Notes from the IASC Foundation Trustees meeting

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09 Jul 2009

The Trustees of the IASC Foundation, under which the IASB operates, met in public session in Amsterdam on 7 July 2009.

Presented below are the preliminary and unofficial notes taken by Deloitte observers at the public portion of the meeting.

Key decisions include:

  • Renaming the IASC Foundation as the IFRS Foundation
  • Renaming the IASB as the International Financial Reporting Standards Board (IFRSB)
  • Creating two Vice-chairman positions for the IFRSB
  • Modifying the length of renewal terms for IASB members from 5 years to 3 years (with some exceptions)
  • Creating an SME Implementation Group to address implementation questions relating to the IFRS for SMEs, to be chaired by Paul Pacter
  • Adding Africa and Latin America to the required geographical mix of IASCF trustees
The Trustees also held a joint meeting with the IASCF Monitoring Board on 6 July. Our notes of that meeting are Posted Separately Below.

Notes from the Meeting of the IASC Foundation Trustees - 7 July 2009

IASB's response to the financial crisis

The IASB Chairman made a short presentation similar to that given at the meeting of the Monitoring Board on 6 July 2009. He reiterated that the proposed timing of the financial instruments project would allow all the revised standards to be in place by 2012, even allowing for any 'true-up' necessary between the IASB and the FASB.

In response to a question from a Trustee, Sir David acknowledged that there had been a breakdown in communication between the IASB and senior policymakers, as was evidenced in the encounter with the ECOFIN in June 2209. In that meeting, it became apparent that the finance ministers were not aware of the considerable efforts being made by the IASB (and the FASB) to respond to the G20, Financial Stability Board and others. The IASB now realised the importance of regular dialogue with ECOFIN and others at the governmental level and were establishing such open lines of communication.

A Trustee noted that the IASB's financial instruments project would not address some sensitive political issues, especially with respect to certain equity investments, such as 'strategic' investments for which an OCI-only solution is proposed. Although the categories proposed solved some impairment issues, the larger issues of debt impairment (loss provisioning) would not be solved in time for 2009 year-ends, but expectations were high. Several Trustees noted that such issues and expectations would need to be managed carefully if the IASB was to succeed.

In addition, several Trustees were concerned that the IASB and FASB, in spite of their best efforts, seemed to be in different places. The current climate really required sequential rather than consecutive decision-making.

Trustees were also concerned that the expected loss model currently being investigated by both Boards might not be the ideal solution either, citing several of the reasons outlined in the recent staff paper on credit risk. The IASB was encouraged to take a thoughtful approach to providing for losses.

IASB Work Programme

The Trustees noted the IASB's current work programme. In particular, they welcomed the forthcoming publication of the IFRS for SMEs, scheduled for 9 July 2009. Some Trustees were concerned that, notwithstanding that many of the items on the IASB's agenda were either responding to the financial crisis or else items on the FASB/IASB Memorandum of Understanding, the agenda was too full, and asked whether there was any way to trim it.

The Trustees approved the appointment of Dr Paul Pacter as chair of the SME Implementation Group. This group would be responsible for:

  • Encouraging jurisdictions to adopt the IFRS for SMEs;
  • Ensuring consistent and high quality implementation across jurisdictions and within jurisdictions;
  • Addressing the pervasive implementation questions that inevitably will arise on initial adoption of the standard globally; and
  • Identifying and fixing lack of clarity, key omissions, and possible errors in the standard.

In connection with the IFRS for SMEs, Jeff van Rooyen noted that the IOSCO Emerging Markets conference would be held in November 2009. Dr Pacter should attend this conference, and the Trustees were willing to work with him in advance. Mr van Rooyen noted that the IFRS for SMEs was very important on the African continent. The IASCF Chairman noted that support for the IFRS for SMEs was not universal, and that some EU Member States, Germany in particular, might not support it. There was a need for 'active propaganda' to encourage the standard's adoption.

The IFRIC Chairman reported on the activities of the IFRIC, noting that the vast majority of issues raised to the IFRIC are addressed by means other than an Interpretation.

