FASB Criticizes IASC Global Standards Proposal

By Philip J. Luongo Jr.

The Financial Accounting Standards Board declared on March 11 that the International Accounting Standards Committee’s proposal to change its structure to make accounting standards more globally acceptable does not accomplish its goal (see below).

"The proposal doesn't go far enough in creating a high-quality, independent standard setter that would be acceptable worldwide," FASB Chair Edmund L. Jenkins said.

FASB and the Financial Accounting Foundation, which oversees the board, support the goal of a single set of high-quality accounting standards.

"[These standards would] improve international comparability; reduce costs to financial statement users, preparers, auditors, and others; and, ultimately, optimize the efficiency of the world's capital markets," said Manuel H. Johnson, chair and president of the foundation.

Jenkins and Johnson detailed FASB and FAF's recommendations regarding the proposal in a comment letter to the IASC. They suggested that:

* The proposed Standards Development Committee (SDC) should be independent of other organizations. It should have the final authority to set its own agenda and to issue proposals and standards, rather than give that power to the IASC board. Jenkins believes that to do otherwise would undermine the autonomy of the SDC.

* The proposed board of trustees should be independent and have the ultimate authority to oversee IASC structure and process. The trustees should select the individuals to serve on the SDC and IASC board.

* The board of trustees should explicitly and exclusively oversee fundraising to avoid the fact or appearance that contributions could influence votes.

FASB also said that IASC needs to improve the SDC's composition and criteria for membership; rotate seats on the SDC, IASC board, and board of trustees; coordinate national and international due process; and address its budget, the size of its staff, and who retains the authority to approve interpretations of the SDC's standards.

"If our improvements are accepted by the IASC, the FASB and FAF believe that sufficient progress has been made to support their future endeavors," Johnson said. "However, the IASC must continue to work toward the goal of being a truly independent body with standards of the highest quality before it can be totally accepted worldwide."

The next step in IASC's process is to review comment letters, which are due on April 30, at its June meeting and make any modifications necessary.

For a complete copy of FASB and FAF's letter to the IASC, click here. Watch future issues of The Trusted Professional for further developments.

The IASC: Overview and Proposed Changes

The IASC is made up of 142 member organizations from 103 countries. United States representatives include the AICPA, the Institute of Management Accountants, and the National Association of State Boards of Public Accountancy. The IASC board, which is made up of representatives from 13 countries and three professional groups, has the final authority over international accounting standards. The IASC conducts its meetings in English without translation. Delegations for each of the voting members typically comprise three people. Some have technical support from the member organizations. For example, Patricia McQueen from the Association for Investment Management and Research in Charlottesville, Va., is a technical advisor to the International Council of Investment Associations and was a major contributor during the open discussion on March 16. Two staff members from the AICPA give technical support to the U.S. delegation.

The Need for Change

The standards-setting process was criticized because IASC member organizations chose the representatives to the board, and national standards setters such as FASB have no official voice. The board also received criticism when it did not allow the public to attend its meetings.

As a result of this criticism, the IASC formed a strategy working party to prepare a discussion paper and make recommendations on building an infrastructure that would converge its national accounting standards with high-quality global accounting standards.

The Proposed Structure Changes

The major changes recommended by the strategy working party in its discussion paper, "Shaping IASC for the Future," are as follows: