In their review of developments in their jurisdiction or constituency, members noted some matters of general interest.

• The G20 Leaders will meet in Australia in 2014.  Already, the ‘B20’, an informal grouping of chambers of commerce and business leaders in the G20 countries, are seeking for the G20 Leaders to promote ‘further acceptance/ adoption’ of IFRSs as part of their final communiqué.
• The insurance industry in Europe and North America are concerned about the interaction of the financial instruments project and the insurance project, in particular the interaction between the forthcoming Insurance Contracts exposure draft, IFRS 9 and the Impairment exposure draft. In slightly unguarded comments, the IASB Chairman stated that he was more concerned about the Insurance Contracts project than he was about Impairment.  His personal view was that ‘everyone knew’ that banks were probably still hiding losses, few realised that insurance companies were in the same situation.  (In separate comments, Mr Hoogervorst was confident that Impairment was ‘done’; an exposure draft of revised proposals would be published in the first week of March.)
• There was some discussion of whether there would be a Review Draft of the forthcoming IFRS on Revenue.  The IASB, noting the considerable post-exposure outreach and discussions they have already conducted, has not planned such a document (a Review Draft is a fully discretionary step in the IASB’s due process).  Some Council Members wanted a Review Draft, if only to avoid the IASB having to fix technical issues after the IFRS is issued; others thought that it was time to issue the IFRS, and were sceptical of the value of a Review Draft at this stage.

Michel Prada, Chairman of the IFRS Foundation, briefed the Council on the results of the IFRS Foundation Trustees’ meeting in Hong Kong in January 2013 and subsequent meetings with the IFRSF Monitoring Board and key political bodies.

Mr Prada noted that the Trustees spent considerable time on the related matters of strategy and funding, in particular in the light of the “no decision” decision on the domestic use if IFRSs in the United States.  The Trustees remain focused on supporting the global reach of IFRSs, and noted that China was ‘almost fully on IFRSs’; the situation in Japan was encouraging but ‘more complex’; and still more challenging.  However, the Trustees recognised the need to move ‘beyond the transatlantic dynamic’.  At the same time, there was a need to convey a message to the US that they were part of the solution and they needed to respond in ‘a more positive’ manner.

On funding, the IFRS Foundation was developing a revised approach to its funding model, one which balanced the public and private sectors.  A continued commitment from the major audit firm networks (perhaps going beyond the ‘Big 4/ Major 6’ firms) was likely.  Mr Prada was confident that such funding did not impair the IFRS Foundation’s or IASB’s independence.  Some contribution to the organisation’s operating budget from commercial activities was expected, but (given the IFRSF’s not-for-profit status) this could only ever be marginal.  Public sector support would continue to be allocated relative to a neutral measure, such as GDP.  He noted that the US was not the only significant jurisdiction not meeting its notional commitment to the IFRS Foundation.

Mr Prada noted also that the Trustees approved the IASB signing a Memorandum of Understanding with the International Integrated Reporting Council; the approval of the revised Due Process Handbook; the approval of amendments to the IFRSF Constitution and other due process matters.  In addition, they had discussed matters related to establishing research capacity at the IASB and XBRL.  He noted that the Trustees had given a large degree of support to establishing the Accounting Standards Advisory Forum.  Mr Prada also noted a successful stakeholder event held in Hong Kong.

Mr Prada had met with the Monitoring Board (update from the Monitoring Board).

Subsequent to the meetings in Hong Kong, Mr Prada had held a series of meetings in the United States and Canada, meeting with the Chair of the US Securities and Exchange Commission, the Executive committee of the Financial Accounting Foundation, the US Treasury, the Chair of the International Monetary Fund and the Chair of the Financial Stability Forum.  These meetings proved that there was a high degree of international organisational support for IFRSs, as well as an acknowledgement that the US environment was challenging, given an impending change in Chairman and domestic rulemaking priorities.

