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December 14, 2007

Tweedie flags changes to IASB governance and board

Tweedie flags changes to IASB governance and board

The International Accounting Standards Board (IASB) could change its governance structure and board composition in the coming 12 months, according to chairman David Tweedie. In a frank interview, Tweedie also revealed the IASB would have done things differently had it been afforded more time to properly redevelop and roll out IFRS.

The head standard setter predicts a monitoring body could soon be set up, possibly composed of securities regulators and major financial institutions such as the World Bank, to monitor the activities of the International Accounting Standards Committee Foundation trustees. The trustees are responsible for making IASB board appointments, funding arrangements and tackling governance issues. A monitoring body has also been mooted by the International Organization of Securities Commissions and several regulators, such as the US Securities and Exchange Commission, as a means of injecting transparency into the role of the trustees.

The current governance structure was modelled on that of the US Financial Accounting Standards Board, but with one notable difference. “What we missed out [on] was that in America, above the [FASB] trustees is the SEC, which is ultimately responsible,” Tweedie said, while adding that IASB governance is still widely recognised as being transparent. “We don’t have that [oversight] and that’s what the concern is and I think it’s legitimate. What the trustees have proposed is that sitting above us we have some monitoring body to make sure the trustees are doing their job. They have the right to veto if they don’t like an appointment or things like that.”

Improved funding

Another IASB concern often expressed by regulators has been the board’s funding structure. Tweedie said this has improved over the past few years and funds are being levied from listed companies in most countries in proportion to the size of their GDP.

“We reckon next year there will be close to 10,000 companies paying as opposed to 200 three years ago. So the funding has changed and ideally the best thing is levying all stock exchanges, therefore it’s fair,” he said.

Another likely change to the IASB, which Tweedie flagged, is the composition and size of the board. When it was formed in 2001, the aim was to recruit the top global technical experts, often from the more developed professions such as those in the US and UK. But due to the rapid spread of IFRS, which has now reached 109 countries, there is a desire to make board representation more global.

Tweedie said: “Now we’re in a different situation in which we’ve got people saying wait a minute, at the moment we’re five Europeans, and four North Americans, that’s nine out of 14, and five for the rest of the world. I think there will be pressure to reduce the European and North American contingent, maybe even increase the size of the board. We could start seeing a minimum from Asia and Oceania, North America and Europe… that’s how it should be.”

Tweedie said there could soon be a need to increase the size of the IASB’s work force and introduce regional branches, especially if the US comes on board with IFRS.

Not enough time

Although the rapid spread of IFRS globally has been viewed by some financial commentators as a success, Tweedie told TA he would have preferred more time for the IASB to redevelop standards instead of “a scissor and paste job” on the set of 34 standards it inherited from its predecessor. The rushed schedule was partly the result of the European Commission requiring listed companies to use IFRS by 2005.

“If it happened that in 2001 I had been given a free run to 2008, we wouldn’t have had 109 countries using the standards, but we would have a good set of standards. I had no option, but if I did I would have said ‘give us five or six years to sort this out’ and that would have been good,” he said.

Tweedie described some of parts of IFRS as embarrassing, including IAS 39 Financial Instruments, a “nightmare of a standard” he voted against. Next year the IASB will focus on improving this standard, as well as a discussion paper that tackles accounting problems associated with the liquidity crisis.

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