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April 30, 2008

Changes afoot for standard setter

Changes afoot for standard setter

The International Accounting Standards Board is likely to change its governance structure and board composition in 2008. Chairman David Tweedie speaks with Arvind Hickman about the standard setter’s plans and what he might have done differently given more time.

The International Accounting Standards Board (IASB) could soon set up a monitoring body, possibly composed of securities regulators and major financial institutions such as the World Bank, to monitor the activities of the International Accounting Standards Commission (IASC) Foundation trustees.

In what promises to be another eventful year, IASB chairman David Tweedie reveals there could also be changes to the board’s composition to reflect the global reach of IFRS, which has now spread to more than 109 countries with several more waiting in the wings. Popularity of the global standards has risen rapidly, and news that the US could soon embrace IFRS is a massive boost for the movement. Despite this, Tweedie – a standard setter at heart – says he would have preferred it if fewer countries had embraced IFRS at this stage if it meant more time to properly develop the new standards.

Closer scrutiny In a frank interview with IAB’s sister publication, The Accountant, Tweedie outlined the standard setter’s plans for the coming year. He says the trustees, who are responsible for making IASB board appointments and funding arrangements and for tackling governance issues, have flagged the formation of a monitoring body to sit above them.

This idea has also been mooted by the International Organization of Securities Commissions and several regulators, including the US Securities and Exchange Commission, which say there needs to be greater scrutiny of the trustees’ role. The current governance structure, although widely regarded as transparent, is modelled on the US Financial Accounting Standards Board (FASB), but with one notable difference. “What we missed out [on] was in America, above the [FASB] trustees is the SEC, which is ultimately responsible,” Tweedie explains. “We don’t have that and that’s what the concern is and I think it’s legitimate. The trustees have recognised they have a problem in essence. What the trustees have proposed is that sitting above us we have some monitoring body to make sure the trustees are doing their job. They have the right to veto if they don’t like an appointment or things like that.”

Another IASB concern often expressed by regulators has been the board’s funding structure. Tweedie says this has improved over the past few years and funds are being levied from listed companies in most countries in proportion to the size of their GDP.

“We reckon next year there will be close to 10,000 companies paying as opposed to 200 three years ago. So the funding has changed and ideally the best thing is levying all stock exchanges and therefore it’s absolutely fair,” he says.

Tweedie says the composition and size of the board is also likely to change. When it was formed in 2001 the aim was to recruit the top global technical experts, often from the most developed accounting professions such as the US and UK. But due to the rapid spread of IFRS, there is now a desire to make the board’s representation more international in nature.

Tweedie explains: “Now we’re in a different situation in which we’ve got people saying wait a minute, at the moment we’re five Europeans and four North Americans, that’s nine out of 14, and five for the rest of the world. I think there will be pressure to reduce the European contingent as well as the Northern American contingent. We could start seeing a minimum from Asia and Oceania, North America and Europe… how it should be.”

The spread of IFRS across the world is widely viewed by commentators as a success. However, the chief standard setter does not entirely see it that way. Tweedie says he would have preferred more time for the IASB to redevelop standards properly, instead of performing what he calls “a scissor and paste job” on the set of 34 standards inherited from the IASB’s predecessor body. The IASB was forced to roll out standards much more quickly than it had initially planned in order to meet a 2005 deadline imposed by the European Commission.

“If it happened that in 2001 I had been given a free run to 2008, we wouldn’t have had 109 countries using the standards, but we would have had a good set of standards. I had no option, but if I had the option I would have said ‘give us five or six years to sort this out’ and that would have been good,” he admits.

Tweedie says some of parts of IFRS are “embarrassing” and far too complicated, including IAS 39 Financial Instruments – a “nightmare of a standard” he had originally voted against.

He says in 2008 the IASB will focus on, among other things, improving this standard, as well as a discussion paper that tackles accounting problems associated with the liquidity crisis.

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