Makoto Sonoda (FSA Japan) gave a briefing on behalf of Masamichi Kono, Chair of the Monitoring Board.  The Board had concentrated on agreeing the criteria for membership of the Monitoring Board, in particular gaining an agreement on interpreting “domestic use of IFRSs”.  Mr Sonoda explained that he could not share the agreed wording with the Council, but stated that a formal release from the Monitoring Board would be made presently.

Mr Sonoda noted that the Monitoring Board would meet in London in April 2013 at the time of the Trustees’ meetings.  He commented that candidates for membership of the expanded Monitoring Board would be considered at that meeting.

A Council member was concerned that the danger of counter-productive actions at both the IFRS Foundation and the IFRSF Monitoring Board was great: there was a need for the process and related actions to be as transparent as possible to mitigate this danger.

Yael Almog, Executive Director of the IFRS Foundation, introduced an extended session on establishing an Accounting Standards Advisory Forum.  She explained the background of the proposal and the results of the consultation, including stating that the Memorandum of Understanding and Terms of Reference would be amended to clarify that membership of the Forum would be open to jurisdictions that had not adopted IFRSs, but were otherwise qualified (i.e., had the technical capacity and infrastructure to make a significant contribution to the ASAF).

Council members queried certain aspects of the proposals, in particular the composition and geographical distribution embedded in the proposal.  Others expressed concerns over the apparent haste with which the ASAF was being established.  Another area of concern was the commitments implied in the proposed Memorandum of Understanding.  Some supported the proposed commitments and others did not see them as necessary, except perhaps the commitment to mutual respect of independence of the standard-setters.

Several Council members queried whether the existing bilateral arrangements (e.g., the MoUs between the IASB and the FASB, the ASBJ and EFRAG) would continue.  The IASB Chairman gave inconsistent answers – at first saying he was tempted to keep them, but later in the same session suggesting that the existing bilateral would not continue.

The Council was invited to address the following issues:

1. Do members agree that the Advisory Council’s mandate is reasonably clear and remains appropriate in light of the proposed formation of the ASAF? If not, what changes would they propose and why?
2. Do members think the proposed mandate of the ASAF is reasonably clear and appropriate? If not, what changes would they propose and why?
3. What additional steps should be taken, if any, or what changes should be made, if any, in how the Advisory Council operates, to ensure that the work of the Advisory Council and ASAF complement one another?
4. Assuming that the role of the Council and ASAF are clear and complementary, should changes in the composition of the Advisory Council be considered? If so, what changes and why?

The Council broke into discussion groups and discussed these topics.  Afterwards, each group reported the results of their discussions.  Many themes were common to all.  The Advisory Council chairman summarised the Councils views as follows:

• As currently articulated in the IFRS Foundation Constitution and the Council’s own Terms of Reference, the role of the AC is appropriate [although some groups expressed concern that the IASB Chair would chair the ASAF];
• There was support of a clear, technically-focused mandate for the ASAF, one not duplicative of the Council;
• It would be productive for Council to keep a watching brief of ASAF; and
• Ceteris paribus, there is no reason why an ASAF Member might not also be a member of the AC.

Alan Teixeira presented the IASB staff’s proposal for enhancing the research capacity at the IASB.

The Agenda paper prepared of this session offers a summary of the main proposals.

Alan Teixeira made a presentation outlining the organisation’s XBRL initiative, which would (in essence) (i) incorporate the development of the IFRS XBRL Taxonomy as part of the normal standard-setting function; and (ii) to the extent possible, separate (or ‘de-emphasise’) technology-specific aspects of XBRL, while maintaining XBRL expertise and leadership.

Dr Teixeira stated that he thought the IFRS XBRL Taxonomy to be ‘high quality’, but noted that jurisdictions were adapting it to make it operational in their markets.  According to reliable academic research, investor take-up is low, while preparers still view it as something done after the [hard copy] financial statements are filed.

