The Monitoring Board and the Trustees of the IFRS Foundation have released a pair of key reports on governance and strategy that the Securities and Exchange Commission has been awaiting before making its long-delayed decision on whether to incorporate International Financial Reporting Standards into the U.S. financial reporting system.

The Monitoring Board, a group of financial regulators from across the globe, and the IFRS Foundation, which oversees the International Accounting Standards Board much the same way as the Financial Accounting Foundation oversees the Financial Accounting Standards Board in the U.S., have been working on reviews of the governance and strategy of the foundation. U.S. regulators have raised questions about the funding and governance structure of the IASB, which unlike FASB cannot count on the steady funding stream from public companies provided under the Sarbanes-Oxley Act of 2002.

There have also been questions about the governance structure of the IASB and its accountability to government financial regulators, which was one of the main reasons for the establishment of the Monitoring Board a few years ago. The new reports that weere released Thursday include a set of recommendations for governance and funding improvements.

The IFRS Foundation Monitoring Board governance report lays out some of the key objectives. “Stakeholders share the Monitoring Board’s view that the independence of the IASB is critical to the credibility of IFRSs,” said the report. “The governance structure should provide for a standard-setting environment that is independent of vested interests. At the same time, the long-term viability of IFRSs as global accounting standards depends on the IASB exercising its independence in a manner that serves the public interest by remaining accountable to investors, markets, and other market participants.”

It also includes an “action plan,” with steps such as developing criteria for permanent membership, specifics of transitional membership and of regular review of all permanent members.

A recent SEC report found divergences in practices by overseas-based companies that filed their reports with the SEC using IFRS. One of the goals now, according to the IFRS Foundation Trustees' strategy review, is that “the IASB will work with a network of securities regulators, audit regulators, standard-setters, regional bodies involved with accounting standard-setting, accounting bodies and other stakeholders to identify where divergence in practice occurs across borders. Where divergence in practice could be resolved through an improvement in the standard or an Interpretation, the IASB or the IFRS Interpretations Committee will act accordingly.”

As in recent statements by IASB officials, the strategy report shows that the IFRS Foundation trustees are beginning to run out of patience with the convergence process with U.S. GAAP, and with the SEC's long-awaited decision on IFRS. "There is a natural temptation for countries (and stakeholders within those countries) to argue against full adoption of IFRSs, to call for convergence of national standards and IFRSs rather than adoption, or to introduce national exceptions to IFRS rules," said the document. "The temptation to pursue convergence rather than adoption should be resisted. Full adoption of IFRSs must be the end goal. Convergence will not, by definition, lead to a common set of global standards, because convergence is not identical to adoption. Convergence has been, is, and will likely remain a useful process to facilitate adoption by narrowing differences. Convergence, however, will not produce identical results because each set of standards has a different starting point and convergence will not address all of the details. Having once achieved convergence, standards could well diverge again."

Up to now, the U.S. has been closely involved with the development of IFRS, as FASB and the IASB have worked on converging U.S. GAAP with international standards to eliminate differences in standards for revenue recognition, financial instruments and other priority projects in the memorandum of understanding they signed in 2002. The completion of the two reports by the IFRS Foundation trustees and the Monitoring Board will put extra pressure on the SEC to make a decision on whether or not the U.S. will support the use of IFRS. Otherwise, it may discover that it’s no longer a “permanent member.”