November 2007: IASCF Trustees announce strategy to enhance governance
On 7 November 2007, the Trustees of the International Accounting Standards Committee Foundation (IASCF), the oversight body of the IASB, announced proposals to enhance the organisation's governance arrangements and reinforce the organisation's public accountability. The Trustees will begin a series of consultations with key stakeholders on these proposals in the build up to the Constitution Review, which is scheduled to start in 2008. Click for IASCF News Release (PDF 55k).
| IASCF Governance Proposals |
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- Establish a formal reporting link to official organisations: The Trustees should establish a link to a representative group of official organisations, including securities regulators. This body would approve Trustee appointments and review Trustee oversight activities, including the adequacy of the annual funding arrangements as well as the overall budget.
- Develop a multi-layered, multi-faceted approach to accountability beyond the formal link to official organisations: The Trustees should intensify and deepen their engagement with key stakeholder groups and develop mechanisms for the Trustees to receive input outside formalised procedures. This would necessarily include mechanisms for meeting with official organisations and policymakers and private sector institutions. Furthermore, such accountability would require consideration of the role and structure of the Standards Advisory Council in the organisation's accountability.
- Create a mechanism for public input to the Trustees outside regularly scheduled meetings with specific stakeholder groups: The Trustees should establish enhanced mechanisms for input from interested parties who wish to comment on the IASC Foundation's and the IASB's policies, processes, and procedures.
- Continue efforts towards a sustained, broad-based funding regime: Having already significantly broadened the funding base through the new approach adopted in 2006, the Trustees should continue their work to broaden the funding base further.
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November 2007: Proposed new body to monitor the IASCF and IASB
On 7 November 2007, the European Commission, the Financial Services Agency of Japan, the International Organization of Securities Commissions (IOSCO), and the US Securities and Exchange Commission jointly proposed the creation of a new monitoring body within the governance structure of the IASC Foundation. This body would meet regularly with the IASCF Trustees to:
- Review and comment on the IASB's work programme.
- Participate in – and have final approval in the selection of – IASCF Trustees.
- Review the Trustees' oversight activities.
Click to download the Joint Statement (PDF 72k). An excerpt:
| Excerpt from the Joint IOSCO, EC, SEC, and FSAJ Statement |
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The IASB, which is overseen by the IASC Foundation Trustees, is an independent standard setter committed to developing, in the public interest, a single set of high quality, understandable, and enforceable global accounting standards. The IASC Foundation Trustees have scheduled a review of the Foundation's Constitution to begin in 2008. The authorities responsible for capital market regulation propose to utilize the opportunity of the Constitution Review to put forward, in collaboration with the IASC Foundation, certain changes to strengthen the Foundation's governance framework, while emphasizing the continued importance of an independent standard-setting process.
Central to this effort is the establishment of a new monitoring body within the governance structure of the IASC Foundation to reinforce the existing public interest oversight function of the IASC Foundation Trustees. The creation of such a monitoring body would serve to complement the Trustees in its representation of the interest of the global investor community, thereby enhancing public confidence in IFRS.
One key objective is to have the monitoring body meet regularly with IASC Foundation Trustees to discuss, review and comment on the IASB's work program. We expect the IASC Foundation and IASB Chairmen will also engage with relevant public authorities. The monitoring body would, together with the IASC Foundation Trustees and in consultation with the trustee appointments advisory group, participate in the selection of Trustees. The monitoring body would also be responsible for the final approval of Trustee nominees and would have the opportunity to review the Trustees' procedures for overseeing the standard-setting process and ensuring the IASB's proper funding.
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February 2008: IASCF proposals for a monitoring group, enlarged IASB
In November 2007, the Trustees of the IASC Foundation (IASCF), under which the IASB operates, announced proposals to enhance the organisation's governance arrangements and reinforce the organisation's public accountability (see Above). Those proposals included creation of a 'monitoring group' of representatives of official organisations, including securities regulators, that would approve Trustee appointments and review Trustee oversight activities, including the adequacy of the annual funding arrangements as well as the overall budget. Subsequently, the trustees began a series of consultations with key stakeholders on those proposals in the build up to the Constitution Review, which is scheduled to start later this year. At their meeting on 29-30 January 2008, the Trustees reached the following further conclusions regarding the Constitution Review (click for Press Release (PDF 67k):
- An accelerated consideration of a monitoring group: The Trustees will accelerate consideration of their proposals on the size, composition and mandate of a monitoring group with the goal of reaching conclusions in the second half of 2008. Initial proposals will be published for comment in the second quarter of 2008.
