IFRS Foundation: Due process handbook

Comments from ACCA to the IFRS Foundation, August 2012.

ACCA welcomes the opportunity to comment on the above consultation, which was considered by ACCA’s Corporate Reporting Global Forum.

Developing IFRS by following a clear due process is vital for their acceptance and authority and the more widely the standards are adopted globally the more importance this assumes.

The due process handbook now proposed is a lengthy document even without its various appendices. The IFRS Foundation should try to make this handbook more to the point and should review it for repetition, especially with the constitution. It may be that significant parts of the handbook (for example paragraphs 3.45 to 3.56) could be omitted or reduced.

Response to specific questions

Q1. The Trustees have included an introductory section dealing with oversight and the responsibilities of the DPOC. Do you support the inclusion and content of this section?

Yes. The regular involvement of the Trustees via the DPOC is important because due process failings should be highlighted before the standards are finalised and not simply commented on by the Trustees after the event as part of their oversight function. In this regard we are not sure that paragraph 2.10 makes it clear enough that the DPOC should specifically sign off on the due process for each new or amended IFRS before they are finalised.

Q2. The DPOC have created a due process protocol in the form of a table that shows the steps that the IASB must, or could, take as well as the reporting metrics to demonstrate the steps they have taken in meeting their due process obligations? Do you agree with the idea that such a table should be maintained on the public website for each project?

Yes. We broadly agree with the proposed due process in the handbook that is captured in the protocol table. However if the protocol table is to be a key element of the system then presumably it should form an integral part of the handbook.

Q3. Do you agree with the distinction between narrow-scope projects, which come under the heading of maintenance and comprehensive projects, which come under the heading of development of IFRSs?

Yes. However maintenance, as much as comprehensive, projects should be subject to comparable tests to determine whether an amendment to the standards is absolutely necessary. We note that in the past some of the amendments made in the annual improvements project have not been essential, but were more in the nature of more specific restatement of what should have been clear on any reasonable reading of the standards.

Do you agree with the introduction of a separate research programme that will likely be the development base from which potential standards-level projects will be identified?

We agree with the proposal for a separate research programme.

This will allow subjects to be considered by IASB without a commitment to actually producing a new or amended IFRS. There have been a number of projects to change or add to the standards which have been initiated by IASB, but ultimately have not come through.

We also consider that IASB needs to move further in the direction of evidence-based decisions in terms of both initiating projects and in terms of making decisions in the final standards. So we welcome the emphasis on research. IASB should not duplicate the research efforts of others, but use or build on them. In our view it may well be possible for IASB to gain much of the evidence that it needs for the research programme by co-ordinating the resources of others active in the field, as well as deploying its own. However in relying on the work of others IASB would have to consider the objectivity and independence of that research.

It is important for IASB’s due process that the research phase evidence is published and this needs to include the results of fieldwork (paragraphs 3.67 – 3.70).

Q4. Do you agree with the increased comment period of 60 days for IFRIC rejection notices and the reduced period of 60 days for narrow scope re-exposure of EDs?


Q5. Are there any other matters in the proposed handbook that you wish to comment on, including matters not covered by the handbook that you think should be?

Yes, as follows.

1. Paragraphs 3.45 to 3.63 describe IASB’s consultation with a number of interest groups. We think wide consultation is very important. Consultative groups are helpful but given the widespread use of IFRS they can only be of limited reach. The other means of gaining views such as the comment letters and other outreach must remain very significant as offering the widest constituency of interested parties the chance to take part in the due process.

2. While this may be a matter for a constitutional review rather than the due process handbook (and we note that the trustees are due to receive relevant reports from the IASB soon), the development of separate consultative channels with regulators, national standard setters and investors calls into question the role and composition of the Standards Advisory Council whose members include representatives from all these groups. This may be better re-established with predominantly preparers, auditors and parties not otherwise represented.

3. The question of the language in which the due process is conducted is not addressed in the document. The IFRS Foundation as a whole will have to monitor this issue, but a global standard setter conducting its affairs in only one language sounds in principle hard to sustain.

4. We support the sections dealing with effects analysis (paragraphs 3.72 – 3.75) which are as they apply to the completion of the IFRS. However we would also stress the need for comparable evidence to be gathered for the commencement of a project and when the decision to develop an ED is taken. Questions of effect and cost/benefit are absent from paragraph 5.1. Indeed we consider that IASB has taken on too many projects in the past and some of these might never have been begun if this sort of evidence-based agenda decisions had been applied.

5. While we are content with the due process applicable to changes in the conceptual framework, we are not sure that it merits a special section on its own and especially the possible implication of paragraph 4.23 that revising the conceptual framework is to be a perpetual process.

6. Paragraph 4.3 states that the triennial agenda consultation is about the strategic direction for the IASB not about the development of particular IFRS. We disagree with that objective. It can certainly be an opportunity for the IASB to put forward for comment its overall strategy, but it should also be a chance for constituents and interested parties to propose or oppose specific projects. It is after all specific changes to IFRS that affect the stakeholders and not the general direction of travel of IASB’s work. Indeed the latest consultation was not in the form being suggested by this draft handbook, as it did invite comments on specific subjects. The consultation was open in the sense of naming a number of possible projects, but in future just as valuable would be for the IASB to put forward their proposed projects and for constituents to comment on them.

7. The re-exposure criteria in paragraph 6.25 seem to resemble a checklist of due process rather than criteria for making a decision on re-exposure. The standard setting process is already lengthy and we do not wish to stretch it further unnecessarily. However, if as a result of comments received significant changes are made to the standard before it is issued, then these seem grounds for re-exposing the proposals. Constituents are reacting to specific proposals in an ED, it does not seem reasonable to assume they might not have other reactions to significantly different proposals.

8. In paragraph 6.32 the handbook should set an expected minimum period between finalisation of a standard and its effective date. This would recognise the issues of translation, endorsement and preparation for the reporting companies. We accept that there might be rare circumstances where something less might be needed and indeed a longer period when dealing with more complex far-reaching changes. 

9. The handbook should address the due process implications, if any, of IASB jointly developing standards with FASB or others.