Commentators responding to a public consultation on the effectiveness of the International Financial Reporting Standards (IFRS) Foundation have slammed the quality of the global rulemaker’s work.
The IFRS Foundation is the parent body of the London-based International Accounting Standards Board (IASB) and the IFRS Interpretations Committee.
In a formal comment letter, the Institute of Chartered Accountants of England & Wales wrote: “It seems significant resources have been dedicated to fixing problems that should have been identified during the standard-setting process.
“Again, this may indicate further improvements can be made to the board’s due process.”
Alongside the damning verdict on the IASB’s efforts, critics also slammed its interpretations committee and processes as “slow and unresponsive” and prone to making too many short-term changes to standards.
The comments come despite a major bid in recent years by the Foundation and the board to address the committee’s past failings.
In a summary of the feedback received by the board and the Foundation, staff told the IASB’s 16 March board meeting: “Many respondents, however, commented on the Board’s approach to finalising the issue of a Standard.”
The board’s critics, it emerged, want it to pay more heed to quality control during the final stages of publishing a standard.
They said this new focus would help to encourage consistent application of standards.
Critics also claimed the board tended to publish a standard only to issue a flurry of editorial corrections, minor amendments and interpretive guidance.
Staff wrote: “These respondents thought such amendments hurt the credibility of the Standards and [failed to] provide an incentive for preparers to take an early start in implementing the Standards.”
Some respondents also believed the board and its interpretations committee were too willing to amend IFRSs rather than allow preparers and their advisers to exercise judgement.
In addition, there were claims the IASB had got its priorities wrong by focusing on the development of new standards rather than on drafting and checking them.
The IASB currently operates a fatal-flaw review where it sends out a near-final draft of a new or amended IFRS to a panel of experts.
In the case of the 2011 amendments to IAS 19, the project staff circulated a draft of the changes to auditors and consultants.
Sources familiar with the process alleged at the time that staff made substantive changes to the treatment of plan administration costs under IAS 19 during this process.
Back in 2010, former IASB member Robert Garnett launched a withering public attack on staff for making amendments to a proposed standard on joint-venture accounting without putting them through formal due process.
Garnett said: “We need to take the issue offline – we need to re-deliberate the whole basis for annual improvements.
“I am not at all pleased with comments from staff about wording changes that go back to the beginning of this year that have been agreed in public meetings, and then offline you decide to change them.”
Constituents now want the board to make its fatal-flaw review drafts public.
They also want the board to spent more time checking the standards for errors and inconsistencies.
Meanwhile, the board’s interpretations committee, responsible for the IFRS 14 asset-ceiling guidance, also came under fire.
According to staff, commentators slammed the committee as “slow and unresponsive, with a long lag between submissions and decisions”.
They also claimed it “sometimes addresses ‘symptoms’ of problems with standards rather than the underlying causes”.
The feedback will come as a blow to the IASB, which four years ago launched a major bid to improve the committee’s image and make it more responsive.
Speaking in during an IASB meeting on 21 March 2012, IASB director Michael Stewart said the IFRS Foundation Trustees wanted the committee to identify “other ways” to assist constituents “in conjunction with the board”.
As matters then stood, the committee would either issue an interpretation, recommend that the IASB amends an IFRS or reject the issue on the grounds that the standards are clear.
Stewart said the committee would in future also consider developing additional illustrative examples, providing more detailed agenda decisions, or handling an issue as an educational project.
But IASB member Tak Ochi, speaking during the 16 March board meeting, said the move had turned out to be less than successful.
“What happened was we issued more narrow-scope amendments … and then eventually we changed standards more than before,” he said. “Sometimes, it causes unintended consequences.”
The change in strategy has also done little to win over some pensions-accounting specialists.
In recent months, a major effort by the committee to amend IFRIC 14 has run into the sand, with an exposure draft receiving a mixed response among experts.