The International Accounting Standards Board’s funding structure, which has come under scrutiny in the past, is still vulnerable to change, says Peter Williams
This article was first published in the July 2018 UK edition of Accounting and Business magazine.
International and US standards look destined to be parallel but apart. Money is one reason for this distance and is why the US is not set to adopt IFRS Standards anytime soon.
In the US, the work of the Financial Accounting Standards Board (FASB) is funded by cash from publicly traded companies, as well as money from publications and a large slug of investment income. In 2017, 8,410 public companies paid in US$27.8m, publishing earned US$17.7m and about US$15m came from reserve funds. FASB declares: ‘Independent, reliable funding safeguards the ability of the FASB... to set standards in an environment free from real or perceived conflicts of interest. The current funding mechanisms for our standard-setters means they don’t have to try to raise money from the very organisations that are subject to accounting standards.’ Unlike our poor conflicted international cousins – FASB doesn’t say that, but it may as well.
As the recently published IFRS Foundation’s 2017 annual report shows, funding for the work of the International Accounting Standards Board (IASB) comes from three sources: 52% from public authorities, 27% from accounting firms – a source of funds that raises eyebrows in the US and maybe elsewhere – and 21% from publishing, like the FASB. Detail in the board’s annual report shows a web of different donors from every corner of the globe, from major German corporates to China’s Ministry of Finance and the US Federal Reserve System. And just for the record, professional bodies such as ACCA are not required to make donations to the IASB.
Occasionally, critics have explicitly linked the work of the board with money. In September 2016, the European Economic Affairs Committee (ECON) demanded chairman Hans Hoogervorst take a pay cut. ECON complained that the salary ‘did not correspond with the public interest orientation of IFRS/IASB’.
A year later, the European Parliament wanted a reference to prudence in the board’s basic tenets and linked the change to future funding. The board said this stance was a ‘highly worrisome’ threat to its independence. In 2012, the European Commission provided £7.1m; in 2017, that fell to £4.2m.
Lack of certainty over funding is a risk for the work of the IASB, even with a few long-term funding deals in place – as is having to fend off accusations that those who pay the piper have undue influence on the choice of tunes. The board has acknowledged the weakness. Back in 2011, in a strategy review, it acknowledged that objectivity could crumble ‘due to the temptation to provide special consideration’ for major donors, and it added that any funder who was unhappy could stop paying.
Funding risk is manageable by having so many donors around the world. Even so, it is not the most sustainable way to fund financial reporting for the world economy.
Peter Williams is an accountant and journalist
* See next month’s AB for an overview of the funding of global regulators.