International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards

by International GAAP 2019 (pdf)

  Approval by at least eight members of the IASB is required for the publication of an

  exposure draft and IFRS (which includes final interpretations of the Interpretations

  Committee), if there are fewer than 14 members of the IASB. If there are 14 members,

  approval is required by at least nine members.24 Other decisions of the IASB, including

  the publication of a discussion paper, require a simple majority of the members present

  at a meeting that is attended by at least 60% of the members.25 The IASB has full

  discretion over its technical agenda and over project assignments on technical matters.

  It must, however, consult the Trustees on its agenda, and the Advisory Council on major

  projects, agenda decisions and work priorities. In addition, the IASB is required to carry

  out public consultation every five years in developing its technical agenda.26 The most

  recent agenda consultation took place in August 2015. In November 2016, the IASB

  published the IASB® Work Plan 2017-2021 (Feedback Statement on the 2015 Agenda

  Consultation) on its agenda consultation and its five-year plan. The IASB adopted a

  central theme for its activities: ‘Better Communication in Financial Reporting’.27

  The IASB meets monthly, but not in August. These meetings are open to the public and

  meeting materials are available on the IASB’s website.

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  2.5

  The IFRS Interpretations Committee (the Interpretations

  Committee)

  For IFRS to be truly global standards, consistent application and interpretation is

  required. The objectives of the Interpretations Committee are to interpret the

  application of IFRS, provide timely guidance on financial reporting issues that are not

  specifically addressed in IFRS and undertake other tasks at the request of the IASB.28

  The national accounting standard-setting bodies and regional bodies involved with

  accounting standard-setting are normally consulted on issues referred to the Interpretations

  Committee.29 The Interpretations Committee is expected to address issues:30

  ‘(a) that have widespread effect and have, or are expected to have, a material effect on

  those affected;

  (b) where financial reporting would be improved through the elimination, or

  reduction, of diverse reporting methods; and

  (c) that can be resolved efficiently within the confines of existing IFRSs and the

  Conceptual Framework for Financial Reporting.’

  In addition to developing interpretations, the Interpretations Committee develops

  minor or narrow scope amendments, including ‘Annual Improvements’. The ‘Annual

  Improvements Process’ is designed to deal with ‘non-urgent, minor amendments to

  IFRSs’. Issues dealt with in this process arise from matters raised by the Interpretations

  Committee and suggestions from IASB staff or practitioners, and focus on areas of

  inconsistency in IFRS or where clarification of wording is required.

  The premise behind the Annual Improvements Process is to streamline the IASB’s standard-

  setting process. If a number of minor amendments are processed together, there will be

  benefits both to constituents and the IASB. The Interpretations Committee assists the IASB

  by reviewing and recommending potential amendments to IFRS. ‘Annual Improvements’ is

  on the IASB’s work plan like its other projects and is subject to the same due process.

  If the Interpretations Committee does not plan to add an item to its work programme,

  it publishes a tentative rejection notice in the IFRIC Update and on the IFRS Foundation

  website and requests comments on the matter. The comment period for rejection

  notices is normally at least 60 days. After considering comments received, the

  Interpretations Committee will either confirm its decision and issue a rejection notice,

  add the issue to its work programme or refer the matter to the IASB. Rejection notices

  do not have the authority of IFRSs and, therefore, do not provide mandatory

  requirements. However, they should be seen as helpful, informative and persuasive.

  The IASB does not ratify rejection notices.31

  The Interpretations Committee has 14 voting members. The chair, who is appointed by

  the Trustees, is a member of the IASB, the Director of Technical Activities or an

  appropriately qualified individual. The chair does not have the right to vote. The Trustees

  may appoint representatives of regulatory organisations, who have the right to attend and

  speak at meetings but not the right to vote.32 Currently, the Basel Committee on Banking

  Supervision, European Commission and IOSCO have observer status. The quorum for a

  meeting is 10 members,33 and approval of draft or final interpretations requires that not

  more than four voting members vote against the draft or final interpretation.34

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  The Interpretations Committee meets six times a year. All technical decisions are taken

  at sessions that are open to public observation. The Interpretations Committee supports

  the IASB in improving financial reporting through timely identification, discussion and

  resolution of financial reporting issues within the IFRS framework.35 Although the

