Background of the 2003-2005 Constitution Review 4 November 2003: IASC trustees announce that they will undertake a constitution review At their meeting in Brussels on 4 November 2003, the trustees of the IASC Foundation (which oversees the IASB) announced the appointment of a committee to review the IASB's Constitution. The constitution sets out the operating procedures of the Foundation and the IASB and requires that the constitution be reviewed every five years. The committee held its first meeting on 3 November 2003. At that meeting, the committee felt it was important to announce its existence. The procedures and timetable were also decided. Meetings would generally be open, with proposals published prior to decisions being made. A list of topics to be examined will be issued quickly without comment on the relative importance of each, though the committee recognised that some additional questions might arise in the course of their work. The committee felt that transparency is essential. The trustees discussed staffing for the review and concluded that at most one additional staff member could be funded. They discussed, without conclusion, whether there should be an advisory board. While such a board would provide a good sounding board, some trustees were concerned that an advisory board might assume some of the power of the review committee itself. The matter of duplication of effort of the review committee and the advisory board was also discussed. Trustees noted that the constitution is detailed and rule based. They discussed whether it provides for sufficient representation by analysts and preparers of accounts. They noted that it is sometimes difficult to get these parties involved in IASB activities and that this issue can not be resolved in the constitution. Trustees noted that the constitution includes a list of organisations with which the IASB should consult, but some important groups (such as the Basel Committee) are not included. However the IASB Chairman noted that while the wording needed to be altered slightly, the list was not meant to be exhaustive and did not preclude consultation with other groups. 12 November 2003: Details of IASCF constitution review are announced In a Press Release (PDF 28k) on 12 November 2003, the Trustees of the IASC Foundation released details of the review of the IASCF constitution that was discussed at their meeting on 4 November. Scope and consultation. The review will cover "the full range of issues raised by the constitution" and that they will be consulting a wide range of organisations, including international and regional organisations, securities regulators, other international regulatory organisations, accounting standard-setters, organisations representing the accountancy profession, organisations representing business groups, analyst groups and other investment organisations, academic groups, and the Standards Advisory Council. Review committee. The committee to oversee the review will be chaired by Paul Volcker, chairman of the IASC Foundation Trustees. Committee members are IASCF Trustees John Biggs, Roberto Teixeira da Costa, Toru Hashimoto, Cornelius Herkstroter, Philip Laskawy, and Sir Sydney Lipworth. Invitation to comment. The Trustees have published an Invitation to Comment setting out the issues for the constitution review. Written comments are sought by 11 February 2004. You can download the Invitation to Comment here (PDF 105k). 23 March 2004: Progress on IASC Foundation constitution review The IASC Foundation Trustees have announced the next steps in their review of the IASCF Constitution. The Trustees' Announcement (PDF 27k) said that 70 responses have been received to the November 2003 consultation paper. They are posted on IASB's Website. And the constitution committee met with the Standards Advisory Council in February. The committee will meet with the IASB's liaison standard setters and EFRAG on 26 April 2004 and will hold a series of public round-tables in at least four cities around the World from June through October. The Trustees have identified the following ten issues for review (others may be added): Issues Identified for Review Whether the objectives of the IASC Foundation should expressly refer to the challenges facing small- and medium-sized entities (SMEs). Number of Trustees and their geographical and professional distribution. The oversight role of the Trustees. Funding of the IASC Foundation. The composition of the IASB. The appropriateness of the IASB's existing formal liaison relationships. Consultative arrangements of the IASB. Voting procedures of the IASB. Resources and effectiveness of the International Financial Reporting. Interpretations Committee (IFRIC). The composition, role, and effectiveness of the Standards Advisory Council. 23 March 2004: IASB Undertakes an Internal Review of its Deliberative Processes The IASB initiated an internal review of its own deliberative procedures alongside the Trustees' Constitution Review. As part of its internal review, on 23 March 2004 the IASB published a consultation paper, Strengthening the IASB's Deliberative Processes, inviting public comment on certain proposed improvements to its procedures. Comment deadline is 25 June 2004. Click to go to our page on the IASB's Internal Review. 18 May 2004: Update on IASC Foundation constitution review The constitution committee of the IASC Foundation has published an Update on the Constitution Review (PDF 152k). The update identifies possible approaches that the committee is considering for each of the 10 main issues that it had previously identified for consideration. The committee has also announced the dates and places of a public meetings and hearings it will hold, as follows: Public Meeting with Subcommittee of the Standards Advisory Council Date and Time City Venue 2 June 2:00 p.m.-6:00 p.m. New York, NY United States Intercontinental Barclay Hotel 111 East 48th Street New York, NY 10017 United States Public Hearings Date and Time City Venue 3 June 8:30 a.m.-2:30 p.m. New York, NY United States Baruch College 55 Lexington Avenue Room 14-220 (14th Floor) New York, NY 10010 United States 29 June 8:45 a.m.-3:00 p.m. London, UK IASC Foundation offices 30 Cannon Street London EC4M 6XH United Kingdom 13 July 9:00 a.m. - 2:30 p.m. Tokyo, Japan Nippon Keidanren Keidanren Kaikan 1-9-4 Otemachi Chiyoda-ku Tokyo 100-8188 Japan 6 October Afternoon (times to be announced) Mexico City Mexico Venue to be announced 3 June 2004: Trustees meet with SAC committee on constitution review As part of their review of the IASC Foundation Constitution, the IASCF trustees' constitution committee met, on 2 June 2004 in a public session in New York, with a constitution subcommittee of the Standards Advisory Council (SAC). The discussions focused both on the overall issues that the IASCF has identified for in-depth consideration and on the terms of reference for the SAC. The trustees will be conducting a number of meetings with interested parties, including more public hearings. Therefore, no conclusions were reached at this meeting. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting. Notes of the Meeting of the IASCF and the SAC Constitution Committees 2 June 2004, New York 1. Whether the objectives of the IASC Foundation should expressly refer to the challenges facing SMEs The members believed that the issues of SMEs should be considered by the IASB, but questioned the inclusion of such a requirement in the constitution. The overall belief of the members was that if the constitution were to include such a reference, that reference should not be in the paragraph discussing rigorous application (as proposed). That is, regardless of the standards that apply to an entity, they should all be applied with rigour. 2. Number of trustees and their geographical and professional distribution The trustees have proposed equal representation from North America, Europe, and Asia/Oceana regions. Some members suggested that the constitution not include any specific criteria, but require the selection of the best people. Others argued that the regions that apply IFRS should be represented more than North America. Members were concerned that excluding North America would send a message that convergence was not important – which was not the belief of most members. That is, involvement in the process will create interest to "join the game". Members also noted that the purpose of financial information is for users and, therefore, the regions with the most dominant capital markets should be equally represented. There was also a suggestion to add trustees with backgrounds as regulators to the requirements in the constitution. The subcommittees briefly discussed how trustees were selected. The current IASCF Chairman expressed concern that the process was already burdensome and that adding more requirements seemed unnecessary. One member suggested appointing a nominating committee (without much support). 3. The oversight role of the Trustees The trustees had recommended that the constitution be amended to include a requirement to "carefully consider the IASB's agenda". The members expressed concern with understanding exactly what is meant by that phrase and asked the wording in the constitution to be expanded. The IASCF Chairman noted that the trustees would not have veto power over agenda items, but would require the IASB to review the agenda items with the trustees on a regular basis. The intention of the trustees was to require the IASB to bring a potential agenda item to the trustees for positive approval. It was also suggested that the trustees could require the IASB to add an item onto its agenda. There was general consensus that the Trustees role in relation to the agenda should not be strengthened to the point of approval, but should be just short of that line. Some members expressed concern that the current IASB members do not consider the practical implementation issues related to its proposals. There was consensus that the trustees should monitor this issue actively with each project. Several members strongly encouraged the trustees to reconsider whether it should undertake educational activities. There were questions over due process, the costs needed to build up the infrastructure, and the ability to have appropriate review by the trustees (since supposedly the IASB staff would not be used). The trustees were surprised by the level of concern and countered that if the trustees do not undertake these activities, interpretations around the world could differ. The members noted that there is nothing the trustees can do to prevent this – including issuing training materials. The staff noted that the IASB is currently developing 2-page summaries of its standards targeted to CFOs. One CFO at the table stated that he already gets those summaries from the Big 4 Firms – why does he need another one from the trustees? 