International Accounting Standards Board

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The International Accounting Standards Board (IASB) founded on April 1, 2001 is the successor of the International Accounting Standards Committee (IASC) founded in June 1973 in London. It is responsible for developing the International Financial Reporting Standards (new name for the International Accounting Standards issued after 2001), and promoting the use and application of these standards.

The International Accounting Standards Board is an independent, privately-funded accounting standard-setter based in London, UK.

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IASB told to improve governance

The world’s most influential accounting rule setter is not answerable enough to users or the public and must improve its governance further, top financial regulators said on Monday.

International Accounting Standards Board (IASB) rules are used in over 100 countries, including the European Union, with Canada, Japan and Brazil adopting them as well. The United States, however, is still mulling its position.

The IASB will become more powerful next year when its rules form the basis for a single set of global standards as called for by the G20 group of countries, sparking calls for the London-based body to be more accountable and transparent.

David Wright, deputy head at the EU’s European Commission internal market unit, welcomed the creation of a separate board of public authorities, including the EU executive, to monitor the IASB but more improvements were needed.

“We feel there is much work to be done. The debate about …governance will continue because it’s unfinished,” Wright told a Commission hearing on accounting and auditing.

Getting the governance right was necessary to “depoliticise” accounting standard setters, Wright said.

The financial crisis has thrown a spotlight on accounting which policymakers blame for amplifying fallout from the credit crunch by forcing banks to price assets at depressed prices, triggering firesales to replenish capital.

The G20 agreed last September that such pricing rules, known as mark to market or fair value should be reformed, putting pressure on the IASB to make speedy changes that alarmed some.

“Full respect to due process is a must,” said Fernando Restoy, chairman of the Committee of European Securities Regulators. “The monitoring board is a very big step forward but there is room to think a bit more about the right governance structure.”

NO UNDUE PRESSURE

Masamichi Kono, a vice commissioner of Japan’s Financial Services Agency, also wants the monitoring board improved.

“We should be very mindful the standard setting process is not put under undue outside pressure. I will stop at that to be diplomatic,” Kono said.

The IASB agreed to accelerate fair value changes after pressure from EU finance ministers though the 27 nation bloc is stalling on endorsing the reform as France wants greater curbs on marking to market.

“Clearly some degree of flexibility is necessary on where and how to apply fair value,” Wright said, adding that work so far on fair value “is a step forward”.

The IASB said governance has been strengthened by introducing the monitoring board and expanding board membership to 16 from 14, with more changes under consideration once work on global convergence is completed next year.

“The results of the second part of the constitutional review are expected to be published shortly,” the IASB spokesman said.

The United States has its own accounting rules and will shortly give an update on its convergence efforts.

Julie Erhardt, deputy chief accountant at the U.S. Securities and Exchange Commission, said most responses to a public consultation welcomed the goal of convergence.

“The notion of nurturing it along, putting a little sweat behind the goal, has been there and continues to be there,” Erhardt said.

She added that stakeholders need convincing that international rules would bring economic benefits and are suited to everyone but the European Commission stressed the need for all G20 members to comply with pledges made last year.

“We feel 2010 is a real test of the G20… whether those granular principles agreed will truly be put into practice,” Wright said.

IASB/IASC response to the G20 recommendations

A comprehensive overview of measures undertaken by the IASC Foundation and the IASB in response to the conclusions reached by the G20 at their summit in London, UK on 2 April 2009. The overview was last updated in August 2009.

FASB and IASB standards convergence

When U.S. and international accounting standard-setters reprioritized their pending joint projects last month, they appeared to be backtracking on their self-imposed deadline to finish their convergence project by June 2011, a pledge they had recommitted themselves to as recently as last fall. But Financial Accounting Standards Board member Thomas Linsmeier chafes at the word "deadline." During a FASB webcast two weeks ago, he used more flexible terminology: "target completion dates."