- A proposal to expand the IASB to 16 members: At the same time, the Trustees will propose a gradual expansion of the IASB to 16 members. While maintaining the existing Constitutional criteria for selecting members of the IASB, the Trustees will consider whether the Constitution should also explicitly ensure a minimum geographical balance.
- An extended consultation process on other Constitutional matters: The Trustees intend to publish in the first half of 2008 a discussion document inviting comments and suggestions on other elements of the Constitution. The Trustees will attempt to conclude the broader review of the Constitution by the end of 2009.
The Trustees plan to broaden their discussions with stakeholder groups on both the specific proposals above and on the review of the Constitution more generally.
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February 2008: Fast-track for proposed IASCF monitoring group, enlarged IASB
At a meeting of the Standards Advisory Council on 14 February 2008, IASCF Trustee Antonio Vegezzi and IASCF Director of Operations Thomas Seidenstein reported that the Trustees intend to fast-track their consideration of two issues:
- Creation of a 'monitoring group' of representatives of official organisations, including securities regulators, that would approve Trustee appointments and review Trustee oversight activities
- Expansion of the IASB to 16 members from the present 14.
Accordingly, they expect to publish formal proposals for public comment some time during the second quarter of 2008. They also reported that the remainder of the Constitution Review will get under way in third quarter 2008 and is expected to take about two years.
April 2008: IASC Foundation launches 2008 Constitution Review
On 8 April 2008, the Trustees of the International Accounting Standards Committee Foundation, under which the IASB operates, announced the process for the 2008 Constitution Review. They also completed proposals, to be published shortly, to:
- Create a 'monitoring group' of representatives of official organisations, including securities regulators, that would approve Trustee appointments and review Trustee oversight activities
- Expand the IASB to 16 members from the present 14, and provide for geographical balance
The remaining issues will be dealt comprehensively beginning with a consultation document in the second half of 2008. The Trustees expect to complete the review by the end of 2009. The Trustees have formed a Constitution Committee to guide the review, though decisions rest with the Trustees as a whole. That committee includes: Gerrit Zalm, Chairman of the Trustees; Philip Laskawy, Vice Chairman of the Trustees; Bertrand Collomb; Samuel DiPiazza; Aki Fujinuma; Pedro Malan; and Antonio Vegezzi. Click for Press Release (PDF 63k).
| Timeline for the 2008 Constitution Review |
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| April 2008 | Publication of proposals concerning public accountability and IASB size/geographical diversity – the first track of the Constitutional Review. Comment period to end on 31 July. |
| April-August 2008 | Trustees to meet interested parties to discuss proposals on the first track |
| September 2008 | Constitution Committee to develop proposals to present to full Trustees, based upon analysis of comment letters and other input on the first track proposals. |
| October 2008 | Trustees to conclude the first track of Constitution Review at their Beijing meeting. Changes to take effect for 1 January 2009. |
| October or November 2008 | Trustees to publish a discussion document inviting views on other issues to be incorporated as part of the Constitutional Review – the second track of the Constitution Review. |
| October 2008-January 2009 | Trustees to meet interested parties to discuss the second track of the Constitution Review. |
February 2009 | Trustees to develop list of issues and the Constitution Committee to develop proposals. |
| April 2009 | Trustees to publish other constitutional proposals on issues identified. |
| April 2009-October 2009 | Trustees to hold a series of meetings on proposals, possibly including public round-table discussions. |
| October-November 2009 | Conclusion of the Constitutional Review. |
May 2008: IASCF Trustees will hold round-table on constitution proposals
On 12 May 2008, the IASC Foundation Trustees Announced (PDF 55k) that they are going to hold a public round-table discussion in advance of issuing their proposals on Phase 1 of the IASCF 2008 Constitution Review. Phase 1 is addressing whether to:
- Create a 'monitoring group' of representatives of official organisations, including securities regulators, that would approve Trustee appointments and review Trustee oversight activities
- Expand the IASB to 16 members from the present 14, and provide for geographical balance
Details of the public round-table have not yet been announced. In announcing the round-table, the Trustees released an updated timeline for the Constitution Review (the previous timeline is immediately above):
| Updated Timeline for the 2008 Constitution Review |
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| March-April 2008 | Trustees developed proposals and document for the Constitutional Review. |
| May-June 2008 | Trustees to meet interested parties to discuss proposals before publication of document on the first part. |
| June 2008 | Publication of proposals on public accountability and IASB size/geographical diversity – the first part of the Constitution Review. Comment period to end in August or September 2008. |
