations of the Monitoring Board and trustees to inform the SEC’s thinking.
SEC Chief Accountant James Kroeker said in December that the SEC staff needed a few additional months to produce a final report on its IFRS work plan.
In their report, the IFRS Foundation trustees said the next 18 months will be critical in determining whether a single set of globally accepted accounting standards is achieved. Trustees said convergence can be appropriate as a short-term plan for a jurisdiction, but it is not a substitute for adoption.
The report called for the foundation to highlight instances where jurisdictions are claiming compliance with IFRS without full adoption. The trustees want the IASB to identify jurisdictions where IFRS standards are being modified and encourage transparent reporting of those modifications.
The trustees said the IFRS Foundation funding system must maintain independence from the standard-setting process and expand its base to help fulfill the new strategy.
While affirming the current three-tier structure of the Monitoring Board, trustees and the IASB, the trustees said the roles and responsibilities of each element must be clearly defined.
Trustees want the IASB to:
- Clearly demonstrate how it sets priorities in its agenda.
- Agree on a methodology for field visits and tests, and impact assessments.
- Consider the impact of standard-setting decisions on XBRL, whose IFRS taxonomy the Trustees said is growing in importance and worthy of encouragement.
- Consider the effect of standard-setting decisions on the translation of IFRSs from the English language.
Trustees want the IFRS Foundation and IASB to undertake post-implementation reviews; establish formal arrangements with regulators and standard setters to receive feedback on how IFRS is being implemented; and, through the IFRS Interpretations Committee, ensure consistency of interpretations without undermining a principle-based approach to standard setting.
The report said the IFRS Foundation and IASB should encourage maintenance of a network of national and regional accounting standard-setting bodies to undertake research, guide the IASB’s priorities and encourage stakeholder input on IFRS from their jurisdiction. Trustees also said the IASB should establish a dedicated research capacity to provide thought leadership.
Monitoring board’s report
The Monitoring Board, currently composed of the Emerging Markets and Technical Committees of the International Organization of Securities Commissions (IOSCO), the European Commission, the Financial Services Agency of Japan and the SEC, provided detailed plans for its governance and its interaction with the trustees and the IASB in the three-tiered structure of the organization.
The Monitoring Board listed 10 decisions for its governance:
- Membership will be confined to capital markets authorities responsible for setting the form and content of financial reporting. The board will be expanded to include more authorities from emerging markets and will allocate rotating seats in consultation with IOSCO. All permanent members must demonstrate commitment to high-quality international accounting standards by using IFRS in their jurisdictions’ capital markets and participating in funding of the foundation.
- Decisions will continue to be made by consensus.
- The Basel Committee on Banking Supervision will continue to serve as an observer. The board may reassess whether improved interaction with other authorities is appropriate and whether improvement is possible without compromising the independence of the trustees or the IASB.
- The board will continue to refer issues to the trustees and the IASB chair for consideration. A mechanism will be developed to prevent the Monitoring Board from infringing on IASB independence while assisting capital markets authorities and the trustees in holding the IASB accountable to the foundation’s mission.
- The Monitoring Board will agree with the trustees on the criteria and process for IASB chair selections, which will be made public. The process will provide for trustee consultation with the Monitoring Board on the short list of candidates, but the final selection remains the trustees’ decision.
- The trustees will consult the Monitoring Board when they develop the framework to ensure diversity of the IASB, but the trustees will select IASB members.
- The Monitoring Board will publish more timely records of its public meetings and communicate its activities to a wider audience.
- Primary responsibility for funding will remain with the trustees. The Monitoring Board will encourage funding efforts in jurisdictions.
- Secretariat functions will continue to be provided by the Monitoring Board chair.
- The board will conduct periodic reviews of governance structure in coordination with foundation constitution reviews that occur every five years.
The board also recommended that the trustees change the foundation constitution to remove the title and responsibilities of foundation CEO from the IASB chair. The board wants duties reassigned so that the IASB chair retains responsibilities for standard setting but is not involved with oversight or funding matters that have the potential to create a conflict of interest in standard setting.
—Ken Tysiac ( firstname.lastname@example.org ) is a JofA senior editor.
More from the JofA: