Masa Kono, Monitoring Board chairman, reported on progress made in implementing the Monitoring Board’s Governance Review.  He reviewed various aspects of the Monitoring Board’s 1 March 2013 Press Release, noting that the ‘process of enlargement’ had begun, but that appointments were still a way off.

He noted that the Monitoring Board had (earlier that day) agreed changes to its Charter and proposed changes to the Memorandum of Understanding between the Monitoring Board and the IASB.  He reviewed these orally, but noted that the wording was subject to finalisation.  All of the changes to these documents were based on the positions agreed by the IFRS Foundation Trustees and the Monitoring Board in their respective Strategy and Governance reviews completed in 2012.  Once finalised, these documents would be in the public domain.

Hans had submitted a written report, and chose rather to confine his oral remarks to more personal observations. He highlighted the inaugural meeting of the Accounting Standards Advisory Forum (8-9 April 2013), describing the two days as ‘a very good meeting’ and one that had a high quality of discussion.

He also mentioned the forthcoming meeting of the IASB’s Effects Analysis working group. This body would assist the IASB develop better quality effects analysis, based on economics of the underlying transactions, leading to better capital allocation.

He noted certain current projects. Revenue and Leases were examples of topics for which the IASB and FASB had managed to achieve convergence on significant topics. On revenue, the FASB had managed to rationalise guidance that was seen as too voluminous and the IASB provide necessary additional guidance. On leases, the revised proposals would bring much of the 20% ‘under-reported balance sheet leverage’ on balance sheet, giving better information to the markets and management.

On IFRS 9, Impairment, he noted that, while the models were not converged, he and his FASB counterparts remained hopeful of coming closer during the post-exposure redeliberations. In this area, Hans asked that securities regulators look carefully at the two models and provide comments to both IASB and FASB.  Prudential regulators were very interested in this proposed standard, but the IASB (and FASB) wanted the specific input of securities regulators. The boards needed to balance ‘good provisioning’ with avoiding any obscuring of true financial performance and actual underlying economics.

A similar plea was made for the IASB’s Insurance projects, where Mr. Hoogervorst noted an unease among many insurance companies as the IASB was proposing to shed greater transparency on insurance measurement issues.

He also noted the work on the IASB’s Conceptual Framework and the constructive role played by the ASAF. The ASAF had, if nothing else, confirmed that the IASB had identified all the difficult issues, including those around measurement, defining performance/ ‘net income’, and the role of other comprehensive income.

Michel Barnier (EC Commissioner for the Internal Market) stressed that, for Europe, completing IFRS 9 was critical and was pleased that discussions post-exposure would be on a joint basis between the IASB and FASB. He welcomed other developments in the IASB’s activities.  He noted the EC’s Green Paper on Long-term Financing of the European Economy, which was intended to stimulate debate on how to improve and diversify financial intermediation in the EU. Mr. Barnier reemphasised the link between high-quality accounting standard-setting and the wider public interest. Mr. Hoogervorst agreed that much of the IASB’s work (e.g., leases and insurance) was aimed at having financial reporting reflect economics, and was thus consonant with the EC’s proposals on long-term capital allocation.

Yael Almog reviewed the Trustees’ activities as they implement the results of their Strategy Review. She noted in particular the establishment of the ASAF, and thanked the Monitoring Board for their assistance.

Accounting Standards Advisory Forum (ASAF)

Masa Kono hoped that the ASAF would not become a closed group and hoped that the IASB would continue to collaborate with other standard-setters. Ms Almog noted that the annual World Standard-setters’ meeting would continue and that the IASB Chair, as Chair of ASAF, had the right to invite other standard-setters to ASAF meetings, with the agreement of other members, when necessary. Other less formal bilateral opportunities were also being explored.

Mr. Barnier also welcomed the establishment of the ASAF, noting that it should enhance the ownership of IFRSs by national standard-setters. He noted that balancing the interests of all EU member states was not easy and asked the IFRSF Trustees to consider rotating the EU delegation on an annual basis, rather than the standard two-year terms. Mr. Prada responded that the Trustees, while sensitive to the circumstances of the EU’s participation, were unlikely to respond to this request immediately, but would continue to monitor the situation and allow ASAF to settle.

IFRS Foundation financials and funding

Miranda Corti, IFRSF Chief Financial Officer, reviewed the 2012 financial statements, which had been approved on 10 April 2013. A surplus had been reported, a significant shortfall in contributions (primarily from expected contributions in the US) had been off-set by lower than budgeted remuneration expenses, achieved primarily through delayed appointments.