However you want to label the new schedule, the fact is that rulemakers will still be releasing a slew of major accounting changes in the near future, creating real, looming deadlines for the finance executives who will have to absorb the new rules into their financial-reporting systems. Below is a timeline of the dates that are known, such as deadlines for commenting on some of the proposals. Other dates — such as when all these rules have to be implemented — are still up in the air. The standard-setters plan to ask for feedback on that issue by the end of September.

The changes to some of the dates were prompted by complaints that FASB and the International Accounting Standards Board were overly ambitious in their convergence work, which has been under way for nearly a decade. The boards have saved the hardest projects for last, which critics argue leaves the boards' constituents little time to offer thoughtful analysis. The rulemakers have responded with a promise that they will issue no more than four "significant or complex" drafts for review during any one quarter.

Still, their "most urgent" projects are scheduled to get done by June 2011 and will put a burden on both them and those that have to implement their work. "Finalizing these standards will require significant effort and focused intensity by both us and our stakeholders," FASB and IASB noted in their most recent progress report.

Those who want to influence the final outcome of the new rules can begin doing so this summer, as the rulemakers will have released four major projects for review by August. Proposed changes for accounting for financial instruments, revenue, and fair-value measurements have recently been issued, and a proposal for leases is forthcoming.

Joint IASB/FASB project: Accounting for Financial Instruments

Project Objective

The objective of this project is to significantly improve the decision usefulness of financial instrument reporting for users of financial statements. The project will replace the FASB’s and IASB’s respective financial instruments standards with a common standard. The Boards believe that simplification of the accounting requirements for financial instruments should be an outcome of this improvement. Although the project objective is comprehensive, it is also the Boards’ objective that the project should be completed expeditiously.

The Boards believe that this project will:

  • Reconsider the recognition and measurement of financial instruments
  • Address issues related to impairment of financial instruments and hedge accounting
  • Increase convergence in accounting for financial instruments.

The Board decided to include redeliberations on the Accounting for Hedging Activities Project within this project. Therefore, this project will also:

  • Simplify and resolve practice issues in accounting for hedging activities
  • Improve the financial reporting of hedging activities to make the accounting model and associated disclosures easier to understand for users of financial statements
  • Address differences in the accounting for derivative instruments and hedged items or transactions.

See link above for full set of documents.

The Financial Accounting Standards Board proposed a requirement that banks use market values for loans on their books, a controversial move that could cause steep declines in the overall book value of some banks.

If the rule-making panel for accounting procedures approves the change, U.S. banks would have to adjust the value of their loan portfolios to the ups and downs of the market, instead of the longstanding practice of using adjusted original cost.

Using original cost "is kind of out-of-date," said Robert Herz, FASB's chairman. "From a balance-sheet perspective, a lot of people want to see what things are actually worth now."

Banks have long opposed any shift to so-called "fair-value" accounting of loans. Most bank balance sheets are packed with loans held at their original cost. Under the FASB proposal announced Wednesday, both the fair value of a company's loans and their amortized original cost would have to be shown on the balance sheet.

Any quarterly changes or fluctuations in fair value would have to be incorporated into the company's assets, affecting shareholder equity, or assets minus liabilities. Some of the revisions to shareholder equity could be dramatic given depressed real-estate values and the struggling U.S. economy.

Edward Yingling, president and chief executive of the American Bankers Association, a trade group, said the proposal "presents significant problems, not only for banks, but also the general economy." The change would undermine the availability of credit because any bank making a long-term loan would immediately see that loan lose value under the new accounting standard, he said.

Critics of applying fair value to loans have claimed the existing use of fair value has deepened the financial crisis by forcing financial firms to take unjustified losses on assets that shrank in value when market conditions worsened temporarily.

Banks already disclose the fair value of loans in footnotes filed with their financial statements. Still, supporters of applying fair value to loans on the balance sheet have said it would help investors by making bank balance sheets clearer and more accurate.

FASB's move takes a tougher line than the International Accounting Standards Board, which has proposed that non-U.S. companies carry their loans at amortized cost, as long as their business model is to hold onto their loans and collect the payments on them rather than selling the loans. The difference between the two approaches complicates a major effort to bring U.S. and non-U.S. accounting rules closer together.

