22 July 2011Mr Tom Seidenstein
Dear Mr Seidenstein
Trustees' Strategy Review 2011
The Group of 100 (G100) is an organization of chief financial officers from Australia's largest business enterprises with the purpose of advancing Australia's financial competitiveness. We are pleased to provide further comment on the Trustees' Strategy Review.
Purpose of financial statements: The G100 agrees with the stated purpose of financial reporting standards. However, as noted in our earlier submission (10 February 2011) the reference to global financial stability may create a perception that the objectives of financial reporting and prudential regulators can be achieved by developing standards to satisfy regulators rather than investors. We agree that the primary purpose of financial reporting is to provide a faithful presentation of an entity's financial position and performance. However, we suggest that while ensuring financial stability is not the primary role of the Foundation, the Foundation should recognise a responsibility to not inadvertently promote financial instability. This responsibility can (and presently is) discharged by consultation with prudential regulators during the development of financial reporting standards, to ensure potential impacts are well understood.
Adoption of IFRSs: The G100 believes that if the benefits of a globally accepted set of financial reporting standards are to be achieved IFRS should be applied as issued by the IASB and, as such, not modified to meet national 'idiosyncrasies'. Accordingly, as indicated in our earlier submission, efforts to converge IFRSs and US GAAP should not detract from the balanced development of the IASB's work program.
The G100 agrees that convergence or other mechanisms such as "condorsement" can only be appropriate as a means of transitioning from entrenched national approaches to full adoption of IFRSs. Departures from IFRSs as issued by the IASB serve to diminish the credibility and acceptability of IFRSs and the process.
The G100 notes that it can be difficult for users to determine the extent to which an individual jurisdiction or regulator has required the use of IFRS. That is, audit reports will frequently refer to "IRFS as adopted in...", and will not explain the extent of any carve outs, amendments or other variations from the IFRS in force at the relevant date.
The G100 suggests that the Foundation could play a useful role by providing a comprehensive and factual list of jurisdictions that have adopted IFRS, along with a note indicating the extent of any variation from full IFRS. A comment on any legal or other regulatory impediments to adoption of full IFRS, along with any plans for change, would also be a useful inclusion. The G100 suggests that such a note could be agreed with local regulators or national standard setter, to ensure its accuracy.
The commitment of the Foundation to the adoption of IFRS without modification is supported by the G100. A reliable reference point, detailing any modifications in the adoption of IFRS by individual jurisdictions, would assist this aim by providing transparency on the progress of jurisdictions towards full adoption.
Adoption of IFRSs as issued by the IASB is needed if the benefits are to be achieved. However, this need not preclude additional disclosures being required by national regulators. The motivation for such additional disclosures or divergence from recognition and measurement requirements would be minimized if IFRSs are of high quality and determined in a transparent manner. It is likely that the publication of dissenting views may contribute to variations from IFRSs as a country adopting IFRSs may argue that the existence of the dissenting view provides grounds for not accepting/adopting certain components of a standard.
In the final analysis compliance with IFRSs, where adopted, is a matter for national regulatory bodies not the IFRS Foundation which can only encourage compliance. In addition, if the IFRSs are high quality and globally accepted, non-compliance would be penalized in the market place.
Scope of Standards and IFRS Activities: The G100 agrees that the IASB should continue to focus on the development of IFRSs for private sector entities. In addition, the G100 believes the IASB should redirect its activities to better service the needs and expectations of companies in those jurisdictions that have adopted IFRSs.
Consistency of application and implementation: The G100 agrees with the proposed recommendations, with the recommendation re encouraging transparent reporting of divergence from full IFRS amended as per our comments above recommending that the Foundation publishes a list of jurisdictions adopting IFRS, noting the modifications made on adoption.
The G100 believes that the independence of the standard-setting process is an integral component of the development of high quality financial reporting standards and their acceptability in capital markets:
Process: Ensuring that standards are of high quality, meet the requirements of a well-functioning capital market and are implemented consistently across the world.
FINANCING: Ensuring that the organization is financial in a manner that permits it to operate effectively, efficiently and independently.
The G100 agrees with the recommendations relating to financing. The G100 believes that the way in which the structure is funded is critical to maintaining its independence, accountability and credibility.
Group of 100 Inc