4. Funding of the IASC Foundation The IASCF Chairman asked for any bright ideas on how to raise funding. The only alternative discussed was whether it was feasible to implement a fee-based structure with the exchanges. One member also suggested a nominal fee for all purchases of securities over a certain amount. The concern was that any of these suggestions would have to be implemented by changing local laws. 5. The composition of the IASB The Trustees recommended keeping 14 Board members, but allowing between 2 and 4 part-time members. There was general agreement with this approach as some noted that the part-time member from the accounting profession added significant quality and real life experience to the Board. Some members expressed concern about the composition of the Board with 10 of 14 being "Anglos". In addition, six come from countries that don't apply IFRS. The majority of the members believe membership of the IASB should be based on competence and not nationality. 6. The appropriateness of the IASB's existing formal liaison relationships There was general support for maintaining the requirement in the constitution to have liaison relationships. There was support, however, for ensuring the constitution remains flexible to change as situations change. One European member suggested that EFRAG replace the European national standard setters in the liaison relationships. The IASCF Chairman noted this would make it much easier and was open to pursuing this suggestion. 7. Consultative arrangements of the IASB The trustees expressed concern with cluttering up the constitution with due process issues. There was a suggestion that field tests (as distinct from merely field visits) should be mandatory on all projects. While there was not general support for making field tests mandatory, there was general agreement that field tests should be used more often. Several members suggested the IASB must validate to the trustees why it did not use field tests. Concern was raised that the current activities of the IASB do not consider the difficulties raised by users of IFRS having different language requirements. For example, 3 months is too short for a comment period as exposure drafts are not translated in time. The IASCF Chairman expressed concern about the cost of translation. There was general agreement that the cost of being an international organisation includes the cost of ensuring those companies applying IFRSs can fully understand IFRSs. 8. Voting procedures of the IASB The Trustees have proposed changing the voting requirements from a majority (8 members) to requiring the vote of 9 members. There was no objection to 9; however, one member suggested raising the requirement to 10. There was little support for this suggestion. 9. Resources and effectiveness of the International Financial Reporting Interpretations Committee (IFRIC) The members recognised there is concern over IFRIC, but were not sure there was anything that related to the constitution. One member raised the question of whether IFRIC interpretations should be exposed. The general belief around the table was that recent experience suggests exposure should continue to be required. 10. The composition, role, and effectiveness of the SAC The subcommittee of the SAC presented draft recommendations to the trustees in how to improve its process. There was general concern that SAC was not operating effectively, and therefore as a result, the IASB was not receiving advice in a useable manner. The reasons for this were various and include the size of SAC, the chairmanship of SAC, etc. The SAC members suggested the SAC develop a charter that would govern its activities and submit that charter to the trustees for approval. There was general agreement with this approach. In addition, there was general agreement the chairman of SAC should not an IASB member, but should be a paid position for either a part-time or full time individual. This issue will be discussed at a future trustees meeting. This summary is based on notes taken by observers at the IASB meeting and should not be regarded as an official or final summary. 