  Interpretations Committee develops interpretations, because they are part of the

  respective IFRSs, they must be ratified by the IASB.36

  2.6

  The IASB’s and IFRS Interpretations Committee’s Due Process

  Handbook

  The Trustees’ Due Process Oversight Committee (DPOC) is responsible for overseeing

  the due process procedures of the IASB and Interpretations Committee throughout all

  the development stages of a standard or an interpretation, including agenda-setting and

  post-implementation reviews (PIRs).37

  The Due Process Handbook for the IASB and IFRS Interpretations Committee (the

  Handbook) describes the due process requirements of the IASB and Interpretations

  Committee.38 The requirements are built on the following principles:39

  • transparency – the IASB conducts its standard-setting process in a transparent manner;

  • full and fair consultation – considering the perspectives of those affected by IFRS

  globally; and

  • accountability – the IASB analyses the potential effects of its proposals on affected

  parties and explains the rationale for why it made the decisions it reached in

  developing or changing a standard.

  In order to gain a wide range of views from interested parties throughout all stages of

  the development of IFRS, the Trustees and the IASB have established consultative

  procedures with the objective of ensuring that, in exercising its independent decision-

  making, the IASB conducts its standard-setting process in a transparent manner.40 The

  Trustees of the IFRS Foundation published an updated version of the Handbook in June

  2016 which includes an enhanced due process for the development and maintenance of

  the IFRS Taxonomy.41 The Handbook specifies some minimum steps that the IASB and

  the Interpretations Committee are required to follow before a standard or interpretation

  can be issued.42 The following due process steps are mandatory:43

  • debating any proposals in one or more public meetings;

  • exposing for public comment a draft of any proposed new standard, proposed

  amend
ment to a standard or proposed interpretation with minimum comment

  periods;

  • considering in a timely manner those comment letters received on the proposals;

  • considering whether the proposals should be exposed again;

  • reporting to the IFRS Advisory Council (see 2.7 below) on the technical

  programme, major projects, project proposals and work priorities; and

  • ratification of an interpretation by the IASB.

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  The steps specified in the Constitution that are ‘non-mandatory’ include:44

  • publishing a discussion document (for example, a discussion paper) before an

  exposure draft is developed;

  • establishing consultative groups or other types of specialist advisory groups;

  • holding public hearings; and

  • undertaking fieldwork.

  If the IASB decides not to undertake any of the non-mandatory steps, it is required to

  inform the DPOC of its decision and reason (known as the ‘comply or explain’

  approach). Those explanations must be published in the decision summaries and in the

  basis for conclusions with the exposure draft or IFRS in question.45

  Although not mandatory, the IASB conducts public meetings and roundtables to ensure

  that it has appropriate input from its constituents.

  The IASB normally allows a minimum period of 120 days for comment on an exposure

  draft. If the matter is narrow in scope and urgent, the IASB may consider a comment

  period of no less than 30 days, but it will only set a period of less than 120 days after

  consulting, and obtaining approval from, the DPOC.46

  Under a ‘fast track’ comment process, if the matter is exceptionally urgent, and only

  after formally requesting and obtaining prior approval from 75% of the Trustees, ‘the

  IASB may reduce the period for public comment on an exposure draft to below 30 days

  but may not dispense with a comment period’.47

  2.7

  The IFRS Advisory Council (the Advisory Council)

  The Advisory Council (whose members are appointed by the Trustees) provides a

  forum for geographically and functionally diverse organisations and individuals with an

  interest in international financial reporting to:

  • provide input on the IASB’s agenda, project timetable and project priorities; and

  • give advice on projects, with emphasis on application and implementation issues,

  including matters that may warrant the attention of the Interpretations Committee.48

  A secondary objective of the Advisory Council is ‘to encourage broad participation in

  the development of IFRS as high-quality, globally-accepted standards.’49

  The Advisory Council comprises thirty or more members, having a diversity of

  geographical and professional backgrounds. The chair of the Council is appointed by

  the Trustees, and may not be a member of the IASB or a member of its staff.50 The

  Advisory Council normally meets at least two times a year, and its meetings are open

  to the public. It is required to be consulted by the IASB in advance of the IASB’s

  decisions on major projects and by the Trustees in advance of any proposed changes

  to the Constitution.51

  Members are appointed for an initial term of three years and may be asked to remain

  for up to three additional years.52

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  2.8

  Accounting Standards Advisory Forum (ASAF)

  The ASAF, established in 2013, is an advisory group consisting of national accounting

  standard-setters and regional bodies, the purpose of which is to provide technical

  advice and feedback to the IASB.