FASB is accepting public comments on its proposal until Sept. 30. The accounting board plans to hold public meetings on the move in October. Possible reconsideration and a final vote by FASB would come later.

If the proposal is approved, it likely wouldn't take effect before 2013, Mr. Herz said. Closely held banks with less than $1 billion in assets would have four years longer than other companies to start complying with some aspects of the rule.

Most of the 7,932 federally insured commercial banks and savings institutions in the U.S. as of March 31 are small. At many of those institutions, two-thirds or more of the balance sheet is made up loans held at their original cost.

Exposure draft of proposed amendments to IFRS

The International Accounting Standards Board (IASB) today published for public comment an exposure draft of proposed amendments to eleven International Financial Reporting Standards (IFRSs) under its annual improvements project.

The proposed amendments reflect issues discussed by the IASB in the project cycle that began last year.

The proposals range from clarification of the measurement of non-controlling interests in IFRS 3 Business Combinations (as revised in 2008) to changes of wording to clarify the meaning of IFRSs and remove unintended inconsistencies.


The IASB is working on a variety of accounting standards projects in response to issues raised in the credit crisis. You can see the workplan for June 2009 here.

Discussion paper of extractive activities

Project objective: The objective of the research project is to analyse the unique financial reporting issues applicable to extractive activities, and to identify a basis on which a financial reporting model might be developed to address them. The research findings, including the comments received on this discussion paper, will assist the IASB in deciding whether to develop an IFRS for extractive activities and to decide upon the content of that IFRS.

Project stage: The IASB published the project team’s discussion paper on 6 April 2010. It follows the release of a working draft of the discussion paper in August 2009. The discussion paper was developed after consulting extensively with industry participants to identify and analyse financial reporting issues associated with extractive activities.

Comment deadline: The IASB invites comments on the discussion paper by 30 July 2010

Trustees propose enhanced accountability and stakeholder outreach

Source: Trustees publish proposals aimed at enhanced accountability and stakeholder outreach 09 September 2009

"The Trustees of the International Accounting Standards Committee Foundation (IASC Foundation), the oversight body of the International Accounting Standards Board (IASB), today published for public comment proposals that form the second part of a two-part review of the IASC Foundation

The proposals build on governance enhancements implemented as a result of the first five-yearly Constitution Review, completed in 2005. They follow the recent establishment of a public accountability link to a Monitoring Board of capital market authorities as a result of the first part of this review.

The objectives of the proposals are to enhance further the governance of the organisation, improve the involvement of stakeholders with a broad range of perspectives in both developed and emerging markets, and make operational improvements. The key proposals seek to:

  • Enhance the IASB agenda-setting processes: The Trustees propose an amendment aimed at enhanced consultation on the standard-setting agenda with the Trustees and the Standards Advisory Council, with a possibility for others to comment.
  • Expand the IASB’s liaison with other organisations: The Trustees call for greater flexibility in Constitutional language to emphasise the desirability of expanded liaison, not only with accounting standard-setters, but with other official organisations with an interest in the standard-setting process. For example, with the support of the Monitoring Board and the Trustees, the IASB recently established an enhanced technical dialogue with prudential supervisors and other stakeholders.
  • Establish a procedure for the possibility of an accelerated due process: The Trustees believe that there should always be some form of public consultation. At the same time, the present provisions allowing a 30-day accelerated process are generally sufficient. However, in exceptional circumstances, the Trustees could allow a shorter period of consultation. These exceptional occasions would be when major unforeseen developments arise.
  • Provide further geographical balance among the Trustees: Responding to requests from commentators, the Trustees have recognised the need to take account of Africa and South America in their composition as had been done for the IASB.
  • Change the name of the organisation to the IFRS Foundation to provide clarity regarding the Foundation’s mission: In response to feedback that the names currently in use often lead to confusion, the Trustees propose changing the name of the organisation to the International Financial Reporting Standards (IFRS) Foundation. For consistency, the Trustees also propose mirroring this change of name by renaming the IASB as the IFRS Board.

