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The Next Step in Global Accounting
Frank C. Minter
One organization will develop and interpret global accounting standards in the
future. But what will that organization look like? © 1999 John Wiley & Sons, Inc.
Frank C. Minter, CPA, is an
executive in residence at Samford
University in Birmingham,
Alabama. He formerly was vice
president and controller of AT&T
Company and chief financial officer
of two of its units. After retirement he
served on the Accounting faculty at
Samford. Mr. Minter currently serves
on the Financial Accounting
Standards Advisory Council
(FASAC) and is the president-elect of
the Institute of Management
Accountants (IMA). He previously
served on the Financial Executive
Institute’s (FEI) Committee on
Corporate Reporting and the
Emerging Issues Task Force (EITF).
n the Spring 1999 issue of this Journal, Mitchell Danaher of General Electric
and Professor Herbert Hunt of the University of Vermont described how fast
approaching global accounting standards will affect U.S. firms. They explored
in detail the development of a group of so-called “core” international accounting
standards by the International Accounting Standards Committee (IASC) that
are anticipated to be the set of standards that will permit cross-border securities
exchange listings based solely on international accounting principles. Since Mr.
Danaher is one of the U.S. representatives to the IASC, he has been very much
a party to the development of this set of standards and their article provides an
excellent framework for the work that has gone on in this important area.
Coincident with the development of this latest group of international
standards, the IASC also established another group of individuals to address the
next question which could be framed as “Where do we go from here?” There are
two separate answers to that question: The first (which is not the thrust of this
article and is not being addressed by this new group), deals with what action will
now be taken by the Securities and Exchange Commission (SEC) that could lead
to the ability of foreign registrants to list securities on U.S. exchanges without the
requirement to reconcile their financial results to U.S. generally accepted accounting
principles, if those registrants are in compliance with IASC-issued accounting
standards. The second question, that will be explored here, is “What will the
organization look like that will develop and interpret global accounting standards
in the future?”
Briefly, IASC was formed in 1973 by an agreement made by the professional
accountancy bodies of ten countries, of which the United States was one. Its
members currently are the professional accountancy bodies that are members
of the International Federation of Accountants (IFAC) and number 143 members
in 103 countries. The United States is represented both by the American
CCC 1044-8136/99/1004073-05
© 1999 John Wiley & Sons, Inc.
Frank C. Minter
IFAC has delegated to the
IASC Board the authority
to publish international
accounting standards.
Institute of CPAs (AICPA) and the Institute of Management Accountants
(IMA). The IASC has delegated the responsibility for IASC activities that would
include promulgation of International Accounting Standards to the IASC
Board. The Board is composed of 13 country members and up to four additional
members appointed by the Board itself.
IFAC has delegated to the IASC Board the authority to publish international
accounting standards. To publish an exposure draft of a proposed standard
requires a two-thirds favorable vote and to publish a final standard requires a
three-fourths favorable vote. Each member country has only one vote although
it may have two representatives. If the representatives do not agree, that country
will abstain.
To address the question that is being asked in this article, the IASC Board
authorized its chairman to appoint a Strategy Working Party (SWP) to evaluate
the current structure and to propose a structure for the future. Fourteen
members comprise this group of which seven are from specific countries and
several are members of country standard setters. For example, Tony Cope, a
Financial Accounting Standards Board (FASB) member, is a member of the
working party. Sir David Tweedy, Chairman of the UK Accounting Standards
Board is also a member. In December 1998 the SWP issued a Discussion Paper
(DP) “Shaping IASC for the Future” and has invited all parties affected by
accounting standards to participate in the debate of this future direction.
Comments on the DP were due to the SWP by April 30, 1999.
The SWP has proposed the following structure for future global accounting
1. Creation of a Standards Development Committee (SDC) whose primary
responsibility would be the development of both Exposure Drafts and
Accounting Standards. The SDC would be composed of 11 members
appointed by the Trustees. These would consist of a full-time chairman,
six to eight individuals nominated by national standard setters and who
are voting members of that national standard setter, and two to four
members from other groups such as preparers, users, academics, and
accountants in public practice. It has been proposed that seven members
come from “more developed countries” and that there be a reasonable
geographic spread of all members. The SDC members would be expected
to meet every one to two months and at least six should be involved in
“full-time” standard setting. In order to submit Exposure Drafts and
Proposed Standards to the Board, a majority of 7 votes out of 11 would
be required.
