Monday, February 14, 2011

Monitoring Board Releases Report on IFRSF Governance; FAF To Meet

Last week, the IFRS Foundation Monitoring Board - currently consisting of five major securities regulators from around the world, announced the release for public comment of its report on the IFRS Foundation's governance. The 60-day comment period on the report, formally entitled the 'Consultative Report on the Review of the IFRS Foundation's Governance,' ends April 8.

The Monitoring Board, formed in 2009 to provide a public accountability link between international securities regulators whose mandate is investor protection, and the IFRS Foundation which oversees the IASB, currently includes five members:
  1. Masamichi Kono (Acting Chairman).Mr. Kono represents the IOSCO Technical Committee on the Monitoring Board and is Vice Commissioner for International Affairs, Financial Services Agency, Japan (JFSA)
  2. Katsunori Mikuniya, Commissioner of the JFSA
  3. Zarinah Anwar, Representative of the IOSCO Emerging Markets Committee, Chairman of the Securities Commission Malaysia
  4. Mary Schapiro, Chairman of the U.S. Securities and Exchange Commission (SEC)
  5. Michel Barnier, Commissioner for Internal Market and Services, European Commission
Additionally, Sylvie Matherat, a Representative of the Basel Committee on Banking Supervision, currently serves as an Observer of the Monitoring Board.

Comment is sought by the Monitoring Board on the fourteen recommendations and 3 additional questions included in the report (FEI Summary), which address governance matters at the IASB, the IFRS Foundation, and the Monitoring Board itself.

Monitoring Board Takes Lead On Institutional Review; IFRS Foundation Takes Lead on Operational Review - Including Due Process
The Monitoring Board's report notes efforts have been made to coordinate its governance review - centered on the IFRS Foundation's and in turn, the IASB's and IFRIC's accountability and independence - with the Strategic Review currently being conducted by the Trustees of the IFRS Foundation.

The goal of the Monitoring Board's governance review of the IFRS Foundation, at the 50,000 foot level, is evident in this passage in the Monitoring Board's press release:

The Monitoring Board review’s fundamental question is whether the current governance structure effectively promotes the standard-setter’s primary mission
of setting high quality, globally accepted standards as set forth in the Constitution of the IFRS Foundation, and whether the standard-setter is appropriately independent yet accountable. The primary focus of the review is institutional aspects relating to governance, in particular the composition and the respective responsibilities and roles of the Monitoring Board, Trustees and IASB.
In line with its focus on review of institutional aspects of the IFRS Foundation's governance, the Monitoring Board's report on IFRS Foundation governance indicates it is leveraging off the separate Strategy Review being conducted by the IFRS Foundation Trustees, with the IFRS Foundation Trustees taking the lead on the review of 'operational aspects' of governance, including 'due process.' Specifically, the report states (reformatted in bullets, emphasis added):
  • The Monitoring Board has asked the Trustees to report on operational aspects of governance, in particular the due process of the IASB and IFRS Interpretations Committee.
  • In particular, the Trustees are being asked to identify changes to (a) the due process for public input and public feedback in relation to standard setting and (b) the operation of the IASB throughout the standard-setting process.
  • While the Monitoring Board’s governance review addresses the appropriate allocation of responsibilities to the IASB, the Trustees are asked to contribute to this review in identifying improvements in how the IASB fulfills those responsibilities.
  • Hence, the issues concerning the assessment and possible improvement to the standard-setter’s due process will be covered primarily by the Trustees.
  • The Monitoring Board and the Trustees will continue to communicate with each other as their respective projects progress, with a view towards achieving an integrated package of proposals that will improve the current governance framework.

My two cents
(I remind you of the disclaimer posted on the right side of this blog). Avoiding a duplication of effort between the Monitoring Board's governance review of the IFRS Foundation, and the IFRS Foundation's own strategy review, sharing information between the two reviews, and maintaining a goal of an 'integrated package of proposals' as stated in the Monitoring Board's report, appears to be a sensible approach in terms of resource management.

It is particularly interesting to note that in the slicing and dicing of the IFRS Foundation Governance Review, the 'due process' review was bucketed in with 'operational' issues being examined as part of the IFRS Foundation's own Strategy Review, including a review of due process being conducted by the IFRSF's Due Process Committee. Importantly, the Monitoring Board notes that it will look 'primarily' (but evidently not 'solely') to the IFRSF's own due process review, leaving room for independent analysis.

I would observe that, perhaps beyond what some may define as 'operational' issues, due process issues in particular can involve difficult decisions of substance over form: e.g., when might the sheer volume of comment letters on a proposed accounting standard, even if 'form letters,' lend credence to a particular point of view, in spite of the fact that the view is contained in 'form letters'? Or, the flipside: when might substantive theoretical and/or practical considerations in a minority of comment letters outweigh a higher volume of comment letters taking the opposite point of view?

Additionally, due process considerations can sometimes be viewed through the lens of human nature and the need for an organization - any organization, not only standard-setting organizations - to demonstrate progress in achieving the milestones on its agenda - as it weighs the pros and cons of objections to, or suggested improvements to, a particular proposal, final standard, or set of standards.

It will be interesting to watch how the interaction between the two governance reports - that of the IFRSF and that of the Monitoring Board - plays out. As noted above, the deadline for comment on the Monitoring Board's governance review report is April 8.

IFRS Foundation Extends Comment Deadline on Its Own Strategy Review Consultation Document; FEI Files Comment Letter
In related news, the IFRS Foundation extended the comment deadline on its own strategy review consultation document to February 24.

Separately, see our earlier post on a letter sent by FEI President and CEO Marie N. Hollein on the IFRSF Strategy Review.

FAF Trustees To Discuss Report of Standard-Setting Oversight Committee
In other news, the Notice of Meeting published in advance of tomorrow's Financial Accounting Foundation meeting includes on the agenda a 'Report of the FAF Standard-Setting Process Oversight Committee.'

Some have also speculated (see Feb. 2010 JofA article by Alexandra Defelice) the FAF may discuss the recent report and recommendations of the Blue Ribbon Panel on Standard-Setting for Private Companies. Analogous to the IFRSF's oversight of the IASB, the FAF oversees the Financial Accounting Standards Board.

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