IASCF Constitution review

The IASCF Trustees reviewed the staff proposals for changes to the IASCF Constitution. These had been previewed during the meeting with the Monitoring Board on 6 July. The Trustees agreed that the Invitation to Comment would propose the following changes to the Constitution:

  • Section 1 (Name): that the name of the organisation be changed from the IASC Foundation to the IFRS Foundation; and that the IASB be renamed the International Financial Reporting Standards Board.
  • Section 2 (Objectives): that the Objectives include in (a) 'to develop, in the public interest, a single set of high quality, understandable, and enforceable and globally-accepted global accounting standards...'. No reference to principles-based is needed in the Constitution, that reference in the IASB's Due Process Handbook was thought sufficient.
  • Section 2 (Sectors and Consultation): the Trustees concluded that, for the period under review, the scope of the IASB's responsibility should not be expanded to other sectors (such as public sector accounting standards or not-for-profit entities). However, they did agree that the Constitution should be explicit that the IASB may and should consult with those bodies with a legitimate interest in financial reporting standards (not national standard-setters alone).
  • Section 3 (Governance): the position of the Monitoring Board in the governance structure of the organisation will be acknowledged in paragraph 3 of the Constitution and elaborated in sections 18-23. Section 3 would be amended to state that the governance of the organisation rests 'primarily' with the IASCF Trustees and other governing bodies as the IASCF shall appoint.
  • Sections 6 and 10 (Trustees): there will be specific mention of Africa and South America in the geographical distribution requirements for Trustees (leaving two 'at large' seats); and the Constitution should provide for at least two vice-chairmen.
  • Section 15 (Trustees' oversight of the IASB's agenda): the Trustees are to be consulted in the 'exceptional circumstances' in which the IASB is considering having an exposure period of less than 30 days (the shortest period permitted by the Constitution).
  • Section 30 (IASB): there should be two vice-chairmen of the IASB; the Trustees will consider whether the roles of the IASB Chairman and the CEO of the IASCF should be separated.
  • Section 32 (terms of IASB members): terms should be set at an initial term of 5 years renewable once for a further 3 years, unless the member is a potential chairman or vice-chairman, in which case the renewal would be for a further 5 years. (Flexibility on this matter was urged by many around the table; there was also considerable discussion of transitional arrangements for existing renewable appointments.)
  • Section 37 (IASB agenda setting): the required consultation with the IASCF Trustees and the SAC remain, decisions remaining with the IASB absolutely (no changes to the Constitution would e necessary). However, the IASB's Due Process Handbook would be amended to note that comments from constituents would be invited during this period (the agenda candidates and relative priorities are in publicly-available documents). It is likely that the onus would be on constituents to respond to these documents and they would not be the subject of a formal request for views.

Some Trustees noted that the Trustees' needed to be responsive to constituents' concerns about their oversight activities. This need was not something to be addressed in the Constitution itself, but elsewhere (Deloitte's comment letter recommended that the Trustees develop their own Handbook, describing their responsibilities and how they discharge them). The Constitution Committee is aware of the stress in this area and is likely to address it once the Constitution review is concluded.

The IASCF staff noted that they hoped to have the proposals issued by early August 2009 allowing for a three month comment period. It might be possible to analyse comments and propose final amendments to the Constitution at the January 2010 Trustees' meeting, or the April 2010 meeting at the latest. Round-table discussions during the exposure period are being arranged and will take place in London, New York and Tokyo. At each round-table, at least three members of the Trustees (the Chairman and some members of the Constitution Committee) will attend. 'Local' Trustees, if available, were also encouraged to attend. In addition, individual Trustees will interact with constituents in their own jurisdictions.

Due Process Oversight Committee

Trustee Antonio Vegezzi presented several matters related to the Trustees' oversight of the IASB.

Balloting IASB documents by retiring IASB members

The Trustees agreed that, for operational reasons, retiring IASB members would be permitted to ballot a due process document or final IFRS after their term expired provided that all technical decisions had been made by the expiry of the member's term. The Trustees were prepared to allow for some flexibility provided that the distinction between the 'mere administrative elements of balloting versus the decision-making process' was respected absolutely.

Statement of support for the IASB's approach to the financial instruments project

The Trustees agreed to incorporate their formal support for the IASB's revised approach to the financial instruments project:

The Trustees support the IASB's agreed timetable for the comprehensive revision of IAS 39. The Trustees believe that the IASB's decision to give priority to the comprehensive project, rather than to piecemeal changes, remains appropriate. At the same time, the Trustees emphasise the importance of the IASB's concluding the accelerated portion of the project by year end as part of IASB's response to accounting issues arising from the financial crisis.

The Trustees recognise that this is a challenging task due to the time constraints and the complexity of the issues involved, and may required reallocation of resources and reprioritization of priorities to be achieved. The Trustees will monitor the IASB's progress against the agreed and urgent time lines.

