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Trustee activities update

Date recorded:

Interaction between the Advisory Council and the IFRSF Trustees

David Loweth outlined the Trustees’ approach to engaging the Advisory Council. The Trustees are anxious that the communications of the Trustees and the Due Process Oversight Committee highlight the areas in which the various bodies consider the opinions of the Council. In addition, recently the chair of the Council has had a positive working relationship with the Chair of the Trustees – something that the incoming chair of the Council seeks to maintain. Senior IFRSF staff also participate in the Council’s agenda committee and raise with the Trustees matters that are of concern to the Council. Mr Prada added some personal observations and stressed the importance of close contact between him and the chair of the Council and to attending Council meetings in person.

Mr Macek echoed the comments that communications between the Council and the Trustees had improved and stressed the Council’s review of its effectiveness noted the improvements that had been made in communications and relations between both the Trustees and the IASB.

Anne Molyneux also stressed the importance of the Council in being pro-active in identifying new and emerging issues pertaining to standard-setting. Other Council Members noted that this pro-active activity and advice by the Council was as important as its ‘reactive’ advice to the Trustees and IASB.

Other Trustees’ matters

Mr Prada noted certain matters arising from the Trustees’ meetings in October 2013 and January 2014. He noted in particular that the Trustees were working hard with the FSB and the G20 to ensure that financial reporting remains on the global agenda, but in a different policy context. He also noted ASAF and stated that the Trustees will continue to monitor the ASAF to ensure that it meeting its objectives in achieving effective multilateral engagement with national standard-setters.

He noted that the IFRS Foundation had signed a Protocol with IOSCO and was in the process of establishing a similar relationship with ESMA, noting that securities regulators are an important strategic partner in global standard-setting.

Mr Prada noted that the next governance, strategic and operating review would commence in 2015, which would align it with a scheduled review of the ASAF and a potential self-review by the Monitoring Board.

Mr Prada explained that the Trustees were beginning to explore whether the size of the IASB was still the best. He noted that Jan Engström and Patricia McConnell would retire at the end of June 2014 and that the Trustees would not fill those posts immediately, but would consult on the optimum size of the Board as part of the 2015 review.

Funding, and the development of a stable, independent funding platform, continues to occupy much of the Trustees’ efforts. Funding based on GDP is considered the best. Unfortunately, not all national contributions were considered ‘stable’. He noted the Financial Accounting Foundation’s non-recurring contribution of up to $3 million in 2014.

Japan’s further moves towards wider use of IFRSs in Japan were noted, the momentum created by these developments was encouraging. 

David Loweth reported on the activities of the Trustees’ Due Process Oversight Committee. The DPOC had, in particular, conducted ‘lifecycle’ reviews of projects nearing completion and reported that the DPOC was satisfied that the due process had been followed. In addition, the DPOC had agreed to a restructuring of the IFRSF’s XBRL activities. Two working groups will be discontinued, replaced by a new XBRL Consultative Group. In addition, the work of the XBRL function will be integrated better with the technical activities of the IASB.

Mr Prada noted new Trustee appointments and the process to replace Trustees retiring in 2014.

On Europe, Mr Prada noted that he had had discussions with colleagues in Europe on the implementation of the Maystadt Review. The IFRSF is concerned mostly that any new endorsement arrangements in Europe should not delay the standard-setting process. However, he stressed that it was up to Europe to decide how best to implement the Maystadt Review. Mr Prada noted that the Maystadt Review had confirmed the role of IFRSs in Europe (contentious in some EU Member States). More troubling were the Review’s suggestions that endorsement of IFRSs for use in Europe would be tied more closely to not endangering financial stability and not harming the economic development of the European Union. The Trustees had made representations to the European Commission and Mr Maystadt on these issues.

A Council Member asked whether the increase in the budget contemplated in the 2012 Strategic Report was still being considered, or whether the size of the organisation will be reconsidered. Mr Prada noted that economic reality dictated that the size of the organisation and its budget would be constrained for a while.

In response to a question, Mr Prada noted that the IFRS Foundation’s Trustees were appointed via a rigorous process, involving various layers of vetting and review, unlike any that he had experienced before joining the IFRSF. However, he was not aware of overt political pressure in the appointment of individual Trustees.

Anne Molyneux noted the developments in Asia-Pacific, in particular the ASEAN Economic Community (AEC), which has seen a significant effort to align companies and securities law in the region. She was not certain the extent to which accounting standards were involved in this alignment, but noted that all the founder countries apply IFRSs with exceptions and/or without rigorous oversight. She asked whether the IFRS Foundation was directing its attention to this ‘internal market’, which is expected to be in operation by 2015. Mr Prada noted the importance of ASAF in understanding these issues.

There was a discussion of the role of market regulators versus prudential supervisors and the role of accounting standards to both. Mr Prada, having been both a banker and a market regulator, spoke from personal experience that the role of financial reporting is to provide neutral and transparent information that can be used as a starting point for regulation by different groups of regulators and supervisors. 

Mr Hoogervorst echoed Mr Prada’s comments adding that he thought that it was questionable that banks could turn a 3% capital base into a 10% capital base through prudential weights, which might bear no relation to economic risk. He expressed concern that even in Basel III, there was still some distance between key ratios under financial reporting and prudential reporting.

Mr Prada noted that the 2007-2011 financial and sovereign debt crises had caused the focus of financial reporting to focus on financial instruments and the financial sector, to the detriment of financial reporting more broadly. He stressed that financial reporting was designed to give high-quality, transparent and neutral information. It was up to market regulators and supervisors to take that information and adapt it to their purposes. 

Mr Macek commented that in his experience the transparent reporting of leverage was critical to maintaining the stability of the financial markets.  Volatility could be dealt with, but without a clear understanding of true leverage (debt) in the financial system, proper regulation/ supervision was not possible.

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