| June 2008-August 2008 | Trustees to continue to meet interested parties to discuss proposals on the first part. |
| September 2008 | Constitution Committee to develop proposals to present to full Trustees, based upon analysis of comment letters and other input on the proposals in the first part. |
| October 2008 | Trustees to conclude the first part of the Constitution Review at Beijing meeting. Changes to take effect for 1 January 2009. |
| October or November 2008 | Trustees to publish a discussion document seeking views on other issues to be incorporated as part of the Constitution Review – the second part of the Constitution Review. |
| October 2008-January 2009 | Trustees to meet interested parties to discuss the second part of the Constitution Review. |
| February 2009 | Trustees to develop list of issues and the Constitution Committee to develop proposals. |
| April 2009 | Trustees to publish other constitutional proposals on issues identified. |
| April 2009-October 2009 | Trustees to hold a series of meetings, possibly including public round tables, on proposals. |
| October-November 2009 | Conclusion of the Constitution Review. |
June 2008: IASCF constitution roundtable set for 19 June 2008
The Trustees of the IASC Foundation will meet with a range of interested parties on 19 June 2008 to discuss their initial proposals to revise the IASC Foundation Constitution. The roundtable will be held from approximately 9:30 am to 3:30 pm at the Renaissance Chancery Court Hotel, London. Click here for the Trustees' Draft Proposals (PDF 153k), which will serve as the basis for the discussions. The two main proposals are whether to:
- Establish a formal link to key public institutions by creating a 'monitoring group' of representatives of official organisations, including securities regulators, that would approve Trustee appointments and review Trustee oversight activities.
- Expand the IASB to 16 members from the present 14, and provide for geographical balance. Geographical balance would mean that normally there would be four IASB members from each of North America, Europe, and the Asia/Oceania region, plus four others appointed from any area, subject to maintaining overall geographical balance.
Individuals or organisations that want to participate in the 19 June roundtable are asked to e-mail their expressions of interest to Tamara Oyre, IASCF Assistant Corporate Secretary, at toyre@iasb.org by Friday 13 June 2008. Those who cannot participate in the roundtable are invited to send written submissions by 9 June 2008.
June 2008: Securities regulators support creation of an IASCF monitoring group
The world's securities authorities – represented by IOSCO, as well as the European Commission, the Japan Financial Services Agency and the US Securities and Exchange Commission, the securities authorities in the world's three largest capital markets – welcome the proposal to create an IASC Foundation Monitoring Group. That proposal is part of the 2008 Constitution Review currently being conducted by the IASCF. A Joint Announcement (PDF 34k) by the securities regulators said:
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We are pleased at the progress being made in advancing interaction between securities authorities and the IASCF. The increased adoption and use of IFRS in capital markets around the world necessitates strengthening the accountability of the Foundation to the authorities responsible for setting financial disclosure requirements by public companies. In organizing the upcoming roundtable, the Foundation acknowledges the need to create a mechanism for interaction between securities authorities and the IASCF that approximates the historical relationship between securities authorities and national standard setters. This, in turn, will enable securities authorities that allow or mandate the use of IFRS to discharge their mandates relating to investor protection, market integrity and capital formation effectively.
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June 2008: Notes from IASCF constitution roundtable 19 June 2008
The Trustees of the IASC Foundation met with a range of interested parties on 19 June 2008 to discuss their initial proposals to revise the IASC Foundation Constitution. The roundtable was held from approximately 9:30 am to 3:30 pm at the Renaissance Chancery Court Hotel, London. Click here for the Trustees' Draft Proposals (PDF 153k), which served as the basis for the discussions. The two main proposals are whether to:
- Establish a formal link to key public institutions by creating a 'monitoring group' of representatives of official organisations, including securities regulators, that would approve Trustee appointments and review Trustee oversight activities.
- Expand the IASB to 16 members from the present 14, and provide for geographical balance. Geographical balance would mean that normally there would be four IASB members from each of North America, Europe, and the Asia/Oceania region, plus four others appointed from any area, subject to maintaining overall geographical balance.
Four sessions of discussions were held during the day. At each, between six and eight constituents were invited to give opening remarks; Trustees present responded; and then a more unstructured conversation followed. Participants in each session raised similar issues; consequently, these notes summarise the discussions by topic rather than by session.
