21 August 2020

What is the due process and why does it matter?

Alan Beller

The IFRS Foundation was established to develop a set of high-quality, understandable, enforceable and globally accepted accounting standards—IFRS Standards—and to promote and facilitate their adoption. These Standards bring transparency, efficiency and accountability to the world’s financial markets.

How do we ensure that the Standards are of the highest possible quality?

The answer lies in our thorough, inclusive and transparent due process. By following this due process in our standard-setting, we enable stakeholders all over the world to scrutinise and contribute and help us ensure that the best thinking globally leads to the development of the accounting requirements.

In this article, Alan Beller, who chairs the IFRS Foundation Trustees’ Due Process Oversight Committee, explains what the due process is and how it is overseen.

Underlying principles

The due process comprises the requirements followed by the International Accounting Standards Board when setting IFRS Standards and developing the IFRS Taxonomy, and by the IFRS Interpretations Committee when working with the Board to support consistent application of those Standards.

The process laid out in the Constitution and developed in consultation with stakeholders, acts as a detailed ‘contract’ between the IFRS Foundation and those stakeholders. This ‘contract’ is described in detail in the Due Process Handbook.

The process is based on three principles. The first is transparency. Anybody, regardless of who they are and where in the world they live, should be able to follow the development of IFRS Standards. To facilitate that, all the technical discussions of the Board and the Interpretations Committee take place in public meetings, which are broadcast live and archived on the website. All meeting papers are publicly available.

The second principle is full and fair consultation. Before an IFRS Standard is amended, or a new one issued, before the Taxonomy is amended or an agenda decision is finalised to facilitate consistent application of the Standards, the Board and the Interpretations Committee consult publicly. Public consultation gives everyone affected by the Standards or who have an interest in financial reporting an opportunity to share their views on the issue. Comment letters responding to the consultations are posted on the website.

The third principle is accountability. The Board and the Interpretations Committee explain the rationale for their decisions. They also analyse and present the likely effects—costs and benefits—of a proposed new IFRS Standard.

The due process is essential both for developing high-quality IFRS Standards and for ensuring that stakeholders can be confident that all relevant views have been considered when the Standards are developed. The process builds trust, legitimacy and global acceptance of the Standards.

Standard-setting ‘manual’

The Due Process Handbook outlines the requirements the Board and the Interpretations Committee must undertake in their technical standard-setting and lists possible additional steps.

The Handbook sets out:

  • how the Board determines whether to add a project to its work plan;
  • the stages of standard-setting and the types of consultation documents and other materials published by the Board and the Interpretations Committee;
  • the minimum consultation requirements, including the duration of consultations;
  • the advisory bodies and consultative groups established to provide input to the standard-setting process, and when and how they should be consulted;
  • the minimum voting requirements for the Board and the Interpretations Committee to advance proposals or finalise documents at different stages in standard-setting; and
  • the procedures followed if a stakeholder complains about the due process.

Due process oversight

The Trustees, who are responsible for the governance of the IFRS Foundation, are also responsible for monitoring Board and Interpretations Committee compliance with the due process. The Trustees carry out this responsibility via their Due Process Oversight Committee.

For example, if the Board would like a shorter consultation period than the minimum specified in the Handbook for a proposed amendment to an IFRS Standard, it must obtain permission from the Due Process Oversight Committee and, in some cases, from the Trustees. To meet stakeholders’ needs, the Board may need to work its way through the due process more quickly for some documents, for example as it did recently with an amendment to IFRS 16 on leases to help lessees accounting for covid-19-related rent concessions.

The Due Process Oversight Committee’s meetings are held in public to enable stakeholders to follow any discussions about or updates on how the Board and the Interpretations Committee have delivered on its due process obligations.

The Due Process Handbook provides for comments or complaints from stakeholders about application of due process requirements, and these are also considered in public Due Process Oversight Committee meetings.

The Due Process Oversight Committee is also responsible for maintaining the due process to ensure it remains fit for purpose and reflects good practice. In August 2020, the Trustees published a revised version of the Due Process Handbook after a public consultation on proposed amendments.

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