Background and Observations on the Roundtables

The objective of the discussion was to determine whether the trustees are prepared to publish and invite comment on the first part of the Constitution Review proposals. To facilitate the discussion, the IASCF Director of Operations introduced a paper that summarised the comments made at the 19 June 2008 Roundtables on the draft document Proposals and Issues for the Constitutional Review, as well as a revised version of those proposals after consideration of comments made at the roundtables.

The two principal changes being proposed would be:

• 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, with a specified geographical mix.

In summary, there appeared to be support for the concept of creating a Monitoring Group (MG). However, several concerns were raised regarding the independence of the IASC Trustees and IASB and the absence of investor representation on the MG. The proposals on the IASB size and composition generated fewer concerns than the proposal on the MG. However, some comments included concerns around the geographical criteria diluting the other technical competence criteria of IASB membership and the omission of a specific mention of Africa and South America in the geographical spread.

Some comments made during the roundtables may not have been reflected in the revised version brought before Trustees at meeting, but the expectation is to consider them with the other written comments received on the proposals. Several Trustees noted that they received positive feedback on the use of roundtables.

Regarding the composition of the MG, Trustees asked if the initial composition should also include banking supervisors, since they have a strong influence in emerging markets. The Chairman suggested adding a specific question to the proposals on whether banking supervisors should be represented on the MG.

Regarding the geographical composition of the IASB, the Chairman also noted that there was language in the revised proposals that suggests that of the seats appointed from any area, the Trustees would normally appoint at least one member from South America and Africa, but this language had not been added to the marked Constitution changes. He suggested specifically requiring this in the Constitution.

Revisions to the draft proposals discussed at the Roundtables

The discussion moved to the revisions made to the proposals. The IASCF Director explained the rationale for the revisions from the initial draft provided during the roundtables. Some minor revisions were made for better readability of the document. Other revisions were made to better clarify the concepts or arguments behind the proposal for the MG (for instance, to draw a better link between creation of a Monitoring Group and the objective for public accountability) or to address some of the recurring concerns noted at the roundtables.

The more significant revisions include:

1. An added line in the Introduction, noting that Constitution Review must be completed by June 2010.
2. A paragraph was added under the section titled 'Enhancing Public Accountability' that states that the Trustees will continue active engagement of stakeholders through SAC and formal discussion with interested parties. This paragraph was added to address a concern frequently raised at the Roundtables about why investor groups are not included on the MG. The reason is that there already are other avenues available to investors for interfacing with the IASCF and the IASB.
3. New paragraphs were added to clarify the relationship between the Trustees and the MG, particularly that the MG will be a group outside of the IASCF's formal organisational framework. Accordingly, the MG will be an autonomous entity. For purposes of the Constitutional Review, the proposal is for the Constitution to recognise a relationship with a Monitoring Group. However, the actual working relationship between the MG will be further defined in a Memorandum of Understanding (MOU) between the Trustees and the MG.
4. Regarding the proposal on the geographical composition of the IASB, language has been added to the proposed Constitution revisions that the Trustees 'should normally appoint at least one member each from Africa and South America'.
5. A paragraph has been added to explain that geographical component of IASB membership should not dilute the importance of the other criteria for Board membership. The proposals emphasised that members shall act in the public interest, not as representatives of constituencies of geography.
6. The voting majority under the larger IASB would rise to 10 out of 16 members or nine if there are fewer than 16 serving members.

Relationship Between the Trustees and the Monitoring Group

A discussion started regarding the relationship between the Trustees and the Monitoring Group. One Trustee asked for more information regarding the MOU between the Trustees and the MG. The IASCF Chairman noted that the details of what is in the MOU would not be established in the Constitution amendments. Rather, the proposals recognise that an MOU between the parties must be created and agreed upon by both parties. The MOU is intended to be another public document that will be negotiated between the MG and Trustees after this first part of the Constitution Review is completed. The same Trustee asked if the MOU, as a public document, will also be exposed for a comment period. The Chairman was in favour of a comment period for the MOU.

Several Trustees raised concerns around the independence of the IASCF and whether the MG responsibilities will conflict or overlap with Trustee responsibilities. The IASCF Chairman recognised that the negotiation of a reasonable MOU will be central to easing these concerns. He also noted that the MOU cannot change the requirements in the Constitution itself.

