Review of status of IASB-FASB convergence efforts
For the key messages on this topic, please refer the Notes of the Sub-committee Meeting held on 29 March. However, there were a number of interesting points that had not been made at that meeting.
IASB Chairman Sir David Tweedie acknowledged that financial instruments is the MoU project on which the IASB was 'most likely' not to converge with the FASB. However, a US Trustee noted that it was far from clear that the FASB's 'full fair value on the balance sheet' approach would be accepted. He noted that, for debt instruments in particular, the amortised cost approach was seen as the better, more useful measure – especially for many small and medium-sized financial institutions. Another US Trustee noted that it was important that the FASB issue their comprehensive ED so that an informed debate could begin.
Trustees asked where the IASB was in relation to the milestones contained in the MoU. The IASB Chairman said that he was confident that the seven necessary exposure drafts would be issued by the end of June 2010 as required. The Board and the staff were determined that the milestones would be met, and the Board will hold additional meetings as necessary to achieve that goal.
Other IASB technical projects
The IASB Chairman reviewed progress on other IASB technical projects. His only concern was that the IASB might have to expose their proposals on Insurance Contracts as an IASB-only ED, if the FASB (which is playing 'catch-up' to the IASB on this project) was unable to complete its deliberations in time. This approach was preferable to losing several years' worth of effort at the IASB.
The IFRS Foundation Chairman invited Paul Cherry, Chairman of the IFRS Advisory Council, to review with Sir David the preparatory work being done on assessing potential topics and priorities for the post-June 2011 agenda. Mr Cherry noted that the Advisory Council would not only be looking at topics for the IASB's attention, but would also identify issues related to governance and oversight that should be addressed to the Trustees.
Sir David noted that the IASB expects to initiate the public consultation on the post-June 2011 IASB agenda and priorities in December 2010.
Due Process Oversight Committee report
Antonio Vegezzi introduced several matters within the responsibility of the Trustees' Due Process Oversight Committee.
Development of IFRS XBRL Taxonomy extensions
The Trustees approved a business plan that would facilitate the inception of a new body devoted to the development and maintenance of IFRS Taxonomy extensions. Implementation of the business plan was dependent on securing funding for the project as it fell outside the current agreed budget.
Other XBRL Activities
Mr Vegezzi reported on other aspects of the Trustees' oversight of the XBRL project. There was no discussion.
Annual report of due process oversight activities
The Trustees received the Committee's summary of activities (this will be available on the Trustees' pages of the IASB's Website). There were no comments.
Benchmarking oversight activities
Mr Vegezzi noted that the Committee would be looking at how other public-interest oversight groups execute their function in order to ensure that the IFRS Foundation procedures are the most appropriate.
Mr Vegezzi also noted that the Committee would be reviewing the composition, mandate and effectiveness of the Interpretations Committee. Having reviewed the IASB, the Advisory Council, and Working Groups in the past two years or so, it is the Interpretations Committee's turn. In response to this, a Trustee suggested that, with seven critical due process documents to be issued in the next few months, the Due Process Oversight Committee should prioritise their activities to ensure that all due process is followed and be prepared to defend the IASB against any charges that it had not followed such process. This one activity was far more important, in his view, than the Interpretations Committee or XBRL.
Annual Improvements project
Mr Vegezzi noted that the French national standard-setter (ANC) had raised a formal complaint about the scope and conduct of the IASB's Annual Improvements Project. The IASB would define more closely what issues qualify for being addressed in the Annual Improvements Project and which should be addressed by other means.
IFRS Advisory Council Chairman's report
The IFRS Advisory Council Chairman Paul Cherry provided a comprehensive report on the Council's recent activities. He underlined the importance of the response to the financial crisis and expressed the Council's support for a comprehensive financial instruments standard rather than for a piecemeal approach. On loan loss provisioning Mr. Cherry expressed the Council's support for earlier recognition of credit losses whether you call it 'incurred' or 'expected' loss. In the Council's view, convergence was desirable; however, while there is widespread understanding of divergence in usage of fair value (classification and measurement) and potentially hedging, constituents would not understand divergence on impairment.
With respect to the IAS 37 exposure draft process, the Mr Cherry expressed some misgivings. In his view, the Board should draw lessons from its recent experience and re-think the communication on sensitive subjects. He emphasised that due process and participation is, in the long run, much more important than whether constituents support a particular proposal.
The Trustees emphasised that communication and outreach would play even greater role given the expected issuance of multiple exposure drafts, some of which would be controversial. Mr Cherry noted that direct outreach and engaging constituents in form of round-tables is more effective than a formal process in which comments are expected. As an example, he noted that the Board has a serious communication problem related to the direct method of cash flow. In his view, given the widespread opposition, the message of the Board is not getting out to the appropriate audience (CFO and board of directors level) sufficiently in advance.