Several Council Members made interventions.  Views were mixed: some stated that the IASB should keep control of the IFRS Taxonomy, because if control of the Taxonomy is lost, so is control of the application of IFRS.  Others thought that the IASB did not need to control—be involved, yes, but not to control.  The US SEC Observer noted that securities regulators do see XBRL as one possible ‘delivery mechanism’ of information to financial markets and expressed support of the proposed direction of travel.  On the other hand, the EFRAG Chair was concerned that, unless the IASB was involved, the IFRS Taxonomy would result in an over-standardisation of IFRSs.

Dr Teixeira noted that IASB involvement would lend credibility to the IFRS Taxonomy—and that few people knew (or cared) which part of the IFRS Foundation issued a document.  The IFRS Foundation’s over-arching aim was to facilitate the efficient dissemination of financial information, and XBRL was a powerful tool available to the organisation to achieve that aim.

The Council Chairman noted that the discussion had covered a lot of ground around an important and strategic issue, but that the issue was not an easy one to resolve and that it was highly likely that the Council would return to these matters again.

Feedback statement from the EFRAG, ANC and FRC Discussion Paper Towards a Disclosure Framework for the Notes

Filippo Poli, a member of the EFRAG Technical Staff, presented the preliminary feedback analysis of the comments received on the EFRAG discussion paper.  Key messages at this stage included:

• improving the way standards are expressed, so that what are examples of how requirements might be met do not become requirements themselves;
• improving the application of materiality;
• remembering that notes are intended to communicate information, not obscure it.

In response to a Council Member, Mr Poli stated that the EFRAG staff was now performing a second-level analysis to identify whether there was any consistency among groups of respondents (e.g., users or preparers).  The EFRAG staff noted that once complete, they would pass the completed survey, comments and analysis to the IASB as an input to the IASB’s disclosure framework project.  Hans Hoogervorst noted that EFRAG’s respondents had identified issues common to those identified by the IASB: the application of materiality and the need to ‘ignite’ behavioural change in preparers, [lawyers], regulators and auditors.

Recent IASB Activities

Dr Teixeira made a presentation of early stage activities on the IASB’s project to develop a disclosure framework, in particular its late-2012 survey of users and preparers on various disclosure issues and the public forum on disclosure held on 28 January 2013 in London.  He noted in particular that the short-term focus of the IASB would be on judgement around materiality and the relevance of disclosures.  In particular, Dr Teixeira noted that the IASB was open to make modifications to IAS 1 to modify some paragraphs that were perceived to be too inflexible and are preventing preparers from improving how they present information; and to clarify the purpose of IAS 1.31.  Other longer-term projects were also possible, including a separate project on materiality as well as a general review of disclosure requirements.

Many Council members made interventions in the subsequent discussion.  Among the comments were:

• Regulators have an interest in this area and should be explicitly involved;
• IFRSs should tie disclosure to what is important in the context of the entity’s business model: if it is important to the business, it will be material;
• Many spoke in favour of targeted improvements to IAS 1

The Council Chairman summarised the discussions in the following way:

• On the disclosure framework project generally, the IASB should be as inclusive as possible as regards outreach; it should involve those like EFRAG and the FASB, which have already done related work on a disclosure framework.  The IASB should also beware of ‘quick fixes’, but there was a high degree of support for targeted amendments to IAS 1.
• The broader elaboration of materiality was a longer-term project and should involve all relevant players, including national standard-setters, EFRAG, the IIRC, IOSCO and the IAASB.  This issue would not be a ‘quick fix’.

The IASB staff made a presentation on the recently-issued ED proposing limited amendments to IFRS 9, noting its intent to improve the interaction with the insurance contracts project, to address a narrow range of application issues and to reduce key differences with the FASB’s standards.  The staff noted that it hoped to have these amendments in place by the end of 2013.

Council members were broadly supportive of the objective of the amendments, but noted that there was a communications challenge facing the IASB with respect to introducing the ‘Hold to Collect’ model, which produces results similar to the ‘Held to Maturity’ model, but was a quite different theoretical approach.

