13 July 2008

Bruegel paper: proposed Monitoring Group contains significant flaws

The Foundation’s Trustees should take a step back and consider a revised concept of oversight body, the author states. Keeping the current proposal unchanged would introduce unnecessary risks to the sustainability of the IFRS project.

Bruegel released a paper on the IASC Foundation that is likely to be granted more authority in the future over other key governance functions, including the Foundation’s funding.

 

The proposed Monitoring Group contains significant flaws, the primary one being its inability to credibly represent at global level the investors and other capital market users which should be considered the Foundation’s key stakeholders, Nicolas Veron says. Moreover, the very short timetable proposed for the first part of the Foundation’s Constitution Review is not warranted by the circumstances.

 

The Foundation’s Trustees should take a step back and consider a revised concept of oversight body as part of a one phase Constitution Review to be completed in 2009, the author states. Keeping the current proposal unchanged would introduce unnecessary risks to the sustainability of an otherwise highly successful IFRS project.

 

The proposal if implemented would probably pave the road for a Monitoring Group that not only would ultimately control the composition of the Trustees, the paper states. But other key governance aspects may also come under the spotlight of the public debate in the future.

 

The current lack of clarity on the nature of the IASC Foundation’s primary stakeholders bears risks for the Foundation and IFRS standard-setting, the author criticizes. “User representatives are notoriously few among the Foundation’s Trustees and members of the IASB, and investors are even less represented than other user”, he argues.

 

“The proposed composition and functioning of the Monitoring Group raise several awkward questions. By proposing to devolve the power to appoint its Trustees to a small group of securities regulators and other national and international public agencies, the Trustees may well create more problems than they solve”, the paper concludes.

 

The author criticises in particular that by including the responsible European Commissioner in the Monitoring Group, “the proposal creates a potential conflict of interest which could hamper the integrity of the endorsement process of IFRS standards.”

 

Also, the proposal describes the Group as an entity not governed by the Constitution, without giving any indication on the possible content of the MoU, and it is not even entirely clear as to whether the Monitoring Group is composed of individuals or of organisations.

 

All in all, the ‘fast-track’ approach envisaged for the creation of the Monitoring Group appears misguided and should be re-examined by the Trustees.

© Bruegel