IFRS Foundation Due Process Handbook - Consultation

On 8 May 2012 the Trustees of the IFRS Foundation, responsible for the governance and oversight of the International Accounting Standards Board (IASB), published for comment an updated version of the IFRS Foundation Due Process Handbook with a 120-day comment period. Although revisions have been previously made to the Due Process Handbooks of both IASB and IFRS Interpretations Committee, this was the first time a major review had been undertaken since 2006. Two of the main features of the proposed handbook were consolidation of the due processes of IASB and IFRS Interpretations Committee and more extensive discussion on existing steps or phases of the due processes.

The proposed handbook was discussed during the meeting of the EFRAG Supervisory Board held on 22 May 2012, during the combined meeting of the EFRAG Consultative Forum of Standard Setters and the EFRAG Technical Expert Group held on 20 June 2012 and the meetings and conference calls of EFRAG Planning and Resource Committee held on 23 May 2012, 12 June 2012, and 13 July 2012. EFRAG also welcomed the presence of observers during the meetings of its working groups and noticed the recognition of its own process by the Due Process Oversight Committee on the IFRS Foundation Trustees' meeting held on 12 July 2012.

On 19 July 2012 EFRAG published the draft comment letter on the proposed IFRS Foundation Due Process Handbook and invited comments from all its stakeholders by 5 September 2012.

On 20 September 2012 EFRAG issued the final comment letter. EFRAG welcomed and appreciated the efforts that the Trustees of the IFRS Foundation have made to improve the due process of the IASB and IFRS Interpretations Committee. However several issues have been raised to the IASB and IFRS Interpretations Committee due processes and the proposed handbook itself during the meetings of EFRAG working groups.

EFRAG expressed that it would welcome the proposed handbook to clarify the objectives of the due process. EFRAG suggests setting shared identification of needs for improvement, proper consultation and discussion, and legitimacy through gathering arguments with reference to evidence as the three main objectives of the due process. EFRAG recommends that the principle of bringing improvements to financial reporting at an acceptable cost should be the sole driver of any change to the financial reporting. Our main comments are listed below.

Improving the proposals for the standard setting process:

• We welcome the research programme in coordination with accounting standards bodies and others, that has been introduced in the IASB due process and that reflects recommendations we have made at the time of the IFRS Foundation Strategy Review
• We would like to promote a shared due process between the IASB and regional and national accounting standards bodies
• We believe that effect analyses are essential components of the IASB decision making process and should be integrated into the standard setting due process over the life-cycle of projects
• We believe that the Due Process Handbook should set guiding principles to apply to how the IASB identifies and analyses users' needs
• We believe that results of public fatal flaw reviews, and when appropriate of field tests, should be assessed, in a public meeting, before the IASB makes its final decision on a standard or amendment
• The IASB staff should support the decision making process of the IASB, albeit never in a position of direction or decision
• While ultimate approvals remain with the IASB, the IFRS Interpretations Committee should be an important partner in standard setting
• We urge the Trustees to clearly stipulate that the IFRS Interpretations Committee should not issue any rejection notice that would be akin to an interpretation
• We believe that every decision made in the standard setting process should be subject to the super majority required for the whole standard

Considering due process oversight:

• We believe that the focus of the due process oversight responsibility should be on substance, and not on form
• The IFRS Foundation should be cautious of adding too much detail into the Due Process Handbook that would leave no room for any flexibility in the due process

EFRAG emphasised also its opinion that the principles based approach adopted in the revision of the IASB's due process based on transparency, full and fair consultation and accountability, is essential in order to avoid that the due process would merely result in a "ticking the box" exercise.

EFRAG received the comment letter from the European Securities and Markets Authority on 24 October 2012 and therefore it was not considered in the EFRAG final comment letter

EFRAG's feedback statement describing the main comments received on its draft comment letter and how those comments were considered during its discussions in September 2012 is available here.

On 18 February 2013 the Trustees of the IFRS Foundation published an updated version of the IFRS Foundation IASB and IFRS Interpretations Committee Due Process Handbook. The handbook itself and the Feedback Statement may be found on the on the Due Process Oversight Committee's section of the IFRS Foundation web site.