The Council also took the opportunity to express their concern on the Impairment project.  Council members spoke in favour of trying to achieve a converged solution as having two models would be problematic for preparers and confusing for users.  Others wanted to have an IFRS issued sooner rather than later, and continue convergence efforts in parallel.  Mr Hoogervorst stated that the IASB and FASB had committed to participating ‘openly and seriously’ in each other’s post-exposure outreach activities.  However, both standard-setters were under pressure to produce a standard.

IFRS Foundation staff presented a high-level summary of the preliminary results of a survey of the use of IFRSs around the world.  This survey, conducted in 2012, concentrated on collecting views from standard-setters, market regulators and professional institutes about ‘who’ (which jurisdictions use IFRSs) and ‘how’ (methods of incorporation of IFRSs into local reporting requirements).  The survey had focused on whether and how IFRSs were required for domestic companies.  The survey had three primary objectives:

• Gaining hard data on and a better understanding of local IFRS application;
• Establishing an independent resource of information; and
• Identifying where the IFRS Foundation could provide targeted support for the adoption of IFRSs.

The staff noted that all G20 member countries had responded, other than the United States, and that standardised templates for all of these 19 countries would be released on the IFRS Foundation website on 1 March 2013.  Other responses would be added at a later date.

Yael Almog, IFRS Foundation Executive Director stated that the survey had started as a collection of data, but that the IFRSF was now attempting to validate the data so that what is available on www.ifrs.org is as accurate as possible and that any changes can be validated before they are released.  The IFRSF would use the information to identify inconsistent application and then work with those jurisdictions to enhance the quality of the application of IFRSs in those jurisdictions.  The IFRSF had already identified the need to find an efficient and effective means to maintain this data, but not the solution.

Council members spoke in support of the initiative and encouraged the IFRSF to maintain and even enhance the information (e.g., to provide data explicitly on the use of the IFRS for SMEs; to identify the standard-setting resources in a country; and to determine a jurisdiction’s powers of direct amendment and interpretation).

After an intensive round of interventions, the Chairman suggested that the sense of the Council was that the IFRS Foundation was fully justified in verifying the data received and welcomed the forthcoming release of the G20 data.

David Loweth, Director of Trustees’ Activities, reviewed with the Council the revised IFRS Foundation’s Due Process Handbook, released in February 2013, together with a summary of the related feedback statement.  He presented an overview of the various sections of the new Handbook and some of the rationale behind the requirements and highlighted changes made as a result of comments received from constituents.

One Council Member queried the transparency of the Trustees’ meetings, noting that all of the discussions on the ASAF and changes to the IFRS Foundation’s Constitution (on which public comment had been solicited) had been conducted in private.  Yael Almog noted that Michel Prada had, at the end of the public session, summarised the results of what had been discussed in private, and the issue was addressed in the public summary available on the Trustees’ pages of www.ifrs.org, but did note the concern.

Council members agreed that the summaries of issues raised in two series of breakout sessions during the October 2012 meeting (rate-regulated activities and establishing a research capacity at the IFRS Foundation) were a fair record of those discussions.

The Council Chairman summarised the meeting as follows:

• There was a high degree of support for establishing the ASAF, but Council members wanted greater clarity around its role, especially the boundary of what ‘technical’ implied (as opposed to ‘strategic’, which the Council sees as primarily its prerogative).
• The Council favoured a two-pronged approach to the IASB’s work on Disclosure: targeted amendments to IAS 1; and a longer-term initiative on a disclosure framework.  Any work on articulating better the application of materiality in disclosures should be undertaken in cooperation with other standard-setters, regulators, etc.
• Financial Instruments Impairment was seen as a critical area, and one in which a converged solution was seen as the optimum answer but not at the cost of further significant delay.  He noted that this marked a significant shift in the Council’s view.