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.