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Wednesday, February 19, 2014
understand what led to the Jan. 28 news of an unusual, $3 million donation to
global accounting standard-setters by the parent group of the Financial
Accounting Standards Board (10 APPR 161, 2/14/14), it’s useful to delve into
the history of the debate about funding of the International Accounting
Even a quick
study shows that the issue of U.S. funding for IASB’s operations seems to amount
to a fence separating the United States and the London-based board. A fence in
a tangle of vines. Thorny vines.
discussions by the trustees of IASB’s parent, the IFRS Foundation, and
associated panels, as well as in formal papers that make points and
counterpoints, the exchanges reveal polite discord.
The 2012 Staff Reports.
relevant are two documents: first, the July 2012 final SEC staff report on the
work plan for incorporating international financial reporting standards, or
IFRS, into the financial reporting system for U.S. public companies (available
at http://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-final-report.pdf; see pages 52-58 especially); and
second, the October 2012 report by IFRS Foundation staff, responding to the SEC
staff’s findings (at http://www.ifrs.org/Alerts/PressRelease/Pages/IFRS-Foundation-Staff-Analysis-of-SEC-Final-Staff-Report-on-IFRS.aspx; see pages 23-25).
staffs devote significant ink to the issues of IASB funding, the how and the exact
whence of the money, and challenges to setting up a structure enabling stable,
independent financing. The SEC has pointed out the pitfalls of having an
accounting standard-setter depend significantly on money given by those who
have to follow the standards issued by the setter (FASB’s situation until the
Sarbanes-Oxley law of 2002, which set up a system of registrant-paid accounting
IASB’s situation today, despite great strides in obtaining regular levies or some
form of publicly-supported financing, as it has from the European Union. A sizeable chunk of the IFRS Foundation’s
money – about 25% of 2012 collections, the SEC staff wrote – has come from the
world’s leading accounting firms, for example.
staff sounded cautionary signals on the contributions from the big accounting
houses. “[T]he continued reliance by the IFRS Foundation on funding from the
largest accounting firms will continue to cause concerns as to the adequacy and
independence of the IASB’s funding model,” according to the SEC staff final
Foundation staff took issue with that view on risks suggested by reliance on
money from the Big Four and other leaders in auditing. “We believe that the
governance structure of the Foundation ensures that the IASB’s independence is
not compromised by any such contributions,” according to the October 2012
Foundation staff added that the foundation “is working to secure stable funding
in order to reduce or eliminate this perceived dependency.” An important part
of “removing this dependence is to address the ongoing funding challenges in
the U.S,” the staff at IASB’s parent wrote.
SEC’s Seat on the IFRS Monitoring
Bloomberg BNA earlier this month pointed to a substantial role played by senior
SEC officials in helping effect the $3 million FAF-to-IFRSF funding arrangement
announced Jan. 28. The conventional wisdom among those who closely follow
global rulemaking in accounting is that a significant – if not a main -- reason
for the SEC playing such a role was to keep a seat at the table of securities
regulators who are the key members of the IFRS Monitoring Board.
U.S. securities regulators want to have a voice, along with their counterparts
in Europe, Japan and elsewhere, in continued discussions on seeking a single,
high-quality set of accounting standards suitable for global use, the aim of
IFRS, and on planning for consistent application of such standards.
staff, in its final report on the IFRS incorporation work plan, pointed to the
commission’s ability to maintain a chair at the IFRS Monitoring Board table and
tied that to the raising of money for the IASB in the U.S. The commission’s
Office of the Chief Accountant, author of the report, identified a monitoring
board membership criterion based on “financial contributions by the
jurisdiction to the setting” of standards by IASB.
the SEC staff accountants wrote, “continued membership of the SEC on the
Monitoring Board would be in part based on the [IFRS Foundation] trustees’
success in fundraising from U.S. constituents.”
“results in an interesting dynamic” in the U.S., the SEC staff wrote. “Neither
the Commission nor the Staff could act as a fundraiser for a private
organization, and it is questionable under existing law whether the Commission
could use its own funds to contribute to a private organization.
addition, the Commission may be limited from directly funding the IFRS
Foundation without an appropriate request of Congress,” the OCA accountants added.
“As a result, the Commission’s membership on the Monitoring Board is dependent
in part on the efforts of others in the United States to fund the IFRS
part, the IFRS Foundation staff quoted a phrase in the SEC staff’s final report
that “the [IFRS Foundation] Trustees have not been successful in raising
funding in the U.S. to meet the U.S. funding objectives.” Those goals, the
IFRSF’s staff suggested, would be commensurate with U.S. gross domestic product,
or 20 percent of the total IFRS Foundation contributions, for a share equal to
about $7 million. However, at the time of the staff reports’ writings in 2012 –
and in succeeding years, it appears – the amount collected from U.S. sources was
on track to fall far short of that.
the lack of public funding” for the IFRS Foundation “in the U.S. can only be
resolved by the U.S. authorities themselves directly or indirectly,” wrote the
staff of IASB’s parent group.
sentence in the report followed one that was quoted almost verbatim by IASB
Chairman Hans Hoogervorst in November 2013 in response to a question I asked
him at a news conference in New York.
reinforced by Hoogervorst followed the reasoning set down in the sentence on
page 25 of IFRS Foundation staff report of a year before: “We note that, while
around 20-25 percent of the total seats in the Foundation’s different bodies
are currently held by the U.S., the U.S. contributions amount to less than 10
percent of the total country-based contributions to the Foundation’s budget.”
of disagreement cropped up in the reports of the two staffs. Some axes of
discord are complex and nuanced, such as the issue of how the number of
countries making contributions to the IFRS Foundation should be toted up. The
SEC staff suggests that number of countries is not as many as IASB argues for.
of the Financial Accounting Foundation, FASB’s parent group, are scheduled to
hold their quarterly meeting Feb. 25 in Norwalk Conn. It is likely that the
recently announced FAF grant of $3 million to IASB’s parent, and the SEC’s role
in that, will be discussed – if not in the relatively brief open portion of the
meeting, at least during the several hours of closed session.
By Steve Burkholder, Staff
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