The trustees of the IFRS Foundation have included the U.S. Financial Accounting Standards Board among the national and regional standard-setters in the new Accounting Standards Advisory Forum, the new group that will advise the International Accounting Standards Board on development of International Financial Reporting Standards.
The IFRS Foundation, which oversees the IASB, announced the membership Tuesday of the newly formed ASAF. Inclusion of the U.S. had been in doubt until recently, as the Securities and Exchange Commission has not yet approved the use of IFRS by U.S. public companies. The ASAF is seen as a multilateral group that will include the views of a variety of international standard-setters after the decade-long convergence efforts between FASB and the IASB have still not succeeded in harmonizing IFRS with U.S. GAAP.
The ASAF will serve as a technical advisory body to the IASB and will consist of various members of the global accounting standard-setting community. The trustees plan to review the ASAF and its membership after two years, which gives the SEC at least another two years to approve IFRS. Mary Jo White, the nominee for the next chair of the SEC, appeared to receive virtually no opposition during her confirmation hearings before the Senate Banking Committee last week, but her position on IFRS is unknown.
The ASAF will be chaired by the IASB with an initial membership as follows:
• South African Financial Reporting Standards Council, supported by the Pan African Federation of Accountants (PAFA)
Asia-Oceania (including one “at large”)
• Accounting Standards Board of Japan
• Australian Accounting Standards Board
• Chinese Accounting Standards Committee
• Asia Oceania Standard Setters Group (AOSSG), represented by the Hong Kong Institute of CPAs
Europe (including one “at large”)
• Accounting Standards Committee of Germany
• European Financial Reporting Advisory Group (EFRAG)
• Spanish Accounting and Auditing Institute
• United Kingdom Financial Reporting Council
• Group of Latin American Standard Setters (GLASS), represented by the Brazilian Committee of Accounting Pronouncements
• Canadian Accounting Standards Board
• United States Financial Accounting Standards Board
The first meeting of the ASAF is scheduled to take place in London on April 8 and 9, 2013. Meetings of the ASAF will be webcast and meeting papers will be published in advance on the IASB’s Web site.
“The creation of the ASAF reflects two important changes in the global accounting standard setting landscape,” said IFRS Foundation chairman Michel Prada in a statement. “First, the significant growth in the use of IFRSs around the world has complicated the task of maintaining bilateral MoUs with multiple jurisdictions. Second, many parts of the world have established regional accounting standard-setting organizations and forums to offer advice and to discuss matters related to IFRS. The ASAF is our response to these two developments. Its formation will replace multiple bilateral MoUs with a single forum based on an agreement signed by all members. Importantly, the ASAF is a complement to the IASB’s ongoing dialogue with the international standard-setting community in pursuit of its central mission to develop a global language for financial reporting.”
The multilateral model of the ASAF is intended to replace the bilateral model that the IASB has pursued with FASB and a few other countries.
The IASB has previously entered into bilateral arrangements for cooperation with national standard setters with responsibility for various aspects of the jurisdictional development or endorsement of accounting standards. In the past 10 years, the IASB entered into such arrangements, in each case in the form of a memorandum of understanding, with national accounting standard-setters in Brazil, China, Japan and the U.S.
During this period, the number of countries adopting IFRS has expanded significantly, thus complicating the task of maintaining a series of bilateral arrangements. At the same time, many regions have established regional organizations to better coordinate regional accounting standard setting activity or to provide jurisdictional advice on financial reporting matters. Such groups include the Asian-Oceanian Standard-Setters Group, the European Financial Reporting Advisory Group, the Group of Latin American Standard-Setters, and the Pan African Federation of Accountants.
In response to these developments, the 2011 Trustees’ Strategy Review recommended that the IFRS Foundation should encourage the maintenance of a network of national and regional standard-setting bodies as in integral part of the global standard-setting process. The ASAF responds to that recommendation by replacing multiple, bilateral MoUs with a single agreement to be signed by all ASAF members, and accommodating regional standard-setting bodies within that arrangement.
The trustees also recommended that all national accounting standard-setters and regional bodies involved with accounting standard-setting should continue to undertake research, providing guidance on the IASB’s priorities and to encourage stakeholder input from their own jurisdictions. The IFRS Foundation will continue to facilitate through various mechanisms such dialogue with the broader international accounting standard-setting community.
The establishment of the ASAF and the appointment of its membership have been subject to extensive consultation and a thorough due process. The concept of an advisory body consisting of accounting standard-setters was widely supported by respondents to the trustees’ strategy review. Last November, the trustees published for public comment proposals to create the ASAF, receiving more than 60 comment letters in response to those proposals. In February 2013 the Trustees published final details of the ASAF, including a feedback statement that summarized the comments received and how the Trustees responded to them. At the same time, the trustees requested nominations for the membership of ASAF.
The IFRS Foundation reviewed the 25 nominations for membership of ASAF on the basis of the geographical balance, the membership criteria and other factors as described in the call for nominations.
The nominations were then discussed with relevant regional and other bodies, including on the question of regional representation. Appointments for Africa, Asia-Oceania, Europe and South America were coordinated with respectively the PAFA, the AOSSG, the European Commission and the GLASS. Where regional groupings do not exist, the Foundation consulted with relevant standard-setters and bodies. The final selection for membership of ASAF was taken by the trustees.
FASB’s parent organization, the Financial Accounting Foundation, welcomed membership in the ASAF.
“The FASB’s membership on the Accounting Standards Advisory Forum is an opportunity to represent U.S. interests in the IASB’s standard-setting process and to continue the process of improving and converging U.S. Generally Accepted Accounting Principles and IFRS,” said FAF Board of Trustees chairman Jeffrey J. Diermeier in a statement. “The convergence effort, which began with the Norwalk Agreement of 2002, has been a major success and has delivered significant benefits to investors and other users of financial statements around the world.’
FASB was nominated for membership on the ASAF by the FAF Board of Trustees, which oversees both FASB and its sister standard-setting board, the Governmental Accounting Standards Board.
“The FAF trustees believe that the commitments made by both the IFRS Foundation and the FAF in connection with FASB’s membership on the ASAF are consistent with the Trustees’ view of the long-term process of converging accounting standards,” Diermeier added.
The IFRS Foundation will ask ASAF members to support and contribute to the Foundation in its mission to develop, in the public interest, “a single set of high quality, understandable, enforceable globally accepted financial reporting standards.”
According to the FAF, the IFRS Foundation in turn will pledge to respect the independence of the ASAF members, recognizing that ASAF members “operate under their own specific national mandates.” The Foundation will further commit to avoid undermining or compromising the legal rights and obligations of the ASAF members within their jurisdictions.
The ASAF selections prompted a positive reaction from the Institute of Chartered Accountants in England and Wales. “The choice of members for the ASAF shows a sensibly sharp focus on key national standard setters from major capital markets—including the U.K. and the U.S.,” Dr. Nigel Sleigh-Johnson, head of the ICAEW’s Financial Reporting Faculty, said in a statement. “The challenge now is to make sure the ASAF makes a clear and effective contribution to the IASB’s work, without introducing any operational inefficiencies. The planned review of the work and the make-up of the ASAF after its first two years will be critical to making sure that the Forum contributes as intended to the process of organizational change needed to underpin the status of the IASB as a truly global standard setter, one that listens and learns, as well as leads.”
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