The International Financial Accounting Standards (IFRS) Foundation trustees seek comment (http://www.ifrs.org/NR/rdonlyres/FD229996-AD4B-4CBC-8A7A-F33E4A640270/0/StrategyReviewdocforpublicconsultFINAL.pdf) on the organization's strategy for the second decade of IFRS. The strategy review is part of the Foundation's second constitution review and is intended to offer the public, including stakeholders, an opportunity to comment on key topics. The Foundation plans to conclude the strategy review by March 2011.
The request for comments observed that the Foundation was established in 2000 as a private sector, privately financed organization. The Foundation's constitution provided for the creation of the International Accounting Standards Board (IASB) to be tasked with establishing accounting standards independent of national or other special interests. During the first decade, IFRS has been adopted by over 100 countries and is being considered by 12 more. The document attributed the acceptance of IFRS to the IASB's creation of high quality standards, the European Union's election of the IASB as its standard-setting body plus efforts to promote IFRS globally, and U.S. engagement in convergence. Financial scandals in the U.S. involving Enron and other companies made U.S. consideration of IFRS possible. The SEC's decision on IFRS, which is expected in 2011, could influence adoption of IFRS by other countries, including China, Japan, and India.
The request for comments is focused on four key areas: mission, governance, process, and financing. Comment is sought on whether the IFRS mission should be revised. According to the IFRS constitution: "These standards [IFRS] should require high quality, transparent and comparable information in financial statements and other financial reporting to help investors, other participants in the world’s capital markets and other users of financial information make economic decisions." In light of the recent global financial crisis, comment is also sought regarding the interplay of IFRS standards and financial stability.
As for governance, the emphasis is on balancing independence with accountability. Comments are requested on whether the existing IFRS organizations should be retained. Currently, the major governing bodies are the monitoring board, IFRS Foundation trustees, and the IASB. Specifically, the request noted the lack of formal political endorsement of the monitoring board and questions about the public accountability of the IFRS Foundation trustees. The request also seeks comment on how other structures can enhance the legitimacy of IFRS governance.
The request calls for comment on IFRS processes. In particular, the document asks "how should the organisation best ensure that its standards are high quality, meet the requirements of a well functioning capital market and are implemented consistently across the world?" Here the request seeks comment on whether the existing standard-setting process creates quality standards and sets appropriate priorities. Also, must the IASB do more to ensure consistent application and implementation of IFRS globally? Comments on the Foundation's financing should focus on how best to ensure effective and efficient operation. Specifically, the request seeks comment on how to make IFRS funding more automatic. Commenters may suggest additional areas for the trustees to consider during the strategy review.
This blog was provided by Mark S. Nelson, Legal Analyst, Federal Securities Products, Wolters Kluwer Law & Business.