2. Establish a reconstituted IASC Board that would have broader
representation than at present. It would have 20 country seats with
five additional seats for other organizations interested in financial
reporting. At least 14 of the country members should be from “more
developed countries.” It is recommended that, although countries
may be represented by two delegates, each country would still have
only one vote. In what may be the most significant controversy in the
proposal, at least from the U.S. perspective, the Board would have the
final authority to issue standards that have been developed by the
The Journal of Corporate Accounting and Finance/Summer 1999
The Next Step in Global Accounting Standards
The FASB-FAF letter states
that it believes it would be
very difficult to attract
highly competent and
respected individuals to
the SDC if that group
would be subject to
having its proposals
rejected by the more
politically oriented
IASC Board.
SDC. Fifteen positive votes of the Board (60 percent) would be
required to issue a standard. If the Board rejected a proposed standard,
it would send it back to the SDC for reconsideration. If nine or more
members of the SDC resubmitted it to the Board, only a simple
majority of the Board would be required for approval. To prevent
delay, the Board would be required to consider all exposure drafts and
proposed standards within three months of their submission by the
SDC. The Board would also have authority to add projects to the
agenda, but not to remove projects.
3. A Board of 12 trustees would be established that would have two
primary responsibilities; selection and appointment of the members of
the Board and the SDC, and raising of funds to support the operation
of the overall effort. Six of the Trustees would come from constituent
groups such as IFAC and six from the world “at large.”
In what is a significant change from the current practice of the IASC Board,
the SWP has recommended that the technical discussions of the SDC be open
to the public. In a joint response from the FASB and the trustees of its parent
organization, the Financial Accounting Foundation (FAF), the IASC was
commended for its efforts in addressing the issues but noted that changes would
be necessary in the proposed structure recommendations.
The FASB-FAF letter emphasized two points. First they believe that it is
essential that the SDC have the final authority to 1) set its own agenda and 2) to
approve both its own exposure drafts and final standards. They would propose
that the SDC members be full-time and sever ties with former employers. They
would assign to the IASC Board “a strong advisory role in the standard setting
process.” The Board would maintain liaison between the SDC and the business
and professional world. It would also work closely with the SDC, but have no
authority to set agenda subjects or to override SDC decisions. Second, they
believe that funding and resource sources are not well defined. They would
suggest that a plan for obtaining resources based on a detailed analysis of costs
be developed. The FASB-FAF also expressed certain other concerns including
the clarification of the role and selection of trustees, rotation of membership on
the several groups among countries, and the size of the new IASC staff to
support such an operation.
The FASB-FAF letter states that it believes it would be very difficult to attract
highly competent and respected individuals to the SDC if that group would be
subject to having its proposals rejected by the more politically oriented IASC
Board. They also strongly believe that the SDC must have control over its own
agenda subjects. On the other hand, under the FASB-FAF proposals, one could
observe that the IASC Board would be left with little real authority and would
have the same difficulty attracting highly competent and respected individuals
if there was no substantive responsibility assigned to it.
This is not going to be an easy problem to resolve because of the political
processes involved. Although this country may be viewed as having the best and
most detailed accounting standards in the world, some parts of the world may
believe that not all of the accounting expertise in this world resides in Norwalk,
Connecticut [FASB headquarters]. Less developed countries or those with
The Journal of Corporate Accounting and Finance/Summer 1999
Frank C. Minter
There has been at least
some suggestion that the
FASB be designated as the
world’s standard setter.
emerging market economies may feel the need to provide some oversight to the
development process through Board participation although they may not be a
part of the actual development activity. For example, one such country might
suggest that it is not necessary to saddle everyone with the extensive detail in
such standards as the U.S. Standard on Derivatives.
