PROPOSALS FOR ESTABLISHMENT OF THE IFAC PUBLIC OVERSIGHT BOARD
Request for Comment on the Draft Charter of the Public Oversight Board
Comments from the Association of Chartered Certified Accountants
October 2001
1 General Matters
1.1 The Association of Chartered Certified Accountants (ACCA) welcomes the opportunity to comment on the draft Charter of the IFAC Public Oversight Board (the draft Charter). ACCA strongly supports the work of IFAC which is of growing importance as the adoption of its standards is expanding, driven by the gathering pace of global harmonisation.1.2 There is a need to ensure that IFAC can address this growing importance and the increasing expectations being placed on it. We believe that serving the public interest is an essential element of IFAC's mission and we warmly welcome, therefore, the proposed Public Oversight Board (POB). An authoritative and high quality POB should be a valuable instrument in demonstrating the commitment of IFAC to act in the public interest.
1.3 We comment below separately on the membership of POB, on its Selection Committee and on the need for transparency and due process.
2 Membership
2.1 The draft Charter proposes that:The POB shall consist of seven members who shall be prominent individuals of high integrity and reputation drawn from diverse functional and geographic backgrounds such that a balance of interests is represented by the membership as a whole.
2.2 We support this proposal as the actual and perceived authority of POB depends in a large part on the quality of its members. We agree that the members of such a body should be drawn from diverse functional and geographic backgrounds.
2.3 Footnote 1 to paragraph 3 of the draft Charter sets out how the diversity of functional background will be promoted. Only one person's background is prescribed (a former senior partner in an accountancy firm) whereas other backgrounds are mentioned as illustrative of those with an interest in maintaining the quality of financial reporting. While there are no doubt many individuals of high reputation and integrity who are former senior partners in an accountancy firm, we cannot condone the inclusion of any of their number in POB. All such individuals would be perceived to be less independent of IFAC and of vested interests of the profession than almost any others. This is particularly the case given the proposed structure of, and funding for, the IFAC Forum of Firms, which will be a primary focus for the attention of POB.
2.4 A rule relating to the independence of former partners is included in a later footnote. This rule is an implicit acknowledgement that there exists a significant perceived problem over independence. The rule takes the form of a specific permission: 'The independence of former partners in accounting practices shall not be impaired where . . .'. This permission is clearly inappropriate. The general public will not be aware of the detail of such financial arrangements. There is no safeguard to independence in appearance which could be applied successfully in such circumstances.
2.5 Footnote 2 to paragraph 3 of the draft Charter indicates that the diversity of geographic background will be promoted by ensuring that at least one member will be drawn from each of North America, Europe, Asia Pacific, and one different area. We agree that this will promote geographic diversity. However, the current proposal would not rule out POB including, say, three from North America and two from Europe. We doubt that this would meet the public expectation of geographic diversity. We recommend limiting the number of members from an area to two.
2.6 We are also concerned about the wording of the footnote, in which it is stated that: 'At least one member should have knowledge of the interests of developing countries or economies in transition.' This would not preclude such a member from being from, say North America, so long as appropriate knowledge could be demonstrated. The combined effects of the two sentences of footnote 2 should be clarified. If the intention is that one member should be from a country that is developing or whose economy is in transition, that should be clearly stated. We believe that this should be the case, as it would demonstrate a visible commitment to geographical diversity.