Complaint received on due process related to the Leases project

The Trustees considered (at considerable length) a due process concern raised to them by Leaseurope, a leasing industry association. Leaseurope had raised three major concerns:

  • The IASB's decision to defer lessor accounting from the project and then its decision to include a chapter on lessor accounting in the discussion could lead to decisions regarding an important area of lease accounting without sufficient consultation.
  • At the same time, Leaseurope thought that any new standard on lease accounting should address lessor accounting.
  • In general, Leaseurope was disappointed that the IASB has not used its leasing working group effectively.

The Due Process Oversight Committee had satisfied itself that the issues raised were factually correct. As part of its own review of the IASB's Working Groups, the IASB had noted that the Leasing Working Group had not been engaged by the project staff in an appropriate manner. In particular, a staff member's maternity leave had not been handled well and had resulted in a breakdown in communications that was acknowledged. The Leases Working Group has subsequently been re-engaged and will be involved as comments on the Leases Discussion Paper are analysed and an exposure draft developed. Trustees were unhappy with this state of affairs and hoped that lessons had been learned.

In a discussion that strayed closely on the technical aspects of the leasing project, Trustees questioned whether the scope of the project, criticised by Leaseurope in its letter, could be defended. Several IASB members and IASB senior staff expressed the view that (i) lessee accounting was the major problem, and was the real focus of the criticism of the US Securities and Exchange Commission when the Memorandum of Understanding was being developed; (ii) the issues from the lessor side of the equation were really matters of revenue recognition and derecognition of the leased asset – items being addressed in other IASB projects. However, IASB members and Trustees accepted that the IASB's proposals represented a threat to the leasing industry and that they would use any and all reasons to object and delay any changes to the status quo. For that reason alone, Trustees urged the IASB to adhere rigorously to its due process and, if it does address lessee accounting alone at first, it must be confident that other IFRSs will address the lessor side of the equation.

XBRL matters

The work on providing quality assurance to the IASCF's activities developing an IFRS XBRL taxonomy was noted. The IFRS taxonomy continues to be developed and this raised issues of balancing the need for improvements and the need for stability in the product. A further report on this matter will be made in October.

Report of the Standards Advisory Council Chairman

Paul Cherry, the SAC Chairman, reviewed the activities of the reconstituted SAC since it began operating in January 2009. Although it was a large group, he noted a strong sense of commitment. However, the fact that SAC members now represented constituencies meant that more time was required before meetings; that led to longer lead times for draft agendas and more staff time. The SAC had spent a substantial part of its first meeting agreeing and understanding its role, one with which it was now content and allowed it to frame its discussions properly. Mr Cherry thanked the Trustees that the SAC now had dedicated staff support, which should help it meet its mandate and be effective.

The SAC expected 'engagement' on major changes to the IASB's agenda and was willing to use technology to provide it. The SAC had participated in the IASB's request for views on the FASB's FSPs in April and had also responded to the FCAG on its activities, assembling those responses quickly. In addition, there was a sense that emphasis on 2011 was creating an artificial deadline, one that was often seen as more of a stumbling block than a useful target. Finally, the SAC was beginning to turn its attention to the post-2011 agenda and to consider what should be in the next wave of standard-setting activities.

Mr Cherry noted that the US equivalent body (the FASAC) had expressed concerns about the size of the IASB's technical agenda: this was not a weakening of support for convergence, but rather a concern about the volume of work and the potential consequences for the quality of the standards produced. His own view was that the US, and in particular the US SEC, had to clarify their position on convergence: many in the US are confused on the time-line for adopting IFRS and the strategy for getting there.

In response to Trustees' questions, Mr Cherry thought that the SAC had been chosen well: there was a good mix of technical and business backgrounds, one that kept the SAC focussed on strategic issues rather than technical matters. The size of the group really prevented spirited debate, but the work done at the outset on agreeing its role has helped to focus the SAC's discussions. What was needed was a proper feedback mechanism-most likely in the Basis for Conclusions accompanying an ED or IFRS-that specifically identified SAC concerns and how they were addressed or why the IASB disagreed with them.

Mr Cherry noted that the SAC had been given two vice-chairs: he intended to use these to assist in regional communications, especially between SAC meetings, to engage with regional standard-setters, users, preparers and other stakeholders and to help them feel engaged in the IASB process.


Immediately prior to closing the public session, the IASCF Chairman noted the presence of Tom Jones, recently retired as IASB vice-chair. He thanked Mr Jones for his eight years' service to the IASB and noted that he would remain as an advisor to the Trustees and the IASB.

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.


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