The International Accounting Standards Board (IASB) last week issued an updated charter reiterating the global group's commitment to deep cooperation with other accounting standards-setting bodies.

Formed in 2001, the IASB oversees the International Financial Reporting Standards (IFRS), which are aimed at creating one universal set of accounting rules. The group is a private sector body with an appointed board, drawing from 11 countries and differing professional backgrounds. Oversight is provided by a board of trustees, who are in turn supervised by a Monitoring Board comprised of public officials.

The updated charter, also backed by the International Forum of Accounting Standards Setters (IFASS), is intended to boost the efficiency and effectiveness of the global effort. Officials said the charter has three goals:

·         Re-emphasize the importance of the global standard-setting community in the IASB's work, through open and close cooperation to arrive at shared goals.

·         Describe a common understanding of the commitments and expectations of the IASB and other standards-setting bodies.

·         Outlines practical areas where IASB members and staff can work cooperatively with representatives from other accounting standards-setting groups.

The charter also states that the IASB and other standard-setters are committed to working “transparently and openly,” willing to share information as well as resources when needed. Officials said the charter was designed with individual standard-setting bodies such as national authorities primarily in mind, but also would apply to regional groups like EFRAG Consultative Forum of Standards Setters.

“This charter highlights the importance of our partnership with national standard-setters and other accounting standard-setting bodies as an essential part of a multilateral model for global standard-setting,” IASB Chairman Hans Hoogervorst said in a statement. “Input from the wider standard-setting community is central to our standard setting and implementation activities, and is increasingly helpful to the IASB as we expand our research-based agenda, drawing on the expertise of our global stakeholders.”

In other news last week, IASB Vice Chairman Ian Mackintosh stressed the need to continue to drive towards one, universal set of financial reporting standards. During a speech at Manchester Business School last week, Mackintosh said the rapid transition to global capital markets rather than the national capital markets that existed a generation ago highlights the need for a global set of reporting standards and common reporting language.

“This transition from national to international capital formation presents huge challenges to policymakers,” Mackintosh said. “The recent global financial crisis provided a graphic illustration of how national or even regional approaches are no longer sufficient in managing globally interconnected capital markets.

Having multiple sets of accounting standards makes it harder for investors to compare the financial health of companies, adding to the risk, and also drive up costs for multinational corporations, Mackintosh said. In terms of the comparability of financial reports, Mackintosh pointed to the example of Germany's Daimler-Benz. When the automaker switched from German accounting principles to U.S. GAAP in 1993, the company saw a profit of 600 million deutschmarks transform into a roughly 2 billion deutschmark loss under U.S. GAAP, he said.

Currently the European Union and about 100 countries require most listed companies to use IFRS for financial reporting. The transition to IFRS, however, has not been without controversy. Mackintosh addressed some of the challenges facing IASB and other supporters as they push toward their goal of one set of standards. He termed those challenges as sovereignty, structure, and standardization.

On sovereignty, Mackintosh said he understands concerns that jurisdictions have about losing control over rules they have long determined. But he said IASB uses robust outreach programs to involve all stakeholders and to ensure the IASB is not “simply passing down diktats from an ivory tower.” Many national jurisdictions have what he called circuit breakers in place to ensure new rules adopted meet their national interests. However, he pointed out if a jurisdiction amends a rule or fails to adopt it, it no longer represents a truly global standard. National jurisdictions “must resist the quite natural temptation to tinker,” he said.

The IASB also faces challenges due to its own internal structure as a private sector body, Mackintosh said. But he said the private-sector status was chosen because the standards are used mainly by the private sector. He added that the group incorporates a wide representation of stakeholders with a high degree of transparency with deep oversight from public bodies. He added that the structure balances the competing needs of efficiency and legitimacy.

“International bodies composed of public representatives do not automatically always have a good track record of producing international standards with (a high) level of rigor,” Mackintosh said. “The presentation of national positions for bargaining and the consensus-driven nature of their decision-making will often result in standards that represent the lowest common denominator of international agreement or that provide substantial latitude to jurisdictions in how those standards are implemented.”

On the challenge of standardization, Mackintosh noted that while there is widespread agreement on the need for a common global set of reporting standards, the disagreement comes into play as to what those standards should be. Complicating the matter are historical business practices and accounting traditions in each jurisdiction, he said. Mackintosh pointed to the controversy that ensued after the IASB's 2010 decision to eliminate the term “prudence” from the Conceptual Framework. That decision sparked heavy criticism from the United Kingdom in particular, who argued that companies would engage in increased or reckless risk-taking, while the decision was backed by supporters in Germany, Australia, and elsewhere.

“Any form of globalization can be controversial,” Mackintosh said.

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