Some Salient Conclusions in Aiming for Global

Accounting Standards: The International Accounting

Standards Board, 2001-2011

Stephen A. Zeff

Rice University

Scope and nature of the IASB history research project

• Commissioned by IASB Chairman Sir David Tweedie

• Six-year project, from 2008 to 2014

• IFRS Foundation reimbursed us for travel costs

• Examined both hard copy and digital documentation:

correspondence, drafts, comment letters, agenda

papers, minutes of IASB Board, trustee and

Monitoring Board meetings, memoranda, speeches,

annual reports, and final standards and

interpretations

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• Conducted more than 170 interviews around in the

world: Europe, North America, Japan, China, Hong

Kong, Australia and New Zealand, almost all face-to-

face and recorded

– 22 Board members, 14 trustees, IASB’s senior

staff, members of SAC/IFRS Advisory Council and

of IFRIC/IFRS Interpretations Committee, EU and

SEC officials, national standard setters,

users/analysts, preparers, audit firm partners,

academics, trade associations

• Sent draft chapters to selected interviewees for their

comments and suggestions

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Impelling factors

I. Forces that led the movement towards IFRSs

A. EU’s 2002 IAS Regulation for 15 countries and

6,700 companies

1. Australia promptly followed Europe’s lead

B. World Bank’s ‘Reports on Standards and Codes,

Accounting and Auditing’ for developing

countries and emerging economies

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C. EU’s ‘Equivalence Assessment’ for IFRSs (2004-

2008), especially in Japan, China and South Korea

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European influence

II. Because of geographical proximity to the IASB and

its early, large bloc of IFRS-using companies, Europe

has had an inordinately strong impact on the work of

the IASB

Divisiveness in Europe

III. Europe has been the IASB’s most difficult

constituency, because it is so divided and lacks a

central body that can coalesce around a consistent,

coherent policy on financial reporting and on how

the IASB should perform its role

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US influence

IV. Because of the importance of its capital market and

its long and respected tradition for standard setting

and regulation, the United States has had an

inordinately strong impact on the work of the IASB

Worldwide comparability

V. The abandonment of 25 national GAAPs in favour of

IFRSs beginning in 2005 in the EU has been a huge

step forward, which is frequently taken for granted

and then forgotten

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VI. Genuine worldwide comparability is elusive, because

of the different business models and customs,

income tax incentives and disincentives, accounting

and auditing cultures, and regulatory cultures around

the world – uniformity of method will not achieve

comparability

A. The IASB has had to make amendments to

overcome some of these jurisdictional obstacles

1. China – ‘deemed cost’ – revision of IAS 16

2. Canada – ‘regulatory deferral accounts’ –

IFRS 14

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VII. The IASB, in making difficult choices, finds itself

balancing the following issues:

• Whether its standards should be principles- or

rules-based

• Whether its standards should reflect a balance

sheet or income statement focus

• How to weigh relevance against reliability

• Whether, and where, to use more fair value in its

standards

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Convergence

VIII. While the achievements of the IASB-FASB

convergence program has been short of the boards’

ambitions, it must be recognized that the two boards

have very different sizes, compositions (both

members and staff) and vastly different

constituencies – making agreement on common

standards difficult to achieve

A. Pulled by the FASB, the IASB distanced itself

from stewardship and prudence, and dropped

reliability (2010)

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Evolution of the Board and Foundation

IX. The history of the IASB and of the IFRS Foundation

has so far has been very much an evolutionary

process of making periodic, incremental changes in

strategy, organizational structure, due process,

operating procedures, and links with other bodies

and interested parties – rather than one of carrying

out a coherent plan from the outset

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IASB Board composition

X. The IASB began in 2001 with a heavily technical

membership (former members of the IASC Board and

national standard setters), but by 2011 it was much

less technically strong with ex-regulators and ex-

users much more prominent – leading to a Board

that was more pragmatic and more willing to listen to

constituents

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The profile of global standards

XI. During the IASB Board’s first ten years, there was

little consensus over what global standards should

look like, especially as more and more jurisdictions

moved towards adopting or converging with IFRSs

and thus became constituents

A. The IASB and jurisdictional constituents began

forming bodies for conveying their views to the

Board:

• European Financial Reporting Advisory Group

(EFRAG), since 2001

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• IFRS Advisory Council (formerly SAC), since

2001

• World Standard-Setters, since 2002

• Capital Market Advisory Committee (formerly

Analyst Representative Group), since 2003

• International Forum of Accounting Standard-

Setters, since 2005

• Global Preparers Forum, since 2008

• Asian-Oceanian Standard-Setters Group,

since 2009

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• Emerging Economies Group, since 2011

• Group of Latin American Accounting Standard

Setters (GLASS), since 2011

• Pan African Federation of Accountants, since

2011

• Accounting Standards Advisory Forum, since

2013

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David Tweedie

XII. Chairman David Tweedie, although not without his

critics, was a leader who achieved more than people

expected in 2000, both in directing the work of the

Board and in dealing with senior government

officials around the world, in the political sphere

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Role of the US Securities and Exchange Commission

XIII. The US SEC, always a supporter of a single global

set of high quality accounting standards, would

likely have mandated that domestic companies use

IFRSs if it were not for the onset of the global

financial crisis in 2008 and the pro forma

requirement for Chairman Cox to tender his

resignation upon the election of a new US President

(Obama in November 2008)

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Transparency

XIV.The IFRS Foundation and the IASB have achieved an

admirable openness of process – it is difficult to

think of any other international policy-making or

standard-setting body that comes close to them in

this respect. This observation remains valid even

when it is acknowledged that outside criticism and

pressure for reform have provided much of the

impetus for many process improvements.

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Accountability to public authorities

XV. In 2009, the IFRS Foundation trustees, under

pressure from the European Parliament and others

who claimed that the IASB organization was not

accountable to public authorities, established a

Monitoring Board composed of the SEC, Japan’s

Financial Services Agency, the EU Commissioner

overseeing IFRS issues, and two representatives of

the International Organization of Securities

Commissions.

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It was to vet the selection of trustees and review the

trustees’ oversight of the IASB’s standard-setting

process. It is too early to assess the Monitoring

Board’s effectiveness.

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Funding

XVI.Beginning in 2006, the IFRS Foundation trustees

began campaigning for ‘stable funding platforms’ so

that they would not have to continue going ‘hat in

hand’ to companies, banks and other interested

parties for funds to support the IASB organization.

This step became necessary after the Sarbanes-

Oxley Act of 2002 directed the SEC to assess a levy

on issuers in order to fund the FASB.

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By 2014, some 52% of total contributions came from

established funding programmes of national

standard setters, government ministries, and stock

exchanges, of which 13.7% (£3.1m) came from the

EU as a block grant. Some 28% came from the

international audit firms (US$2.5m per Big 4 firm).

Switzerland gave £92k (4 tenths of 1%), mainly from

SwissHoldings and the Swiss National Bank.

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