To start off the discussion of the broader issues related to the review of the IASCF constitution, the chairman gave an overview of the process by highlighting some of the more significant issues that were later dealt with during the detailed deliberations. The chairman pointed out that on the whole, the current constitution was viewed as providing a sound basis on which its operations and those of the IASB are based. The major areas that commentators had identified for further development were:
- The perception that the trustees had not carried out adequately their oversight role; and
- That the IASB did not appear to be "listening" to the concerns raised by European constituents.
Related to the latter issue, one trustee said that this misperception should be dealt with by better communication of the IASB's role, which is not to serve preparers only, but to serve investors and the global capital markets at large. In addition, many commentators had underscored the need for the IASB to remain independent. In response to certain groups that wanted to have influence, another trustee pointed out that it is not a role of the IASB to assist the business community to achieve certain accounting results.
The point was also made, that generally, the trustees should only look to change the constitution with good reason, and not merely due to outside pressure, whilst seeking to maintain a balance between remaining independent but avoiding isolation.
The trustees next discussed the preliminary recommendations of the Constitution Committee. The objective of this discussion was to reach tentative views (the chairman stressed that these decisions were not final) on the issues presented, after which, a paper would be exposed for comment, with appropriate highlights of the more controversial issues on which the trustees would seek feedback. The paper to be exposed will indicate the reasons why the trustees made certain decisions and rejected certain arguments.
Considerable time was spent discussing the proposed drafting of the amendments to the constitution, with certain issues still to be worked on prior to exposure of the paper. Therefore, the quoted paragraphs below may be subject to additional changes.
The comment period for this paper would be in line with the trustees' intention to make the final decisions at the March 2005 meeting.
Topic 1 - Whether the objectives of the IASC Foundation should expressly refer to the challenges facing small and medium-sized entities (SMEs)
After some discussion, and acknowledging that the IASB should be able to exercise its discretion regarding SMEs and emerging economies, the trustees agreed to modify section 2(b) of the constitution in order to make special mention of these two groups as follows:
"(b) to promote the use and rigorous application of those standards, taking account of, as appropriate, the special needs of small and medium-sized entities and emerging economies; and� "
Topic 2 - Number of trustees and their geographical and professional distribution
The trustees agreed to changing the term "Asia/Pacific" to "Asia/Oceania" to make clear that North and South American countries on the Pacific Ocean are not intended to be treated as part of this grouping.
In addition to certain editorial amendments to paragraphs in the constitution relevant to this topic, it was agreed to increase the number of trustees to 22 (from 19), as follows:
- 6 Trustees appointed from North America;
- 6 Trustees appointed from Europe;
- 6 Trustees appointed from the Asia/Oceania region; and
- 4 Trustees appointed from any other area, subject to establishing overall geographical balance.
Regarding the fourth bullet point above, the Trustees agreed to delete the word "other" so as to provide flexibility in appointing the four trustees referred to therein. This would clarify that candidates would not necessary have to be appointed from a region other than North America, Europe, and Asia/Oceania (for example Latin America or Africa). However, there was general agreement that the trustees would document in the basis for their conclusions that despite not being explicitly mentioned, normally a trustee would be appointed from Latin America and Africa.
The question of allowing a future chairman, if appointed from the existing group of trustees, to serve beyond six years was raised. It was agreed to allow a chairman to serve up to, but no more than, six years in that role, from the date of appointment as chairman. To provide for this, it was agreed to amend Section 11 in the following manner (with any such change affecting the position of the chairman effective for the next chairman appointed):
"11. The Chairman of the Trustees shall be appointed by the Trustees from among their own number. With the agreement of the Trustees, the appointee may serve as the Chairman for a period of up to six years."
The trustees agreed that the IFAC nominations should be retained, but reduced to 2 nominees (from 5).
Topic 3 - The oversight role of the trustees
This topic was discussed at length, in particular, the drafting of the constitution in Section 16(c), which the trustees agreed should be worded as follows:
"16. In addition to the duties set out in Part A, the Trustees shall:
... (c) review annually the strategy of the IASC Foundation and the IASB and its effectiveness, including consideration and comment, but not to determine or decide, the IASB's agenda;
Much of the trustees' discussion centred on the meaning of the word "consideration", which some trustees believed could be interpreted to mean that the trustees had the authority to approve or disapprove the IASB's agenda. The above wording together with the wording of Section 32(c), which shall state the following, was considered sufficiently clear in terms of the trustees' intentions, which would allow the IASB the autonomy to determine its own technical agenda while leaving the trustees with the ability to comment and suggest as appropriate:
"32 The IASB shall:
(c) have full discretion over in developing and pursuing the technical agenda of the IASB �."
Topic 4 - Funding of the IASC Foundation
Consistent with the trustees' responsibility for the organisation's finances, there was agreement to change the language in Section 14(a) as follows.
"14 The Trustees shall:
(a) assume responsibility for fundraising satisfy themselves that appropriate financing arrangements are in place."
Topic 5 - The Composition of the IASB
The trustees agreed to leave the number of Board members at 14 after consideration of all the activities they undertake, which include considerable liaison roles in addition to preparation and attendance at meetings.
