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Constitutional Review Discussion

Date recorded:

IASB Meeting with National Standard Setters

IASB Chairman Sir David Tweedie opened the meeting, welcomed everyone, and introduced the two trustees who were attending to participate in the constitutional review discussion.

The trustees' constitutional review committee has identified ten issues for review. Other issues could be added. A series of public hearings or round-tables will be held.

The National Standard Setters (NSS) were then invited to make comments on the issues identified.

1. Whether the objectives of the IASC Foundation should expressly refer to the challenges facing small-and medium-sized entities (SMEs):

Comments on the need for such a provision in the Constitution were mixed and the Committee will need to decide whether the language of the Constitution adequately addresses the position of SMEs and emerging economies.

The NSS comments were mixed with some questioning why this particular grouping should be particularly identified and others believing it to be an important area to be addressed.

2. Number of Trustees and their geographical and professional distribution:

Some respondents argued for greater representation from the Asia-Oceania region as well as emerging economies; many respondents referred to what was felt to be the over-representation of certain regions. One possibility raised would be to provide for equal numbers of Trustees from Asia-Oceania, Europe and North America. The Trustees will also need to consider the appointment process for choosing new Trustees, including the Chairman.

A general discussion on the role of the trustees and whether they should be broadly based or representative of those, in particular geographical areas, who use the standards. Mixed views were expressed. A number of comments were made that it should be important to achieve diversity within the trustee body and there should be a strong public interest. Some comments were made that there should not be any numbers attached to any particular characteristic or geographical area.

3. The oversight role of the Trustees:

There is a view that the Trustees should strengthen the language regarding their oversight (particularly over the IASB's deliberative procedures), and demonstrate more clearly how they are fulfilling this function. The Committee has not reached conclusions on this matter, but the suggestions of establishing an internal compliance committee and holding additional direct consultations with the SAC were raised.

Although there was some support for this, concern was expressed has to how it would be implemented.

4. Funding of the IASC Foundation:

The Committee or another group of the Trustees will need to examine the funding structure of the IASC Foundation. It is noted that a long-term funding committee of the Trustees has already been established and is examining options.

Comment was made that it would be useful to have some form of mandatory funding but it was acknowledged that this would be difficult to achieve this. Further comment was made that reliance on funding from publications may clash with other objectives.

5. The composition of the IASB:

The Committee has not taken a position on the geographical background of IASB members, but noted that the majority of respondents called for the Committee to examine the issue. The Committee will need to analyse further the questions of the appropriate mix of professional backgrounds and full-time versus part-time members.

Various comments were made including:

  • The workload mitigates against part-time members which would require their number to be limited but not removed completely.
  • The composition criteria should be removed and replaced by criteria that board members be representative of the four groupings and of where the standards are used.

6. The appropriateness of the IASB's existing formal liaison relationships:

The Committee needs to assess the appropriateness of the existing formal liaison relationships and whether more guidance is needed in the Constitution regarding the role that liaison relationships play.

Comment was made as to the benefits of liaison to both sides and that care should be taken to involve new areas where IFRS are used.

7. Consultative arrangements of the IASB:

The Committee will need to examine the IASB's consultative arrangements, including the mandatory steps of the IASB's due process. The Committee notes that it may not be desirable to enshrine in the Constitution detailed steps regarding due process. The IASB at its own initiative will soon be releasing a document that sets out proposed interim improvements in its consultative arrangements, and the Committee and the other Trustees will monitor the response to that document.

The NSS welcomed the IASB's initiative but believed these issues should not be incorporated into the constitution. Further comment was made that checks and balances similar to the role played by regulators or government in national arenas should be considered. There was some disagreement on this with some believing the voluntary use of IFRS by individual countries was a check and balance in itself.

8. Voting procedures of the IASB:

At present the approval of a standard requires a simple majority of the IASB. Many respondents have called for the IASB to adopt a 'super-majority' approach.

Comment was made that such a change would not have made a difference in approving the majority of documents.

9. Resources and effectiveness of the International Financial Reporting Interpretations Committee (IFRIC):

The Committee has not had the opportunity to address issues related to the IFRIC raised by respondents. The IFRIC is already conducting an internal review of its procedures, and recommendations will be made to the Trustees. However, given the likely increase in demand for IFRIC Interpretations, the Committee will need to decide whether the present constitutional arrangements for the IFRIC are adequate. Members of the SAC noted a tension that possibly exists between, on the one hand, an IFRIC that responds to the growing demand for timely guidance and, on the other hand, the desire to maintain a principles-based approach to standard setting.

It was noted that IFRIC would be performing a review of its procedures. Comment was made that supported the role of IFRIC as the interpreter of IFRS but concern was expressed as to whether IFRIC could cope with the anticipated increase in interpretation requests and if not whether other bodies would start interpreting IFRS. Others noted that interpretation bodies often have a lesser due process requirements in order to achieve a more timely response and that this should be considered. Other comment was made that short time frames made it difficult in an international arena, and in particular in non-English speaking areas, to consider the issues and respond timeously.

Comment was made that IFRIC should not be used to perform board tasks or research.

10. The composition, role, and effectiveness of the SAC:

The responses showed that there was a widespread belief that the IASC Foundation and the IASB could make better use of the SAC. The Committee has asked the SAC to make recommendations on its role and operations. The Committee has agreed to examine whether an independent chairman of the SAC is needed and whether that chairman would need to commit a significant amount of time to the role.

No comment was made.

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