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As more countries jump on the IFRS bandwagon, the standard-setter decides it needs more oversight.
Sarah Johnson, CFO.com | US
November 7, 2007
The trustees for the International Accounting Standards Board have agreed to take steps to create a group that would oversee the standard-setter. The move follows the expanded adoption of IASB's International Financial Reporting Standards and concerns from European countries about IASB's growing stature.
The trustees adopted a four-part plan during a meeting last week and outlined their strategy late on Tuesday. The overseer would have various representatives, including securities regulators, who would approve appointments of the trustees and review their oversight activities. The monitoring would include reviews of the group's budget and funding mechanisms.
While IASB's structure is modeled after the U.S. Financial Accounting Standards Board, the international board has more autonomy. It does not have an equivalent of the Securities and Exchange Commission looking over its shoulder.
For that reason, the IASB's actions often are regarded as the equivalent of law, IASB chairman David Tweedie told CFO.com editors last week, addressing criticism that has been lobbed at the board in recent months. There's worry that without a formal overseer, IASB members "could go mad and stick laws on us," he said.
Much to Tweedie's chagrin, the board's European constituents are proposing local or industry-specific exceptions to IFRS. These so-called "carve-outs" conflict with the joint IASB/FASB project to converge their two sets of standards into one "world-class international standard," as IASB calls its ultimate goal.
The issue of how IASB operates and receives funding has become particularly critical in the board's short life as the SEC puts pressure on both the IASB and FASB to accelerate their convergence project. It has also been top-of-mind for European critics of the project who worry that Americans' tendency toward rules-based standards will interfere with the IASB's more principles-based accounting guidance.
When the standards are converged — which may happen by 2012, according to Tweedie — the question of who will maintain the new accounting rules will come into play. Will the IASB be in charge? Will FASB's role be diminished? Will the SEC become more of a global regulator? Can IASB's current funding system sustain it (currently, its money comes from donations, whereas FASB's comes from publicly traded companies' SEC registration fees)?
Another question surrounds the United States' influence on the international standards. According to Tweedie, the new oversight group could examine whether IASB has the right mix of trustees and whether they should add more Americans to the committee. Currently, there are six trustees each from Asia/Oceania, Europe, and North America, while four additional trustees can come from any region.
More than 100 countries are either using IFRS or are in the process of converging their standards with it. "The progress of IFRS throughout the world has gathered pace, and the organization must continue to adapt to meet this new reality," said Gerrit Zalm, the incoming chairman of the trustees.
In addition to establishing a monitoring group, the trustees plan to improve how they receive input from other organizations, policymakers, and companies. And they intend to expand where their funding comes from. So far, the trustees have set a goal of expanding their sources of funding from fewer than 200 organizations in 2005 to several thousand by next year.