The composition of the Board by full-time and part-time members was discussed at length. The advantages of retaining part-time members includes the maintenance of practical experience within the IASB as well as providing some flexibility which encourages potential candidates who might have a strong preference for either a full-time or part-time position, to apply for vacancies. However, the Trustees were mindful that expanding the number of part-time members beyond four might raise questions about conflicts of interest and independence as well as the fact that it had proved difficult in the past, to fill these positions particularly with part-time members that are preparers.
The chairman of the IASB made the point that the current part-time members had performed very well, despite the obvious pressures and constraints that they face.
The trustees agreed to retain the limitation of 2 part-time members of the Board.
The point was made that analysts, who make up an important user group of IFRS financial statements, have proven very difficult to attract onto the Board.
Topic 6 - The appropriateness of the IASB's existing formal liaison relationships
The trustees discussed and agreed on editorial amendments that remove the restrictive wording in Section 23 of the constitution regarding the number of full-time Board members that will have liaison responsibilities without narrowly specifying with whom they will liaison.
Topic 7 - Consultative arrangements of the IASB
In addition to the change to Section 32(c) as noted above (see Topic 3), the trustees agreed to simplify the paragraph as whole by listing the mandatory steps separate from the optional steps as some trustees had a concerns about the wording in Section 32(d)(ii), (iii) and (iv) in particular.
The trustees agreed to require that the Board explain its reasons when the optional steps are not followed.
Topic 8 - Voting procedures of the IASB
After considering the pros and cons set out by commentators and the constitutional committee, of adopting a simple majority or super majority voting system, the trustees agreed to require that an ED, IFRS, or Interpretation be approved by 9 votes out of 14. Other decisions shall require a simple majority.
Topic 9 - Resources and effectiveness of the IFRIC
Because of the public's interest in the functioning of the IFRIC, the Constitution Committee or the trustees plan to provide some public update on the issues being discussed as part of the review of the IFRIC's operations.
Topic 10 - The composition, role, and effectiveness of the SAC
The trustees agreed with the suggestion that the SAC and the IASB should have separate chairs. Most comments also welcomed regular liaison between the trustees and the SAC as mentioned in the possible approach. The trustees therefore considered the following changes to Section 39 of the constitution:
"39. The Council shall comprise thirty or more members, having a diversity of geographical and professional backgrounds, appointed for renewable terms of three years. The Chairman of the IASB shall chair the Council. The Chairman of the Council shall be appointed by the Trustees, and shall not be a member of the IASB or a member of its staff. The Trustees may invite the Chairman of the Council to attend the Trustees' meetings, as appropriate."
IASB Chairman's Report
The IASB Chairman presented his report in which he gave an overview of the status of major projects currently on the IASB and IFRIC agendas as well as other activities. Specific mention was made of the following:
- Convergence: The Board is targeting the year 2007 as the milestone at which there will no longer be a reconciliation required between IFRS financial statements to US GAAP. The Board's strategy has been to tackle the major areas of difference between the two accounting regimes which to date has led to the joint project on Business Combinations and now, Income Taxes. The IASB Chairman stressed the point that despite the scepticism about the 2007 target, the IASB, FASB and SEC have been working together to try and meet this goal. The point was made that the SEC has been "pushing hard" to ensure that there is convergence within this timeframe.
- Insurance contracts: The IASB is leading on this project by exploring accounting practices around the world with a view to the FASB adopting the work done at a later stage.
- Adoption of IAS 39 in Europe: The Board is considering alternatives by working with regulators, banks and financial instruments experts to try and resolve the concerns that have led to the "carve-outs". When asked about the issue of how IFRS 1 impacts those entities that do not adopt full IFRS, the point was made that IFRS 1 is clear on how it should be applied as it was designed specifically to counteract such circumstances.
- IFRIC's project on Service Concessions: Draft interpretation will be ready for exposure shortly. The IASB Chairman made the point that this project had taken a substantial amount of time due to the complexity of the issues which may, in hindsight, have required a Standard to be developed by the IASB, not an Interpretation by IFRIC.
- Feedback from the recent meeting with national standard setters: The Vice Chairman of the IASB will be visiting India, China, and Japan shortly. The Accounting Standards Board of Japan (ASBJ), which has recently formalised its convergence plans with the IASB, is in the process of analysing the differences between its Standards and IFRS. Current plans are for some IASB members to meet with ASBJ in March 2005 to discuss these difference with a view to converging the two sets of standards.
Certain educational products will be issued in the last quarter of 2004:
- A disclosure checklist that the IASB has been working on with Ernst & Young.
- Web based education material which has taken some time to prepare due to delays with technology development. This material will cover major topic areas such as Business Combinations and financial instruments accounting ("non-complex" areas).
The point was made that educational material will be for sale, the terms and logistics of which are still being finalised.
Regarding the above, all material will first be released in English although there are plans to translate this material into Spanish and French at a later date. This education material will not be considered as opinions of the IASB but merely guidance prepared by the Staff to assist in the application of IFRS.
Sometime in the coming year, education material covering presentation of financial statements will be released.
This summary is based on notes taken by observers at the IASC Foundation Trustees' meeting and should not be regarded as an official or final summary.