Foundation of the IASB

(Source: www.iasb.org, 6 Febr 2007)In April 2001, the International Accounting Standards Committee Foundation (IASCF) was formed as a not-for-profit corporation incorporated in the State of Delaware, US. The IASC Foundation is the parent entity of the International Accounting Standards Board, an independent accounting standard-setter based in London, UK.

On 1 March 2001, the International Accounting Standards Board (IASB) assumed accounting standard-setting responsibilities from its predecessor body, the International Accounting Standards Committee. This was the culmination of a restructuring based on the recommendations of the report Recommendations on Shaping IASC for the Future.

The IASB structure has the following main features: the IASC Foundation is an independent organization having two main bodies, the Trustees and the IASB, as well as a Standards Advisory Council and the International Financial Reporting Interpretations Committee. The IASC Foundation Trustees appoint the IASB members, exercise oversight and raise the funds needed, but the IASB has sole responsibility for setting International Financial Reporting Standards (international accounting standards).

IASB Members

The IASB has 14 Board members, each with one vote[1]. The members are selected chiefly upon their professional competence and practical experience[2].

A unanimous vote is not necessary in order for the publication of a Standard, exposure draft, or final IFRIC Interpretation. The approval by nine of the IASB’s fourteen members is however required[3].

At 28/01/2008 the IASB Chairman was Professor Sir David Tweedie[4]. The Vice-Chairman was Thomas E Jones[5].

The new man in charge of International Financial Reporting Standards will be a Dutch financial markets regulator and former politician who is not an accountant, it was announced today.

The International Accounting Standard Board (IASB) said Hans Hoogervorst would replace Sir David Tweedie as chairman when he retires at the end of June 2011.

Hoogervorst is co-chair of an advisory board that rushed to Tweedie’s defense in April 2009 when the IASB came under intense pressure from European political leaders, notably the French.

His Financial Crisis Advisory Group – an IASB and FASB creation – published a letter saying the standard-setter should be left alone to do its job.

Hoogervorst landed the IASB role ahead of Accounting Standards Board chairman Ian Mackintosh, who had been widely tipped for the post. Mackintosh will become IASB vice-chair instead.

The idea is that Mackintosh will compensate for Hoogervorst’s lack of accounting experience. The New Zealander is a former chief accountant of the Australian Securities and Investment Commission and has over 30 years’ experience of national and international accounting standard-setting.

Tweedie said the two men had skills that were “entirely complementary.” And Tommaso Padoa-Schioppa, chair of the IASB’s trustees, said they would make a strong team.

“Hans is a senior and well-respected securities regulator who has a strong record defending the principles of transparency and independence. Ian is an accomplished accounting expert and international standard-setter,” he said.

The members are in detail (as of 2008):

  • Sir David Tweedie (Chairman), UK, former KPMG, ASB
  • Thomas E. Jones (Vice Chairman), USA, former Citicorp; Vice Chairman FASB
  • Phillipe Danjou, France, former Arthur Andersen, AMF (French "SEC")
  • Jan Engström, Sweden, former Volvo Group
  • Robert Garnett, South Africa, former CFO Anglo American Corp., Peat Marwick, Arthur Andersen
  • Gilbert Gelard, France, former KPMG, Arthur Andersen
  • James J. Leisenring, USA, Connection to FASB
  • Warren McGregor, Australia, former CEO, Director Australian Accounting Research Foundation
  • John T. Smith, USA, former Deloitte, FASB
  • Tatsumi Yamada, Japan, former PWC, IASC Board
  • Zhang Wei-Guo, China, former Professor in Shanghai, China Acc. Standards Committee
  • Mary E. Barth, USA, Professor at Stanford University
  • Stephen Cooper, GB, UBS Investment Research

IASB Due Process

The IASB Handbook[6] describes the consultative arrangements of the IASB. The Trustees’ Procedures Committee is in charge of regularly reviewing and updating the IASB due process procedures[7].


References


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