Timeliness

a. Overview of Timeliness

The Staff believes that the standard-setting process requires a careful balance between timely resolution of emerging issues and sufficient due process. The Staff observes that the IASB’s responsibilities, under the IFRS Foundation’s Constitution, are focused to a greater extent on due process than on timeliness. As discussed previously, the IFRS Foundation’s Constitution specifies a number of steps for the IASB to take in gathering input on standards under development.312 However, the IASB is not explicitly required to address emerging issues in a timely manner. The IFRS IC, as discussed below, has a responsibility to provide timely guidance.313

The IASB typically allows a period of 120 days separately for comment on discussion papers and exposure drafts.314 For major projects (which are those projects involving pervasive or difficult conceptual or practical issues), the IASB may allow a period of more than 120 days for comments.315 The DP Handbook allows for the IASB to have a shorter period of

consultation, if required, of 30 days.316 The due process periods can be reduced but never dispensed with completely.317

310

See id.

311

See IASB’s How We Consult.

312

See subsection III.G.2.a., above.

313

See subsection III.G.4.b., below.

314

See DP Handbook; see also IFRS, Standard-setting Process—Comment Letters (available at: http://www.ifrs.org/How+we+develop+standards/Comment+letters.htm).

315

See id.

316

For exposure drafts, if the matter is exceptionally urgent, the document is short, and the IASB believes that there is likely to be broad consensus on the topic, the IASB may consider a comment period of no less than 30 days, but it will set such a short period only after formally requesting and obtaining prior approval from 75% of the Trustees. See DP Handbook.

317

There has been one instance in which the IASB issued amendments to standards without a comment period. In October 2008, the IASB issued, Reclassification of Financial Assets - Amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures, without

previously issuing the amendments for comment. In its Basis for Conclusions, the IASB noted that “The Board normally publishes an exposure draft of any proposed amendments to standards to invite comments from interested parties. However, given the requests to address this issue urgently in the light of market conditions, and after consultation with the Trustees of the IASC Foundation, the Board decided to proceed directly to issuing the amendments.” The Staff noted that several commenters noted the avoidance of due process as an area of concern. See, e.g., comment letters of IMA (“[T]he IASB should be prevented from overriding

b. IFRS IC

The IASB is assisted on IFRS interpretive matters by the IFRS IC.318 Members of the IFRS IC are selected by the Trustees such that, as a group, they represent what the Trustees believe to be the best available combination of technical expertise and diversity of international business and market experience in the practical application of IFRSs and analysis of financial statements prepared in accordance with IFRSs.319 Under the IFRS Foundation’s Constitution, the IFRS IC is responsible for interpreting the application of IFRSs and providing timely guidance on financial reporting issues not specifically addressed in IFRSs, in the context of the IASB’s conceptual framework, and undertaking other tasks at the request of the IASB.320 The IFRS IC is responsible for publishing, after clearance by the IASB, draft Interpretations for public comment and for considering comments made within a reasonable period before finalizing an Interpretation.321 Final Interpretations also require approval by the IASB before

publication.322

As part of the Trustees’ Strategy Review, the Trustees considered ways to make

refinements to the IFRS IC’s activities.323 The focus of the refinements was on ways to support better the IFRS Foundation’s interest in consistent application of IFRSs, in light of comments from constituents.324 Many respondents to the 2011 Public Consultation expressed the view that the IFRS Foundation needs to strengthen the IFRS IC and amend its current operations so as to ensure that more interpretations are issued.325 Some respondents asserted that the output (or lack thereof) from the IFRS IC has been such that it is not meeting the needs of stakeholders,

sometimes resulting in local authorities and standard setters issuing their own interpretations or allowing for diversity in practice to persist, or both.326 Some respondents noted that in October 2010, the Trustees launched a separate review of the effectiveness and efficiency of the IFRS IC,

necessary steps in the due process as they did with the amendment to IAS 39.”); Pfizer (“Our concerns around governance of the IASB relate to [among other things] instances where they have attempted to circumvent prescribed due process in an effort to expedite matters. . . .”) on the 2011 May Staff Paper. Cf. CII Study. The Staff further notes that the IFRS Foundation’s Constitution was amended subsequent to the single occurrence of due-process avoidance such that due process can no longer be eliminated, and reduced public comment periods require the approval of at least 75% of the Trustees.

318

See IFRS Foundation Constitution. The IFRS IC is comprised of 14 voting members, appointed by the Trustees for renewable terms of three years, and two non-voting observers (IOSCO and the EC).

319 See id. 320 See id. 321 See id. 322 See id. 323

See 2011 Public Consultation.

324

See id.

325

See IFRS Foundation Staff Comment Summary.

326

but commented that the review should be more aligned with the overall strategy of the IFRS Foundation.327

The Staff has received feedback from investors in the United States that is similar to that received by the Trustees in response to their review. The feedback received included comments that the IASB has the appropriate infrastructure to have a robust interpretive mechanism, but it is not staffed as it should be nor is it sufficiently productive, and the IASB’s interpretive function needs to be much more active than it has been.328 The Staff has also heard from commenters that the United States has a more active interpretive mechanism, including through the FASB’s EITF, and that a robust interpretive mechanism is necessary to ensure that users can undertake and have access to comparable financial analysis.329

In the Trustees’ Strategy Review Final Report, the Trustees stated that the IFRS IC should help to ensure consistency in interpretations, without undermining the commitment to a principle-based approach to standard setting.330 The Trustees also noted that they expect the IFRS IC to play a more active role in its second decade.331 The Trustees outlined several ways for the IFRS IC to carry out its role.332 Some of the suggestions speak to timeliness: by calling on the IFRS IC to identify emerging areas of divergence before they become entrenched practice; by consulting auditors, audit regulators, and securities regulators; and by having timely public discussions and resolution of requests for interpretation or improvement.333 In addition, updates to IFRSs could potentially be completed more quickly by having the IFRS IC correct and clarify the wording of IFRSs for matters that are relatively minor and do not justify a separate IASB project.334 Other suggestions address the feedback aspects of the IFRS IC’s activities, such as having the IFRS IC communicate persuasive explanations and reasons for not issuing further authoritative guidance than that which is already contained in the standards, and reaching out to all stakeholders to explain the interpretation and implementation processes.335 In addition, the Trustees recommended regularly reassessing the operational efficiency and effectiveness of the IFRS IC in conjunction with the Trustees’ DPOC.336

327

See id.

328

See SEC IFRS Roundtable transcript (comments of Tricia O’Malley, former Chairman, Canadian Accounting Standards Board and David Grubb, Partner, Plante & Moran). See also comment letters of IMA (“We perceive that the IASB has been reluctant to interpret its standards and we encourage the IFRS Interpretations Committee to become more active.”); Exxon; FIRCA; KPMG; IBM; and PwC on the 2011 May Staff Paper.

329

See, e.g., SEC IFRS Roundtable transcript (comments of Grubb). See also, e.g., comment letter of CNA on the 2011 May Staff Paper.

330

See Strategy Review Final Report.

331 See id. 332 See id. 333 See id. 334 See id. 335 See id. 336 See id.