EFRAG draft comment letter on the proposed IFRS Foundation Due Process Handbook
Jul 19, 2012
The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the proposed IFRS Foundation Due Process Handbook that was published for public comment in May 2012. EFRAG emphasises that the overarching principle of bringing improvement to financial reporting at an acceptable cost should be the sole driver for new or changed standards and interpretations.
In order to achieve this overarching aim, EFRAG formulates eight comments and recommendations for the standard setting process and two for the due process oversight.
Standard setting process:
- EFRAG welcomes the introduction of a research programme into the IASB due process as this will allow for evidence based agenda setting. EFRAG also suggests concluding the research programme phase by a public consultation phase on the issue and the possible approaches before deciding to add a project to the agenda.
- EFRAG promotes a shared due process between the IASB and regional and national accounting standards bodies as an effective way to improve transparency and efficiency.
- EFRAG believes that the Due Process Handbook should contain guiding principles for identifying and analysing users’ needs to establish the link with the objective as defined in the IASB’s Conceptual Framework.
- EFRAG believes that results of public fatal flaw reviews should be assessed, in a public meeting, by the IASB and only by the staff as they are essential in the identification of potential implementation difficulties or undue costs.
- EFRAG warns that the IASB staff should support the IASB, never try to guide it. The staff should be allowed to make recommendations, but only after having prepared a fair and balanced representation of various views.
- As EFRAG observes that no discussion arises at the IASB level when an interpretation is presented for approval, EFRAG recommends that IFRS Interpretations Committee members' dissenting views should be explained publicly.
- EFRAG urges the Trustees to clearly stipulate that the IFRS Interpretations Committee should not issue any rejection notice that would be akin to an interpretation as some preparers and regulators operate in the expectation that rejection notices are part of the IFRS literature to which preparers should refer.
- EFRAG believes that every decision made in the standard setting process should be subject to the super majority required for the whole standard.
Due process oversight:
- EFRAG believes that the focus of the due process oversight should be on substance, and not on form to ensure that the objectives set for the IASB’s due process are indeed met.
- EFRAG warns of adding too much detail into the Due Process Handbook as that would undermine the principles based character of the standard setting process and leave no room for any flexibility in the due process.
Comments on EFRAG's draft comment letter are invited by 5 September 2012.
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