Finally, Mr Cherry observed that the Council members expressed some need for IFRS educational guidance for emerging markets. In his view, such countries do not ask for special set of Standards but feel that the current and proposed Standards are complicated and often address very complex issues that are not widespread in their markets. Therefore, any guidance should focus on fundamental parts of the Standards.
IFRS Foundation Review
Tom Seidenstein, IFRS Foundation Chief Operating Officer, noted that the Trustees had agreed to undertake a full strategic review of the IFRS Foundation for the period immediately after June 2011. This review would likely address the period 2011-2016 and would involve public consultation with all stakeholders and involve the Monitoring Board.
In deciding the broad topics that will form the basis for the review, Trustees clarified staff proposals and offered suggestions about the broader context. For example, if the IASB completes the 2011 suite of Standards successfully, it would be appropriate that the Trustees seek to enforce the IFRS brand and promote consistency of application of the Standards. In addition, the Trustees should consider what corporate reporting might look like in 2016 and consider the IASB's involvement (if any) with such areas as sustainability and carbon reporting. These topics would be in addition to the fundamental issues of governance and funding. The assistance and expertise represented on the Advisory Council would be instrumental in both framing and executing the review.
As a result of the discussions, the Trustees agreed that the strategic review should concentrate on three major themes:
- governance, oversight and effectiveness of the IFRS Foundation and related bodies;
- funding the organisation; and
- enhancing stakeholder engagement.
The IFRS Foundation staff reviewed the current funding situation of the organisation. Essentially, committed funding was as reported in January; however, some foreign exchange gains had been made as a result of the depreciation of the British Pound against the US dollar and the Euro. Counterbalancing those gains to some extent were losses on foreign exchange contracts.
The Trustees discussed this state of affairs briefly. Trustees noted that in the Asia/Oceania region, they had managed to address funding contributions from their region in such a way that most are appropriate and up to date. There were a few 'freeloaders', which jurisdictions might also be breaching copyright. Trustees from this region are working to resolve those issues.
EU Budget-based funding
The Trustees reviewed the official documents that form the basis for the proposed EU Budget-based funding for the IFRS Foundation for the period 1 January 2010 to 31 December 2013. In particular, the Trustees considered Decision 716/2009/EC of the European Parliament and the Council, which details the terms and conditions of the funding programme.
A seminal intervention was made by Trustee Sir Bryan Nicholson, who drew on his experience at IFAC Public Interest Oversight Board, which had been examining many of the same issues the day before this meeting (the PIOB is also to receive EU Budget-based funding). In his view, once the EU funding process is in place, the significant contributions from France and Germany would not be maintained. In addition, EU funding was a 'bureaucratic nightmare' and the Trustees – both the finance committee and the EU-based Trustees – had much work to do to prepare for the challenges that EU funding would bring. Most fundamentally, it would be vital to gain a proper and shared understanding with the European Commission of what the terms and conditions in Decision 716/2009/EC (described as 'opaque') actually meant; if the Trustees did not have this understanding, they would be failing in their fiduciary duties. The IASCF had to develop resources and processes that allowed it to work constructively with the EU bureaucracy in the least bureaucratic and most efficient manner.
Sir Bryan's intervention sparked a lively debate, especially among EU-based Trustees, some of whom were worried in equal measure about the potential influence of the European Commission and the European Parliament. As a result, it was agreed that the IFRS Foundation Chairman should seek a meeting with the Internal Markets Commissioner to determine whether the improvements to the Foundation's governance made in 2009 and 2010 satisfied the European Commission and the Parliament, and open a dialogue on gaining a shared understanding of the conditions attaching to the funding itself. In the Chairman's view, once the Commissioner is satisfied that the Foundation had met the conditions laid out in the Decision to qualify for the funding programme, the Commissioner should be prepared to argue the Foundation's case before the Parliament.
A US-based Trustee noted that any government-based funding came with a price, both in terms of politicking and bureaucracy. If the US Securities and Exchange Commission were to put some form of US-based funding in place, the IFRS Foundation should expect the US Congress to be interested and for some level of bureaucracy. Another US-based Trustee suggested that it would be useful to align the conditions and obligations among the funding regimes of the major funding jurisdictions, so that the Foundation did not have to face multiple and potentially conflicting requirements.
It was hoped that the SEC Chair could report some progress at the meeting of the Monitoring Board on 1 April with respect to a US funding regime.
This summary is based on notes taken by observers at the Trustees' meeting and should not be regarded as an official or final summary.