  The membership of the ASAF consists of 12 non-voting members (appointed by the

  Trustees), plus the chair, who is the IASB chair or vice-chair. To ensure a broad

  geographical representation, the members are from the following geographic regions:53

  • one member from Africa;

  • three members from the Americas (North and South);

  • three members from the Asia/Oceania region;

  • three members from Europe (including non-EU); and

  • two members appointed from any area of the world at large, subject to maintaining

  overall geographic balance.

  The ASAF meets four times a year, and its meetings are open to the public.

  The objective of the ASAF is ‘to provide an advisory forum where members can

  constructively contribute towards the achievement of the IASB’s goal of developing

  globally accepted high-quality accounting standards.’ The ASAF was established to:54

  • support the IFRS Foundation in its objectives, and contribute towards the

  development of a single set of high quality understandable, enforceable and

  globally accepted financial reporting standards;

  • formalise and streamline the IASB’s collective engagement with the global community

  of national standard setters and regional bodies in its standard setting process to

  ensure that a broad range of national and regional input on major technical issues

  related to the IASB’s standard setting activities are discussed and considered; and

  • facilitate effective technical discussions on standard setting issues, with

  representatives at a high level of professional capability and with a good

  knowledge of their jurisdictions.

  As required by the ASAF’s Terms of Reference, the Trustees completed their second review

  of the ASAF in 2018, following the first review undertaken in 2015. There was very positive

  feedback from the review, highlighting that the ASAF continues to be a key component of

  the IFRS Foundation’s engagement strategy with national standard-setters. Actions taken

  following the 2015 review have resulted in positive change and there were improvements

  made to the ‘feedback loop’ between the Board and the ASAF. As a result of the review, the

  Trustees have decided not to incorporate consultation with the ASAF as a mandatory due

  process step in the Handbook. The Trustees also found no compelling reason to amend the

  Constitution to incorporate an explicit reference to the ASAF. The Trustees are amending

  the Terms of Reference to permit one ASAF meeting a year to be held via videoconference.

  In addition, the Trustees decided that formal three-yearly reviews of ASAF are no longer

  necessary and will amend the ASAF Terms of Reference accordingly.55

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  2.9

  Other advisory bodies

  In addition to the Advisory Council and the ASAF, discussed in 2.7 and 2.8, respectively,

  above, the IASB has a number of other formal advisory bodies that provide input on its

  work and resources to consult. Meetings with the advisory bodies are held in public and

  meeting materials are available on the IASB’s website.

  The IASB’s other advisory bodies are as follows:56

  • Capital Markets Advisory Committee – provides the IASB with regular input from

  the international community of users of financial statements;

  • Emerging Economies Group – enhances the participation of emerging economies

  in the development of IFRSs;

  • Global Preparers Forum – provides the IASB with input from the international

  preparer community;

  • Islamic Finance Consultative Group – focuses on potential challenges link
ed to

  applying IFRS to Shariah-compliant instruments and transactions;

  • IFRS Taxonomy Consultative Group – helps develop the IFRS Taxonomy;

  • SME Implementation Group – supports the international adoption of the IFRS for

  SMEs and monitors its implementation;

  • World Standard-setters Conferences –helps achieve the G20-endorsed objective

  of global accounting standards;

  • Transition Resource Group for Impairment of Financial Instruments – discusses

  questions from stakeholders about the new impairment requirements for

  financial instruments;

  • Transition Resource Group for Revenue Recognition – informs the IASB and the

  US Financial Accounting Standards Board (FASB) about potential

  implementation issues that could arise when entities implement the new revenue

  recognition standard;

  • Transition Resource Group for Insurance Contracts – aids the implementation of

  IFRS 17 – Insurance Contracts;

  • Consultative Group for Rate Regulation – informs the project on rate regulation;

  • Management Commentary Consultative Group – informs the project on

  management commentary; and

  • Temporary ad hoc expert advisory groups – the IASB may create temporary

  ad hoc expert advisory groups to assist the IASB in specific project related areas.

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  3

  THE IASB’S TECHNICAL AGENDA AND CONVERGENCE

  WITH US GAAP

  3.1

  The IASB’s current priorities and future agenda

  The IASB’s 2018 activities focused on:57

  • clarifying the definition of what information is material in preparing financial

  statements in the final amendment – Definition of Material (Proposed

  amendments to IAS 1 and IAS 8);

  • developing a new accounting model to give users of financial statements better

  information about a company’s incremental rights and obligations arising from its

  rate-regulated activities; and

  • working on a number of research projects, including business combinations under

  common control, dynamic risk management, goodwill and impairment, financial

  instruments with characteristics of equity, primary financial statements and

  principles of disclosure.