As IFRS Goes Global, IASB Members Must Be More Globally Diverse and Funding Must Be Broad-Based

As international financial reporting standards continue to gain ground as global accounting standards, the oversight committee of the IASB continues to reform its due process and funding mechanisms and drives to become more geographically diverse. The International Accounting Standards Committee is also anxious to complete the remaining active items on the IASB’s convergence project with FASB. The oversight body noted that no new items will be added to the convergence agenda described in the IASB-FASB Memorandum of Understanding

As the effort to obtain broad-based funding for the IASB continues, the oversight committee said that most countries have established funding systems that comprise levies on listed companies, such as the UK, or are national payments through national authorities, exchanges and business associations. Some countries, including Germany and the United States, still operate voluntary funding regimes but have greatly expanded the sources of funding.

As IFRS become the recognized international standard, it is imperative to create a sustainable long-term financing system with a diversification of sources. The financial commitments must be open-ended and not contingent on any particular action that would infringe on the independence of the IASB in setting international accounting standards.

With international accounting standards looming, the oversight committee is committed to a globally diverse IASB. To that end, the IASB would be expanded to 16 members with new diversity guidelines. The vision is to pre allocate four board memberships for Europe, four for North America and four for Asia, Oceania and then have four left, which are flexible. IASC Chair Gerrit Zalm noted that Africa and South America wish to be represented, and that the board would have some flexibility left to honor that wish.

The oversight committee will also establish a Monitoring Group to end the practice of self-appointment and create a formal link to public authorities. Among other things, the Monitoring Group will review procedures for appointing IASB members, ensure adequate financing for the Board, and review the IASB’s compliance with its operating procedures. The group will be composed of the SEC chair, a European Commissioner, the chair of the Japanese Financial Services Agency, the IMF Managing Director, the chairs of the IOSCO technical and emerging markets committees, and the president of the World Bank

At an IASB roundtable held as part of the reform process, Kenneth Sullivan of the IMF noted that governance becomes increasingly important as IFRS evolves into a world class set of accounting standards. As countries have adopted IFRS they have surrendered sovereignty of some form to a private body, he pointed out, and this means that there must be a transparent governance body. He said that the IASB governing body should be the equivalent of a company’s audit committee. Thus, there should be strict lines between the operational activities of internal controls, preparing accounts, governance and the monitoring of that process.