Notes from IASCF Constitution Review Roundtable
19 June 2008, London
Monitoring Group
To provide a formal link between public authorities and the IASC Foundation/IASB, the Trustees will propose that a Monitoring Group be established. This Monitoring Group would participate in the Trustees appointment process and approve the appointment of Trustees; and review and provide advice to the Trustees on their fulfilment of the oversight responsibilities set out in the IASCF Constitution. The initial composition of the Monitoring Group is proposed to be:
- (a) the responsible member of the European Commission,
- (b) the managing director of the International Monetary Fund,
- (c) the chair of the IOSCO Emerging Markets Committee,
- (d) the chair of the IOSCO Technical Committee (or vice chair or designated securities commission chair in cases where either the Chair of an EU securities regulator, Commissioner of the Japan Financial Services Agency or Chair of the US Securities and Exchange Commission is the chair of the IOSCO Technical Committee),
- (e) the commissioner of the Japan Financial Services Agency,
- (g) the chair of the US Securities and Exchange Commission, and
- (f) the president of the World Bank
All participants supported establishing the Monitoring Group. Some saw it as an essential safeguard because, when a jurisdiction adopts IFRSs, it essentially surrenders its sovereignty over accounting standards. At the same time, some people expressed concern that there would be an increase in the 'politicisation' of the work of the IASB. Consequently, many commentators addressed the Monitoring Group's terms of reference, and in particular whether it should be permitted to propose candidates for nomination as Trustees. Participants were concerned that Trustees should continue to be independent and not beholden to securities regulators.
While agreeing that it is essential that securities regulators be represented on the monitoring group, some commentators expressed concern about the absence of other market regulators such as banking, insurance, and pension supervisors. In addition, some participants noted that the proposed monitoring group does not include a regulator directly involved with non-publicly accountable entities (SMEs) – for which the IASB is developing a separate IFRS.
Some commentators suggested that, in assessing the proposal, it would be helpful if the Trustees set out their rationale for the proposed composition of the Monitoring Group.
The IASCF Chairman stated in one session that to change the composition of the Monitoring Group 'will lead to quite a few complications, especially if you want to limit the number of people in the Monitoring Group'.
Monitoring Group's mandate
While supporting the creation of the Monitoring Group, many participants in the roundtables said that it must be clear that the IASCF Trustees are responsible for governance of the IASCF and the IASB. Many felt this should be made explicit in the proposals issued for comment.
Almost all participants wanted to ensure that the Monitoring Group did not, in any way, compromise or impair the IASB's independence, especially the ability to set the technical agenda. Some participants felt that the proposals had gone far enough to provide such assurance. In particular, proposed Constitution paragraph 19(c) was singled out for criticism by several participants:
...The Monitoring Group shall have the authority to request meetings with the Trustees or separately with the chairman of the Trustees (with the chairman of the IASB as appropriate) about any area of work of either the Trustees or the IASB. These meetings may include discussion of, and any IASC Foundation or IASB proposed resolution of, issues that the Monitoring Group has referred for timely consideration by the IASC Foundation or the IASB.
Some participants were concerned that this could involve the Monitoring Group directly the governance of the Foundation and the IASB. Because some of the agencies represented on the Monitoring Group are political, participants expressed concern that the IASCF and the IASB must not be politicised.
Some suggested that the Monitoring Group should be viewed as an 'audit committee', and it must avoid getting involved in operational aspects of the entity and avoid conflicts of interest. In their view, the Monitoring Group should monitor the Trustee appointment process and approve actual appointments, but it should be precluded from nominating Trustees directly.
In addition, some commentators expressed concern that the Group's role in providing 'advice' to the Trustees on the discharge of their oversight role could lead to regulatory influence on the IASB and, in particular, the technical agenda.
Trustee Appointments Advisory Committee
Views were mixed on this issue. Some participants thought that the Appointments Advisory Committee still had an important role (presuming that the Monitoring Group could not nominate Trustees) in identifying and proposing candidates for appointment to the Trustees. Others thought it was unnecessary and that the Trustees' committees could discharge this function. Many were indifferent.
Expanding the membership of the IASB and requiring an explicit geographical component
Almost all participants expressed concern that an explicit geographical component in the composition of the IASB would compromise the required technical competence and other criteria for Board membership. These fears were made forcefully; in spite of repeated assurances from Trustees present that the Criteria for IASB Membership in the Constitution were not at issue.
Many participants expressed concern that requiring an explicit geographical component could lead to Board members being seen to represent constituencies, rather than the global capital market participants, etc. Geographical representation at the Trustee level was necessary and accepted; it was not necessary at the IASB level. The current principle in the IASCF Constitution that the Board not be 'dominated by any particular constituency or geographical interest' was sufficient.
With respect to voting requirement, many thought that a supermajority should be required-some wanted a 66% or even higher majority.