4 June 2004: Deloitte CEO Bill Parrett comments on constitution review The Trustees of the IASC Foundation held the first of a series of public hearings as part of their review of the IASCF constitution on 3 June 2004 in New York. Deloitte Chief Executive Officer Bill Parrett and Deloitte Global IAS Leader Ken Wild presented our firm's views. Click to download Mr. Parrett's Opening Comments (PDF 26k). Proposals as a Result of 2003-2005 Constitution Review 25 October 2004: IASCF Trustees' Tentative Decisions on Constitution Changes The trustees of the IASC Foundation met in London on 25 October 2004 to discuss possible changes to the IASCF constitution. Key decisions include: increasing the IASCF trustees from 19 to 22; retaining the current provision for two part-time IASB members; giving trustees the right to comment on and make suggestions about the IASB's agenda, but not authority to decide the agenda; and increasing the vote for EDs, Standards, and Interpretations from a simple majority to 9 out of 14 IASB members. The table below provides more detailed information based on the preliminary and unofficial notes taken by Deloitte observers at the meeting. IASCF Trustees' Meeting, 25 October 2004, London Constitution Review 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." 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. 23 November 2004: Trustees Invite Comments on Proposed Constitution Revisions On 23 November 2004, the IASCF Trustees published and invited comment on a consultation document containing their proposals to amend the IASCF Constitution. The Constitution sets out the organisational framework of the IASCF and the International Accounting Standards Board. Comments are requested by 23 February 2005. Click to download the IASCF Press Release (PDF 28k). The consultation document can be viewed on the Foundation's website www.iascfoundation.org, and printed copies are available on request without charge. Among the principal recommendations are these: Proposals for the IASCF Constitution Retain the current two part-time members of the IASB. Broaden the criteria for selecting IASB members – 'professional competence and practical experience' would replace 'technical expertise'. Ease the required mix of backgrounds on the IASB. Currently a minimum of five practising auditors, three preparers, three users, and one academician are required. That would be changed to "an appropriate mix of practical experience among auditors, preparers, users, and academics", including at least one IASB member who has recent experience in each of those fields. Require nine votes (64%) by IASB members to approve an Exposure Draft, Standard, or Interpretation, rather than the current eight (57%). Enhance the IASB's due process by expanding its consultative arrangements and scope of liaison activities. Remove the restrictive wording in the constitution regarding the number of full-time Board members that will have liaison responsibilities without narrowly specifying with whom they will liaison. Require that the Board explain its reasons when the optional steps in its due process, such as field tests and public hearings, are not followed. Trustees Expand the number of Trustees from 19 to 22 to broaden geographical representation and diversity of professional experience. Composition would be 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 area, subject to establishing overall geographical balance. Allow the Chair of the IASC Foundation Trustees to serve as Chair for six years, even if that period is beyond the limit of two three-year terms for Trustees. The Trustees' annual review of the strategy and effectiveness of the Foundation and the IASB and its effectiveness should include consideration of the IASB's agenda. Trustees would be free to comment on and make suggestions regarding the Board's agenda but the IASB would have autonomy to determine its own technical agenda. Rather than necessarily developing educational programmes itself, the Foundation should foster and review the development of educational programmes and materials by others. Standards Advisory Council The Chair of the Standards Advisory Council would be appointed by the Trustees (three-year term, one renewal permitted) and would not be a member of the IASB or its staff (currently the IASB Chair also chairs the SAC). 25 February 2005: IASCF Chairman Volcker's remarks to ARC On 25 February 2005, IASC Foundation Chairman Paul A. Volcker spoke to the European Commission's Accounting Regulatory Committee about the Trustees' current review of the constitution under which the Foundation and the Board operate. Among the points that Mr. Volcker made: The underlying reality in my view is that good progress is being made toward achieving a common set of respected accounting standards applicable in all significant markets. That is the grand prize that should not be lost. The only way to do that is to achieve a high degree of confidence in the process by which the IASB reaches agreement on internally consistent, effective, realistic and, I hope, simpler standards. In the constitution review, it has not been the Trustees' intent to revisit the entire debate five years ago about the organisation of the IASB and our Constitution. The central idea that emerged from that debate, and will remain, is to foster the independence of judgement of a highly professional, decision-making Board, appropriately protected from particular national or special interest pleading. The IASCF proposals released in November directly addressed a large number of the concerns raised by various commentators, in particular those in Europe, including more Board consultation with representative groups, the process for agenda