There has been at least some suggestion that the FASB be designated as the
world’s standard setter. It is in place and certainly has both a highly competent
board and staff. It already has a trustee structure that could be modified to
include more country representatives. It has a functioning advisory council
that could also be made more representative. But these things are probably not
going to happen, again because of the political realities as viewed by the rest
of the world.
In looking at both the structure proposed by the SWP as well as the FASBFAF, both include a three-tiered structure; i.e. trustees, board, and standard
setters. It would appear that there might not be a real role with related
responsibility for three bodies. However, the real question remains: Which one
needs to be eliminated? We could look at our current structure in the United
States that has only two tiers, trustees and standard setters. If the global
organization only had the same two tiers, it would still need something to
achieve broad worldwide representation—so that the views of those not
represented on the smaller groups would be heard and considered. One such
possibility would be an advisory council made up of representatives from a
reasonably large number of countries that could be kept apprised of the work of
the SDC and could assist in suggesting its work priorities and agenda subjects.
This group would be very similar to the Financial Accounting Standards
Advisory Council (FASAC) which performs many of these same functions in
this country in association with the FASB and FAF.
Another possible modification to the proposals of the SWP would be to
assign the responsibility for agenda setting to the IASC Board. This would give
some real responsibility to the Board without taking away from the SDC the
authority to issue final standards without Board approval. This could also be
viewed as a mechanism to allow some form of political process to be effective in
the overall structure. It has been stated that if some outside group had controlled
the FASB agenda we would not likely have had stock compensation as a project.
Although a great many learned a great deal from that project, perhaps it would
not have been a bad decision for it not to have become an agenda item.
The existing IASC Board timetable for approval of a new structure is for
Board approval in March 2000 with approval by IASC members in May 2000.
The SWP will be considering comment letters and will review them with the
IASC Board in July 1999. It is anticipated that final proposals will be issued in
September 1999.
At this writing, nothing has been forthcoming from the SEC staff but there
is a view that it would be appropriate for the future IASC structure to be in place
so that the SEC could evaluate how it might deal with both interpretations of
existing standards as well as development of future standards before it begins
rule-making activities, that could lead to acceptance of IASC accounting for
financial reporting in U.S. markets.
The Journal of Corporate Accounting and Finance/Summer 1999
The Next Step in Global Accounting Standards
The AICPA agrees with the
recommendation that
there is a fundamental
issue that must be
changed. It believes that
the final authority for
approval of international
standards should reside
with the SDC.
The AICPA response to the proposals of the SWP contemplates an
independent standard-setting board that would set its own agenda. Its members
would be appointed by a board of trustees and would sever all previous
commercial and national standard-setting ties to serve full-time. It would be
supported by a full-time staff of adequate size to support its functions. It would
have a high level of due process. The AICPA agrees with the FASB-FAF
recommendation that there is a fundamental issue that must be changed. It
believes that the final authority for approval of international standards should
reside with the SDC.
In what could be viewed as a difference with FASB-FAF, the AICPA would
not be opposed to a structure that involves the IASC Board in the approval
process for some transitional period until the SDC has demonstrated the
soundness of its processes. It suggested possible alternatives such as permitting
the IASC Board to delay issuance of an SDC proposal for some period of time
or permitting the SDC to override an IASC veto with some designated
supermajority. The other U.S. representative, the Institute of Management
Accountants (IMA), states in its response that it believes a partnership with
national standard setters is essential and that any such partnership must include
the FASB. It believes the FASB-FAF proposed structure is the correct one but,
like the AICPA, recognizes that it may not be feasible to implement right away.
IMA believes that, over time, the issue of national representation may diminish
in importance and suggests that the IASC Board establish a finite time period,
perhaps five years, to formally review the structure that was proposed by
the SWP.
Both organizations appear to recognize the political realities involved in the
SWP proposals, as well as the fundamental issue of final authority to establish
standards. That recognition has led to the proposal for an interim step with a
definite time period for evaluation of the process. ♦
The Journal of Corporate Accounting and Finance/Summer 1999
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