Before the proposals are published for comment, they will be revised to clarify that adoption of the MOU will require agreement of 'the MG and the Trustees' rather than 'members of the MG and the Trustees'. This is to clarify that each member of the MG is not required to agree with the MOU before it can be effective.

The Chairman noted that the proposals as drafted intend to view the MG as a monitoring group akin to an audit committee, not an oversight committee. Any wording in the proposals suggesting that the MG would have oversight capacity would be removed.

Several Trustees were also concerned about future disputes between the Monitoring Group and the Trustees and what 'safety mechanism' would be available if the parties are unable to agree. This concern related both to overall disputes and to disagreements on the future composition of the MG since the proposals only define the composition at initial formation. Echoing those concerns, other Trustees highlighted the conflict between independence and the need to obtain sustainable long-term funding, particularly when the proposed members of the MG are also the public authorities organising the funding for that jurisdiction. The IASCF Chairman was hesitant to add a 'safety mechanism' to the Constitution language because it could be perceived to contradict the MG as an independent external group. The intent is that the future composition of the MG would be at their discretion going forward, potentially under guidance written in the MOU.

The discussion moved to the reporting requirements between the IASCF and the Monitoring Group. One Trustee suggested that the MG as an external group should also have public accountability and, therefore, should consider providing its own annual report on its activities. The IASCF Chairman noted it was a good suggestion, but would be one that the MG would need to decide when its sets up its operating procedures. Since the MG's operations are outside of the IASCF, it would not be appropriate to incorporate reporting requirements in the Constitutional proposals. Regarding the reporting from the IASCF to the Monitoring Group, another Trustee suggested the IASCF Annual Report should serve this purpose, to ensure IASCF independence and transparency to the public. The IASCF Director of Operations hoped that the IASCF Annual Report would be sufficient reporting to MG due to its extensive disclosures. The Chairman agreed that there should be one public report for the public and Monitoring Group, and the Trustees would incorporate any additional requests from the MG into the annual report.

Consistency with Governance Recommendations of European Council

One Trustee asked for clarification on how the European Council's suggestions on the governance of the IASCF provided in the materials reconcile with the Trustees' proposals. [See IAS Plus News Story of 9 July 2008 The IASCF Director noted that it is broadly aligned with the Trustee proposals, and meetings with the European Council have confirmed that. Although the language is different, the broad concepts are consistent. Any additional points relating to issues outside of the proposals suggested in part one of this Constitutional Review will be considered in the second part of the review.

Changes to the Proposals Agreed by the Trustees

Based on these discussions, the following additions would be incorporated to the proposals before issuance for public comment:

• An additional question asking if other parties should be considered in the initial composition of the MG, specifically banking supervisors.
• Adding language to the Constitution marked text to specifically require that of the seats appointed from any area, the Trustees would appoint at least one member from South America and one from Africa.
• Language noting that the MOU between the Trustees and the MG would be issued for public comment.
• The wording that states 'A Memorandum of Understanding will be agreed between the members of the Monitoring Group and the Trustees describing' will be revised to 'A Memorandum of Understanding will be agreed between the Monitoring Group and the Trustees describing'. This change is to clarify that not all individual members of the Monitoring Group have to agree for it to be considered agreed upon.
• Agreed that the IASCF Annual Report would be the one deliverable sufficient for purposes of public reporting and reporting to the MG. Any additionally requested disclosures required by the MG would also be incorporated in the Annual Report.

Approval and Timing of Proposals

The Trustees approved these revisions and approved issuance of the proposals for public comment shortly after the meeting. Comments received will be reviewed at the October IASCF Trustees meeting.

Due to timing (August holiday season), a Trustee said that a 15 September 2008 comment deadline seemed aggressive. The IASCF Director noted that there is a clear expectation by regulators that this part will be done by year-end. Therefore, the date cannot be extended much further. Regulators need to make decisions based on completion of this process. Examples of those decisions include:

• SEC decisions on domestic use of IFRS, and
• EU equivalency assessment.

Regarding second part of Constitution Review, October is the goal for an initial draft of the second part of the Constitution Review proposals. The Constitution Committee will have an interim meeting before October to draft part two proposals to meet the October timing. Additional roundtables will be held for this second part also since there was positive feedback on the roundtable process.

This summary is based on notes taken by observers at the IASCF meeting and should not be regarded as an official or final summary.