decisions, Board appointments, and Board voting requirements. The decision of the European Union to enforce IFRSs by law provided bold and constructive leadership toward the concept of international, rather than national or regional, standards. It does not, however, logically lead to a decision to overweight European representation on the Board or the Trustees. The 'end game', after all, is the acceptability of international standards right around the world. Click to download: Text of Mr. Volcker's Remarks (PDF 21k). IASC Foundation Press Release (PDF 45k). Notes from IASC Foundation Trustees Meeting 18 March 2005 The Trustees of the IASC Foundation met in London on 18 March 2005. Presented below are the preliminary and unofficial notes taken by Deloitte observers at the meeting. Although the IASB and IFRIC have adopted a policy of making their agenda papers available to observers at their meetings, the IASC Foundation has not yet adopted such a policy, making the discussion sometimes a bit difficult to follow, with possible adverse effects on the notes below. IASC Foundation Trustees' Meeting 18 March 2005, London General At the June meeting, IASB Member James Leisenring will do a presentation about the benefits of a conceptual framework, why it is necessary, and why the current one needs to be updated for developments in accounting theory over the past 20 years. Review of IASB due process The IASCF Trustees' Procedures Committee commended the IASB's proposed 'procedures handbook' to the Trustees. This handbook will be exposed for public comment, hopefully by the beginning of April 2005. The Board intends to comply with the procedures set out in the handbook in the meantime. Standards Advisory Council (SAC) The SAC will be reduced to something between 35 and 40 members Membership will be refocused to allow SAC to concentrate on strategic, rather then technical issues (most likely fewer technicians and more analysts and preparers). Chairman (not a member of the IASB, Trustee, or staff) will be appointed by the Trustees. Chairman will be a half-time salaried position. The Trustees' Nominating Committee hopes to have the chair (and possibly also a vice-chair) and new SAC composition ready for consideration at the Trustees June meeting Many of the changes proposed originated from the SAC's own review of operations. International Financial Reporting Interpretations Committee (IFRIC) Several Trustees expressed concerns about the interpretation process. Some of these concerns were alleviated when the Board's involvement in approval was described. The results of the IFRIC review of operations, including the enhancements to its process will be documented and exposed for public comment. As IFRIC is a standing committee of the IASB, it is likely that the final operating procedures document will be included in the IASB's procedures handbook. Constitution review General A new sub-paragraph will be added regarding the necessity to take into consideration the needs of SMEs in developing standards. The proposal to increase the number of Trustees from 19 to 22 was accepted. After considerable discussion, the proposed geographic distribution of Trustees into six North America, six Europe, six Asia/Oceania, and four others was accepted. However, this decision is subject to confirmation in June to allow for comment from the European Commission. The Trustees are likely to form a 'contact group' of interested organisations that would be involved in the process of nominating new Trustees and considering renewals. The committee would be consultative and would make recommendations to the Trustees, who would make the decisions. The Foundation chairman could serve for up to six years from date of appointment, even if that extends the chairman's term beyond six years total. Oversight After considerable discussion, the Trustees approved proposed Constitution paragraph that the Trustees will consider but not determine the IASB's technical agenda. Some Trustees commented that protecting the Board's independence was its most important role, but that the Trustees' involvement went a long way to providing 'independence with accountability'. Funding The Trustees agreed to revert to something similar to the existing wording ('assume responsibility') in Constitution. Composition of the Board The size of the IASB will remain at 14. The current provision for two part-time seats will remain. There should be no explicit geographical balance. The proposed easing of the professional background criteria was approved. IASB voting The proposed change was agreed: 9 votes out of 14 will be required (instead of the current simple majority) to approve an exposure draft, final IFRS, or IFRIC Interpretation. IFRIC No Constitutional changes were proposed, but the Trustees will expose the IFRIC's suggestions arising from its own review of operations and may propose changes later on. SAC The chair should be independent of the IASB and the staff. The chair should be a half-time salaried position. The Trustees will likely grant formal approval to the proposed SAC Charter at its meeting in June. This will be an 'operational' document, not part of the Constitution. This summary is based