As to size, many participants were concerned that, at 14 members, the IASB was already at the upper limits of operational effectiveness. Expanding the Board to 16 members could run the risk of slowing down projects and fragmenting the Board, forcing it to work in sub-groups and reaching sub-optimal decisions. The IASCF Chairman did not seem to be concerned, hinting that sub-groups were not a bad thing. This comment was not welcomed by participants and did not build confidence in the outcome.
Others supported expanding the Board, noting that it would help in the Board's liaison responsibilities.
Other issues raised
Several constituents raised significant concerns about the way in which the IASB's agenda, especially with respect to the Memorandum of Understanding was being conducted-in particular that no opportunity for debate on the priorities and timescales set had been afforded constituents at large. One participant called this lack of consultation 'a disgrace'.
Next Steps
The IASCF Trustees will consider the submissions made at their meeting in Washington DC in July 2008 (public session on 8 July 2008). It is expected that the proposals will be published for public comment in mid-July 2008 with comments due in mid-September 2008.
This summary is based on notes taken by observers at the IASCF Roundtable and should not be regarded as an official or final summary.
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July 2008: IASCF publishes constitution review proposals for comment
On 21 July 2008, the Trustees of the IASC Foundation published, for public comment, proposals arising from the first part of their 2008 review of the IASC Foundation's Constitution. The proposals address two issues – a new Monitoring Group for the IASCF and the size and geographical composition of the IASB:
| The IASCF Has Invited Comment on These Proposals: |
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- Monitoring group. The IASCF Constitution would be amended to establish a formal link between the IASCF and a new Monitoring Group comprising representatives of public authorities and international organisations that have requirements for accountability to public authorities. The Monitoring Group would have the responsibility of approving the selection of IASCF Trustees. The Trustees would also report to the Monitoring Group regularly to enable it to address whether and how the Trustees are fulfilling their role set out in the Constitution. A Memorandum of Understanding will be agreed between the Monitoring Group and the Trustees
describing the interaction of the Monitoring Group with the Trustees. Under the proposal, the initial members of the Monitoring Group would be:
- the responsible member of the European Commission,
- the managing director of the International Monetary Fund,
- the chair of the IOSCO Emerging Markets Committee,
- the chair of the IOSCO Technical Committee,
- the commissioner of the Japan Financial Services Agency,
- the chairman of the US Securities and Exchange Commission, and
- the president of the World Bank.
- IASB size and composition. The proposal would expand the IASB from 14 to 16 members by not later than 1 July 2012. Up to three members could be part-time. Approval of IFRSs and EDs would require 10 affirmative votes (9 if there are fewer than 16 IASB members serving). The proposal would also adopt new guidelines regarding the geographical diversity of the members of the IASB. The required geographical split of the IASB would be:
- four members from the Asia/Oceania region,
- four members from Europe,
- four members from North America,
- one member from Africa,
- one member from South America, and
- two members appointed from any area, subject to maintaining overall geographical balance.
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Comment deadline is 20 September 2008. The Trustees expect to reach final decisions on this part of the Constitution Review at their meeting in Beijing on 9-10 October 2008. The changes would take effect from 1 January 2009. Click for Press Release (PDF 52k). You can download the proposal from www.iasb.org. The second part of the Constitution Review, covering other aspects of the IASC Foundation's Constitution, will begin after the Trustees' October 2008 meeting. The Trustees will publish a further discussion document inviting respondents to suggest topics for consideration by the Trustees. Consultations will be held during the course of 2009, with changes taking effect from 1 January 2010.
September 2008: Our views on the IASCF constitution review proposals
In September 2008, Deloitte submitted a Letter of Comment (PDF 176k) on the IASCF Discussion Document Review of the IASC Foundation Constitution: Public Accountability and the Composition of the IASB: Proposals for Change. Below are excerpts from our letter:
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We believe that in a number of areas the need for urgent action has meant that the Trustees may not have developed fully the detailed operations of the revised structure, or at least have not articulated these clearly in the proposals. Consequently, they are potentially ambiguous.
Monitoring group:
We support the creation of a monitoring group as a way of creating a direct link between the IASC Foundation and very senior levels of official institutions with a legitimate interest in accounting standard-setting and transparency in financial reporting. However, the role of the monitoring group should be more clearly defined than it is in the discussion document.
IASB size and composition:
With respect to the proposals affecting the IASB directly, we are not inclined to support increasing the size of the IASB from 14 to 16 members, but are willing to support such an increase to accommodate more part-time members. We do not believe that the Trustees have presented a convincing case to increase the size of the IASB and are concerned that the current size of 14 members is at the extreme upper end of operational efficiency. Nor do we support the introduction of any geographical formulation, quotas or other such limits.
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