Ms. Corti also presented the IFRS Foundation’s 3-year budget/ operating plan.  This assumed no significant increase in headcount, but steady funding. This produced a funding gap of £1.4 millions in 2013, growing to £2.2 millions in 2015.

Mr. Prada used this bleak projection to introduce the Trustees’ revised approach to funding:

Pillar 1: the majority of funding coming from country-based, publicly-sponsored schemes;

Pillar 2: private sector support, primarily from the international accounting firm networks;

Pillar 3: IFRSF-generated commercial income from selling ‘IFRSF Works’ and related IP.

Mr. Prada (and other Trustees) stressed that the Monitoring Board had a significant role in supporting the establishment and operation of stable funding regimes in their jurisdictions.

A member of the Monitoring Board suggested that an external review of the IFRS Foundation’s budget and expenditure would provide evidence/ validation of the IFRSF’s needs and resources. In response, Ms. Almog noted that the IFRSF is subject to an annual ‘audit’ as part of the EU’s grant. The EU has a right to review any aspect of the IFRSF and has found no issues since this arrangement became operational.

IFRS Foundation Due Process Oversight Committee activities

Scott Evans, DPOC Chair, presented a brief report of the DPOC’s activities. He noted in particular the comprehensive review and enhancement of the IASB’s due process requirements and the issue of the revised Due Process Handbook in February 2013.

Use of IFRS: Country Profiles

Ms. Almog introduced very briefly the IFRSF’s Country Profiles project. Each profile will contain information on the application of IFRS in a particular country, endorsement, application and enforcement issues, etc. She noted IOSCO’s Committee 1 participation in verifying this information. Mr. Kono noted that the Monitoring Board members would be paying more attention to this issue, and that the Country Profiles would be useful as the Board assessed candidates for membership of the Monitoring Board.

Masa Kono noted that, in addition to activities related to expanding the Monitoring Board’s membership, the Board would also seek to improve its own transparency, through more timely communications as well as other means.

The IFRS Foundation Trustees subsequently met in public session. As the content addressed many of the same issues as had been reviewed with the Monitoring Board before the break, Michel Prada suggested that topics be addressed on more of an exceptions basis—expanding the commentary where appropriate.

IFRS Foundation funding

Mr. Prada noted that the ‘three pillar’ funding model had been reviewed with the Monitoring Board in their private meeting. They had understood it and approved the approach. The support from the major accounting networks was still to be finalised and the commercial funding had to be clarified: however the basic model was confirmed.

Use of IFRSs

Mr. Prada noted that there were significant, positive developments in Japan. A change in government had led to a more sympathetic environment for the adoption of IFRSs and more Japanese companies were exploring adopting IFRS adoption, even in the absence of any clear moves in the United States.

With respect to the US, the change of leadership at the US Securities and Exchange Commission in early April 2013 meant that it was too soon to judge the current disposition of the SEC. However, the Trustees were maintaining good relations with key US stakeholders, in particular with the Financial Reporting Foundation, where a productive working relationship had been restored.

IFRS Foundation Constitution review

Mr. Prada noted that the Trustees had begun planning for the next quinquennial review of the IFRSF Constitution, which the Trustees aimed to have completed by mid-2015.

Meetings – 2014

The Trustees confirmed that they would meet four times in 2014: twice in London and once in Sydney, Australia, and once in Mexico.

Noting his report to the Monitoring Board, Mr. Hoogervorst deferred to his Senior Technical Directors to provide a bit more colour on aspects of the IASB’s technical activities.

Alan Teixeira highlighted the IASB’s outreach activities on Disclosure. The IASB would be issuing a Feedback Statement summarising this outreach and was considering some short-term measures that it might undertake to remove perceived ‘impediments’ to improving financial reporting. The IASB staff would be working with the accounting networks, securities regulators and others to determine how it might provide application guidance on the application of materiality to disclosure.

Dr. Teixeira noted the Accounting Standards Advisory Forum was seen as an important body, but not the only means of connecting with standard-setters. As an example of this, in the margins of the meeting of the International Forum of Accounting Standard-Setters, being held during the week of 15 April 2013, he would be meeting with 35 Technical Directors of national standard-setters to discuss bilateral cooperation on various projects/ activities.

Sue Lloyd reviewed various aspects of the major technical projects (no new information was given).

Scott Evans noted that the DPOC had reviewed the due process followed on both the Insurance and Hedging projects and were satisfied with both.

Some concern had been expressed around the use of a Review Draft for the Hedging project and the IASB Staff had agreed that in future, it would prefer a re-exposure route for such documents.