16 January 2014
At the end of 2013, Paul Cherry stepped down as Chairman of the IFRS Advisory Council. In this article Paul reflects on his time as Chairman and how the Council has evolved in recent years.
Having completed my term as Chairman, it is interesting to reflect on the last five years and the view going forward. Five years ago, the Trustees introduced important changes that were intended to strengthen the Council´s role in the ultimate goal of a single set of high quality global financial reporting standards. Those changes proved wise indeed. Where beforehand Council members were appointed as individuals, most Council members today are appointed as representatives of organisations with an interest in the work of the IASB. As a result, we have a large and growing worldwide network of influential individuals and organisations that are well positioned to provide input to the IASB and the Trustees and, equally importantly, are kept abreast of the IASB´s activities. The Trustees resisted calls to reduce the size of the Council, opting instead to rebalance it in terms of stakeholder groups and geographical regions to reflect the rapid adoption of IFRS around the world.
In my experience, the size of the Council is not a problem. On the contrary, it is a great strength, providing a broad-based forum of leaders in their respective fields that, in my view, is unmatched anywhere. The keen interest in joining the Council and the very high calibre of the candidates is very gratifying. A concerted effort has been made to increase the representation of financial statement users. An analysis of the membership in 2013 by stakeholder group shows 11 preparers, 10 users, 10 auditors, 7 regulators, 7 standard setters and 3 academics. In terms of geography, we have 10 members from Asia-Oceania, 10 from Europe, 7 from North America, 1 each from Africa and South America and 19 from international organisations. For this last category, where the individual happens to reside is not a significant consideration. The current round of appointments will further diversify the membership.
Before going further, it is useful to look at the Council´s objectives as set out in the Constitution:
In accordance with good governance practices, in 2013 the Council reviewed its performance to ensure that it is meeting its objectives and to suggest any improvements in its role, responsibilities and operations. The responses indicated that, in general members believe the Council is operating efficiently and effectively in the pursuit of its objectives. The comparison of responses to the 2013 review with the responses to the earlier 2010 review indicates a very significant improvement in some critical areas. This was particularly true regarding the achievement of the Advisory Council´s objectives, regarding an appropriate balance of agenda items and overall success as an Advisory body. The IASB´s and Trustees´ ratings on these questions indicated an even stronger belief that there have been significant improvements. I was particularly pleased that members representing regulators felt that the Advisory Council is helpful in achieving high quality global accounting standards.
Considerable progress has been made in shifting the Council´s focus from more technical matters to more strategic and cross-cutting matters. The establishment of the Accounting Standards Advisory Forum (ASAF) has facilitated this change as has also the increasing outreach activities of the IASB. The strategic focus will need to be a conscious approach in the future, including (i) a longer-term view of the IASB´s agenda beyond the current agenda, (ii) a wider view of the financial reporting environment, including corporate reporting trends and the issues that are likely to affect financial reporting in the future, and (iii) the broader context of corporate reporting and of developments related to corporate reporting. These developments include integrated reporting, technological/digital developments and other areas that are likely to affect financial reporting in the future. The Council´s terms of reference indicate that a ‘secondary´ objective in addition to what is set out in the Constitution is to assist the IASB in the promotion and adoption of IFRS throughout the world. Members are unclear what role they can play in this regard and intend to discuss the matter with the Trustees.
In my view, the Council would benefit from a higher profile than it currently enjoys, because of the important role it plays. Council can promote transparency and accountability on the part of the IASB through regular and accurate communication to stakeholders. Council has discussed this with the IFRS Foundation and articles such as this are one of several steps that we are taking to ensure that the work of the Council is better understood.
Just as important as dealing with the right topics is to deal with them at the right time. Council adds the most value when it is consulted well in advance of key decisions, especially whether to add, significantly modify the scope or terminate/deactivate major projects. In the past, it sometimes appeared that we became involved rather late to have much influence on the outcome. However, progress has been made. Prime examples of timely and effective consultation are, in my view, the IASB agenda consultation and the Constitution Review. I recognise that critical events on IASB projects do not fit nicely into the Council´s meeting schedule. Nor is it realistic to convene extra face-to-face meetings of such a large, globally dispersed group at short notice. However, members have demonstrated that they can respond quickly electronically on short notice between meetings, and small subgroups have been very effective in working with the staff to develop material for discussion by the full Council. The strategic, longer-term focus described above should also help the Council get ‘ahead of the curve´ and not be so directly tied to the current IASB agenda.
Previous Councils had expressed concern that, at times, the IASB or Trustees did not seem to be ‘listening´. Considerable progress has also been made on this front. First, there is a big difference between ‘listening´ and ‘agreeing´. Second, very often the IASB and Trustees are seeking preliminary reactions; so hearing the full range of views is the most helpful initial approach. Council has, however, demonstrated that, on key issues, it is feasible to seek consensus views. In my view, this should be done sparingly and only with ample advance notice so that members can consult their stakeholders. Third, representatives of the IASB and Trustees attend and participate in the Council´s deliberations. The IASB Chairman and the Foundation Chairman provide update reports. This real-time exchange of views is the most effective form of communication with the Council. Finally, Board and Trustee agenda papers and due process documents now record the fact that Council has been consulted and the key points arising. In my view, the IASB and Trustees do listen. They often, but not always, heed our advice. There is ample documented feedback so that Council members and the public at large can see that this is so. This should dispel any lingering (mis)perception that the IASB and Trustees do not listen.
In closing, as the IASB leaves behind the bilateral IASB/FASB convergence projects era, I believe a strong, proactive Council is essential to the goal of a single set of high quality global financial reporting standards. With its broad-based composition and global perspective, the Council is well positioned to assist the IASB in staying on the right track with high quality Standards that serve the needs of the capital markets, not only today, but also in the future.
I congratulate Joanna Perry on her appointment to succeed me as Chairman of the Council. I have known Joanna for many years and she will undoubtedly be a very fine leader of this important body.