Wednesday, February 17, 2010

IASCF Amends Constitution; Provides Update on Convergence, Funding

Within a day of announcing changes to its Constitution designed to enhance its governance, the International Accounting Standards Committee Foundation sent a clarification to the Financial Times regarding the IASCF's continuing commitment to convergence. The letter, from IASCF Chairman Gerrit Zalm, was in response to an article by Rachel Sanderson appearing in the FT on Feb. 15, " (IASB Softens Stance on Convergence,"

Sanderson's article focused on the second point among the nine Constitutional changes announced by the IASCF on Feb. 15, specifically, that:

The Constitution will emphasise that convergence is a strategy aimed at promoting and facilitating the adoption of IFRSs, but is not an objective by itself.
In the IASCF response to the FT, Zalm said:

I was surprised to read your interpretation of recent enhancements to the governance of the IASC Foundation (IASB softens stance on convergence), and in particular your assertion that a constitutional emphasis on adoption of International Financial Reporting Standards (IFRSs) represents a weakening of the Trustees’ support for the ongoing work to converge global accounting standards.

Nothing could be further from the truth.

The Trustees of the IASC Foundation strongly support the work plan that the IASB has established with the US Financial Accounting Standards Board, which will reduce the differences between and improve IFRSs and US standards. By reducing differences and thereby reducing any cost of transition, convergence will “promote and facilitate” the possible adoption of IFRSs.

The completion of the existing convergence programme will also achieve the objective set out by the G20 at their Pittsburgh summit.

For many other jurisdictions convergence is an important stepping stone on the path to adoption of IFRSs. The recent enhancements to the constitution of the IASC Foundation reinforce our commitment to this process.

Here is the list of all nine Constitutional changes agreed by the IASCF Trustees (following a period of public consultation during the past couple of years). The changes will take effect on March 1, according to the IASCF.

  1. Introduction of three-yearly public consultations on the IASB’s technical agenda: In addition to consulting the Trustees and its advisory council annually on the existing and future agenda, the IASB will undertake a three-yearly public consultation on its future technical agenda.
  2. Emphasis on adoption of International Financial Reporting Standards (IFRSs): The Constitution will emphasise that convergence is a strategy aimed at promoting and facilitating the adoption of IFRSs, but is not an objective by itself.
  3. A commitment to a ‘principle-based’ approach: The Constitution will call for IFRSs ‘based upon clearly articulated principles’.
  4. Specific designation of investors: The new Constitution specifically identifies investors as a target audience for financial information (in addition to other participants in the world’s capital markets and other users of financial information).
  5. A requirement for due process and the introduction of an emergency procedure: The Constitution will include a provision for an accelerated due process only in the most exceptional circumstances and only after approval by at least 75 per cent of the Trustees.
  6. Creation of vice chairs for both the Trustees and the IASB: The new Constitution will establish the possibility of two vice chairs for both the Trustees and the IASB. This will both ease the burden on the chair, and give the option of wider geographical distribution in the leadership.
  7. Improved language to account for a broad range of stakeholders, both by type and location: The Constitution will note the need to ‘take account of, as appropriate, the needs of a range of sizes and types of entities in diverse economic settings’.
  8. Reduction in duration of possible second term of IASB members to ensure practical experience: While the Constitution will still permit the possibility of a second term for IASB members, the Trustees have reduced the second term from five years to three for IASB members not serving as the chair or a vice chair.
  9. Names in use across the organisation to be streamlined: The names in use across the organisation will be more closely aligned with the standards. The IASC Foundation will become the IFRS Foundation, as soon as the practical arrangements can be made. The interpretations committee and advisory council will be known as the IFRS Interpretations Committee and IFRS Advisory Council, respectively. Stakeholders supported retaining the name of the IASB, and the Trustees concurred.

Funding Update
In related news, the IASCF recently posted an updating on its funding status, listing the amount of funding coming from different geographic jurisdictions - some which have mandatory fees in support of the IASCF, others which have entirely voluntary sources of funding for the IASCF (such as companies and associations in the U.S.) See the IASCF Funding Update.

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