on notes taken by observers at the IASCF Trustees meeting and should not be regarded as an official or final summary. Final Decisions Resulting from the 2003-2005 Constitution Review June 2005: Trustees Adopt Final Constitution Amendments At their meeting in Paris on 21 June 2005, the Trustees of the IASC Foundation, under which the IASB operates, discussed the final report of the Constitution Review. Following the discussion, the Trustees approved the changes to the constitution. The final report can be Downloaded from IASB's Website (PDF 307k). Here are some of the key changes approved by the Trustees, all effective 1 July 2005: Conclusions of IASC Foundation Constitution Review Incremental rather than fundamental changes. "Having assessed the organisation's progress against the objectives laid out in the constitution, the trustees have concluded that the basic structure, set out by the 2000 constitution, is sound and therefore have not contemplated fundamental change." Addition to IASCF objectives for SMEs and emerging economies. In fulfilling the objectives of developing and promoting high quality, understandable, and enforceable global accounting standards, take account of the special needs of small and medium-sized entities and emerging economies. Number of trustees. Expand board of trustees from 19 to 22 members. Geographical balance of trustees. Six from North America (unchanged). Six from Europe (unchanged). Six (was four) from the Asia/Oceania region Four (was three) from any area, subject to establishing overall geographical balance. Backgrounds of trustees. The constitution will require an appropriate balance of professional backgrounds, including auditors, preparers, users, academics, and other officials serving the public interest. Two will normally be senior partners of prominent international accounting firms. This is essentially unchanged. Selection of trustees. Trustees will adopt procedures for appointing trustees. Those procedures must include consultation with national and international organisations of auditors (including IFAC), preparers, users, and academics and public solicitation of nominees including self-nominations. To achieve this objective, the trustees plan to establish a high level advisory group of five to seven leaders of official international and regional organisations. The trustees will consult that body before making decisions on trustee appointments. Currently, five trustees are nominated by IFAC and three others are nominated after consultation with certain specified organisations. Term of chairman. The trustees appoint one of their own number as chairman. While trustees will normally serve a maximum of two three-year terms, the chairman may serve for a maximum of two three-year terms as chairman regardless of prior service as a trustee. Currently all trustees including the chairman serve a maximum of two three-year terms. Liaison IASB Board Members. Requirement for designating seven IASB members as liaisons with major national standard setters has been removed from the constitution. Trustee consideration of IASB agenda. The trustees' annual review of the strategy of the IASC Foundation and the IASB and its effectiveness is expanded to include "consideration, but not determination, of the IASB's agenda". IASB responsibility for its agenda. New: IASB has full discretion in developing and pursuing the technical agenda. Was: IASB has full discretion over the technical agenda. Trustee oversight of IASB, IFRIC, SAC. In addition to establishing and amending operating procedures for the IASB, IFRIC, and SAC, the trustees will also establish, amend, and review compliance with "consultative arrangements and due process". Education. New trustee responsibility would be to foster and review the development of educational programmes and materials. Number of part-time IASB members. Kept at two. Main qualification for IASB members. Changed from "technical expertise" to "professional competence and practical experience". Geographical mix of IASB members. "Trustees shall ensure that the IASB is not dominated by any particular constituency or geographical interest" (trustees rejected specifying a geographical mix). Background mix of IASB members. New: "Appropriate mix of recent practical experience among auditors, preparers, users and academics". Was: Minimums of five practising auditors, three preparers of financial statements, three users of financial statements, and one academic. IASB voting. A vote of 9 of the 14 IASB members is required to approve an exposure draft, final Standard, and Interpretation (was 8 of 14). Due process steps. IASB is required to explain its reasons if it decides not to follow any of the non-mandatory due process steps. Such non-mandatory steps are: Publishing a discussion document before an exposure draft. Forming working groups. Publishing a basis for conclusions. Holding public hearings. Conducting field tests. Steering committees. Now referred to as 'working groups' consistent with recent IASB practice. Chairman of Standards Advisory Council. Appointed by trustees. Will not be a member of the IASB or its staff. Currently the IASB chairman is also the SAC chairman.