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Issues for the IASC Foundation Constitutional Review

Comments by ACCA
February 2004

The Association of Chartered Certified Accountants (ACCA) is pleased to have this opportunity to respond to the above consultation paper. The paper was discussed by ACCA�s Financial Reporting Committee and I am writing to give you their views. These are set out below referenced to the relevant clause of the existing constitution.

The objectives currently direct IASB to produce standards for "to help participants in the world�s capital markets and other users make economic decisions". The emphasis is therefore on listed company accounts. We suggest that these objectives are generalised and the nature of "other users" becomes more explicit.

In practice the standards of IASB are already used by private businesses (including the SMEs referred to in IASCF�s question) and that this seems likely to be extended in future. In Australia international standards are to be applied to all reporting entities under the Corporations Act. In the European Union more than half the member states are likely to extend the application of the IAS Regulation beyond listed companies. The IASB is already developing a standard for SMEs. IASB�s standards (either adopted directly or adapted into national regulations) are also likely to be used by others - private not-for-profit entities and mutuals for example. The standards also form the basis for the International Public Sector Accounting Standards being developed by IFAC. The IASCF needs to recognise these facts via its constitutional objectives and for IASB to take some cognisance of these other user groups.

The objectives refer to high quality standards, they should also make reference to standards that are fit for the purpose and reflect cost/benefit considerations.

Clause 4 � Trustee numbers.

We would not regard nineteen as an excessive or unwieldy number of trustees to provide oversight, funding and appointments for a global body. In our comments below we note the need for an adequate range of geographical and professional backgrounds. The number of trustees should be increased if this were necessary to meet those needs.

The aim of convergence of financial reporting around global standards is a key objective and the appointments of Trustees vital to achieve this. The appointments need to be fair, as wide-ranging as possible and certainly not so as to exclude major economies. They should therefore reflect a number of factors, which would probably include

• Economic importance of a region/country
• Extent of take-up or prospective take up of IFRS, either directly or by adaptation into national standards or by convergence.
• Contributions to the work of the IASCF

We would not see the current fixed allocation between regions as necessary in the constitution.

Clauses 7 & 8 � Trustees� professional background

Similarly a general requirement for a broad distribution of backgrounds for appointment should be sufficient, in place of the existing fixed allocations among preparers, accountants, users and academics. The backgrounds of Trustees needs to reflect the wider objectives of the IASCF outlined above.

IASCF needs to ensure that the selection of Trustees is done in an open and transparent process. It needs to publish for example

• The criteria for selection and the balance between the geographical factors
• The balance of professional background aimed for
• Process of selection
• Lists of nominations
• a report on how the various balances were achieved by the actual appointments.

Given the global nature of the objectives we would like to see international bodies such as the World Bank, the United Nations and IOSCO putting forward candidates.

Clause 14 � Duties of Trustees

The Trustees should review the strategy and procedures of the IASB and report on this as appropriate. The present constitution requires a review and need not be amended in this regard.

We see no reason to change the current interval of the constitutional review.

In our view the number of IASB members cannot be reduced very much from the current level of fourteen. In particular demands on their time for better communication, liaison, consultation and due process are likely to increase as the standards get taken up more widely.

Subject to obtaining members with recent experience in the preparation, audit or use of accounts, the two part-time posts should not be continued. The demands on IASB members� time are likely to remain significant as noted above and the part-time positions inevitably raise issues of independence.

While we would propose no change to this clause, the Trustees should recognise that many perceive the current IASB is dominated in effect by a North American geographical interest.

Clause 22 � IASB members� professional backgrounds.

As with the Trustees, the backgrounds of the members of the IASB need to reflect the wider objectives noted under Clause 2 above, especially those related to SMEs and not-for-profit entities. While we would otherwise retain the existing balance of backgrounds, the experience which is omitted from the list is that of professional standard setter. The final sentence of the existing clause needs to be amended, as it is vital that the experience of IASB members in the actual application of standards is recent.

In recognising the wider objectives of the standards (see Clause 2), the range of potential users to appoint to the IASB becomes wider and expands away from just highly paid, and therefore difficult to obtain, investment analysts and fund managers. Credit rating, venture capital, regulators, banks for instance could all be seen as user groups.

The need for better liaison and communication by the IASB was noted above. Command of different languages should be a criterion for selection of individual IASB members.

We agree with the importance of liaison responsibilities and agree with the existing basis of selecting the national standard setters. We also agree with the question posed on liaising with emerging economies. The IASCF needs to find a way of recognising the need for the involvement of more standard setters and comparable bodies (such as EFRAG) in its constitution.

We considered the question of whether there should be a significant (and not just simple) majority required to pass a new standard.

We noted that, with a now established corpus of standards gaining acceptance on a global basis, those who wish to change an existing standard or impose a new one should be able to demonstrate an overwhelming case given the inevitable costs of change. We also noted that the predecessor board of the IASC operated on a super-majority basis.

On the other hand not all of those involved with IASC�s work believe that this factor made a positive contribution. Progress and improvements should not be held up by a blocking minority. With the publication of dissenting opinions, improved due process and the appropriate selection of members should obviate the need for such voting structures.

On balance our view is that the current voting requirements should be left as they are.

We broadly consider that the IASB due process is correctly set up and recognise the considerable achievements of IASB in this regard against an imposed deadline of 2005. The key elements of due process need to be in the Constitution as the Trustees have a particular responsibility to ensure that it is adequate.

The need for fuller explanation of decisions to reject views submitted is evident and must be addressed. There is also a need for earlier communication of issues in a discussion paper before an exposure draft is issued and the positions of the IASB or the respondents may have become too entrenched and difficult to modify. More time will be needed for the due process as a whole - for responses to consultations (allowing for translation for instance) and also to explore fully the issues and consider the implications and possible solutions.

Turning to specific elements, field tests should be a normal part of the due process to ensure that the standards are fit for the purpose. There should be a specific requirement to publish dissenting views. While we have some sympathy with the view that impact assessments should be required, we consider the practicalities of trying to do this for global standards would make the implementation too difficult.

Clauses 38 to 40 - Standards Advisory Council (SAC)

We are aware that the SAC has been perceived as not operating effectively. The reasons for this would probably include a sense that its advice has been too much ignored and that the present SAC is too large. The IASCF needs to consult fully the present SAC as to where there are problems and where changes are needed.

IASCF should consider (subject to resource constraints)

• Segmenting SAC into different groups (users, preparers, auditors, developing countries etc.) to focus on particular matters and make the meetings more workable. We do not think the range and number of parties from which IASB needs advice, should be reduced.
• Allowing SAC to vote on certain issues and record its advice in that more definitive way

The Trustees should appoint the SAC and the SAC should themselves choose one of their number to chair the meetings. We note that in practice the IASB Chairman has not acted as Chairman of SAC.

Clauses 42 & 43 � Appointment of staff

There should be some reference to aiming for a balance of backgrounds and geography among staff appointments.

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