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Governance


 

IFRS Foundation financing

 26 May 2011


 

Author Robert Bruce

Robert Bruce, a financial journalist, reports on IFRSs in Europe. His views are his own and may not represent those of the IFRS Foundation or the IASB.

As an independent standard-setting organisation, the financing of the IASB has always been a sensitive issue. Over its ten-year history the organisation has worked hard to maintain an acceptable balance: to raise effective and sufficient funding but at the same time ensure its independence is not impaired.

Transition to a sustainable funding mechanism

In the early days there was, inevitably, a much greater reliance on voluntary contributions as the IASB got up and running. But over the bulk of its existence, the IASB has striven to reduce that side of its funding. In 2005 funding was entirely voluntary—now, over two-thirds of it comes through funding regimes managed by official authorities. ‘With voluntary funding,’ says Tom Seidenstein, IFRS Foundation Chief Operating Officer, ‘some critical voices express concern that such funding could somehow lead to special access or a situation where companies could threaten to cut off funding because they don’t like a particular standard.’

And the strategy put in place by the IFRS Foundation calls for moving as quickly as possible to a funding model that relies on public sponsorship or other intermediated mechanisms, in turn removing any perceived risk to the independence of the Board. ‘Our goal,’ says Seidenstein, ‘is to have a system where funding comes predominantly through official authorities in jurisdictions.’ This would remove any lingering doubts of the Board’s independence. ‘There would then be no element of “a direct ask” from the Board,’ he says, ‘and there would be a greater level of authenticity. This is the first year of EU-wide contribution out of the European Commission’s budget. It puts European funding on a firmer and wider basis.’ And that grant is supplemented by national regimes.

‘We have made huge progress in getting funding in place,’ says Seidenstein. ‘In Asia/Oceania and Europe, countries are meeting their targets in terms of financing the organisation, parts of Africa and Brazil are on board and we are on a pretty good footing throughout the world.’ In 2011 direct contributions from companies have been brought down to 8 per cent and from international accounting firms to 26 per cent, giving an overall figure of 34 per cent of total revenues. This is expected to fall further with more progress in the US and other jurisdictions. This year the US is the only remaining place where the Foundation still seeks direct contributions from companies. And that problem would be largely diminished if the US came formally into the IFRS fold.

Publication revenue is another complicated issue. It is a means of raising funds. But again there can be a perception that it might be acting as a disincentive for smaller jurisdictions and in effect closing out opportunities. The IASB is very aware of this. ‘If any country wants a copyright waiver,’ says Seidenstein, ‘we provide it. People will pay for eIFRS and so on, all the value-added stuff. But we never want copyright to be an impediment to adoption.’

Balancing the budget

All of this has to take place within a difficult budgeting context. The organisation has run deficits for two years and, encouraged by the Trustees, will balance its budget this year. It has done this by tapping new sources of funding and ‘holding a pretty tight line on costs’, as Seidenstein puts it. He sets out comparisons: total operating expenditure for 2011 is £22.4m, whereas the long-term goal is for a budget of between £30m and £40m. ‘We have a smaller staff than the FASB at the moment,’ he says, ‘but we have 15 board members to their seven.’ He points to the international nature of the work. The travel budget is £2.5m. Technical staff amount to around 60 people, fewer than the FASB. And the growth in outreach and consultation is naturally costing more. ‘We have a dedicated outreach effort on each project,’ he says. So the special nature of the work costs more. But the style of the organisation is tight and focused. A journalist recently wrote about how modest the operation appeared. ‘We have lots of the challenges facing multi-national corporations,’ Seidenstein points out, ‘but none of their scale. We aim to cover the world with 15 board members and 130 staff. Normally in such an organisation you would have, for example, huge HR, IT and Communications teams. Here we have just a few people.’ But on the other hand revenues are also rising. This is a result of more and more jurisdictions coming into the IFRS fold and royalty revenues from publications rising as a result of greater interest in IFRSs around the world.

‘The long-term goal,’ says Seidenstein, ‘is to be totally funded by national or international regions so that we would no longer be funded by the firms or by publication revenues.’