Last July, in my posting "Power to the few", I touched on a subject that, on the face of it, few people would get excited about. But it goes to the heart of some of the issues now being debated not only by the profession but public policymakers, namely the objectives of financial accounting and the governance of the accounting standard setters. It is the constitutional review being conducted by the Trustees of the International Accounting Standards Committee Foundation (IASCF), the body that currently oversees the IASB.
The review is being conducted in two parts. The first of these, considering the public accountability of the IASCF and the composition of the IASB, were the subject of one of my previous postings. In the last six months, negotiations have continued with regulatory agencies regarding membership of the proposed Monitoring Board. The Trustees have just announced that they have concluded on this first stage of the review and have commenced the formal process of developing a Memorandum of Understanding between the Trustees and the Monitoring Board.
The Trustees have now issued a discussion document in support of the remainder of their constitutional review. While comments are invited on any matters related to the IASCF’s constitution, attention is particularly drawn to several key areas, including the following:
• Do the organisation’s objectives need to be revised? In particular, should the constitution continue to have as the primary objective developing standards to help participants in the world’s capital markets and other users make economic decisions? In the current economic environment, some have argued that the IASB should also be required to take into account a wider user group and other macro-objectives, such as financial stability when writing the standards. But is it possible to write standards with multiple objectives?
• How important are principles-based standards? Many commentators support the development of accounting standards based on a robust set of core principles, but would they go as far as to enshrine that objective within the IASCF’s constitution?
• Does the IASB’s independence in relation to its technical activities, in both standard-setting and determining its agenda, remain essential? Most, if not all, commentators would agree that it is essential the IASB is independent in these roles but, in practice, how is this to be balanced with enhancing the IASB’s accountability to its multiple constituencies? For example, some argue that accounting standard setters should have more regard for the views of prudential supervisors, regulators and government authorities when writing the standards (for example, regarding the implications of such accounting requirements as fair value measurement for capital requirements imposed by prudential regulators).
• Should a separate ‘fast track’ due process be developed to deal effectively with urgent issues? Recent events have demonstrated the need to tackle certain issues quickly. But at the same time, a perceived lack of due process can cause its own problems.
It is easy to put a subject such as constitutional review towards the bottom of a personal ‘to do’ list. After all, there will be little impact on the day jobs of most people. But in my view, the questions raised in this review are important and go to the heart of the future of standard setting on the global stage.
As always, I am interested to hear your views, either by commenting here or by email.
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