Global Standards for the world economy

Wednesday 16 October 2019

Banner graphic



Due process oversight

27 May 2011


Author Robert Bruce

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

It is the arguments about technical aspects of standard setting that tends to catch the headlines. But the issue of the governance of the processes that bring about standards is equally important. The work of the IASB has expanded at an extraordinary rate over the last ten years. And ever since the G20 decided it wanted to see a common global language of financial reporting in operation the work of the IASB has taken centre stage, along with a place at the top table of global public policy. And that has meant a much greater focus on the IASB’s governance and public accountability.

These have evolved as the role of the IASB has grown. The IASB itself is an independent body that sets the standards. The IFRS Foundation Trustees—comprising the great and the good of international public service, business and finance—oversee the activities of the IASB and, in particular, ensure that its independence is free from outside influences. The Monitoring Board, consisting of the most senior capital market supervisors around the world, provides the IASB with the legitimising link to the jurisdictions, supervisors and regulators that depend upon its work.

The importance of due process

Observers of the standard setting process, like IFRS Foundation Trustee David Sidwell, would "suggest that at the heart of reassuring reassuring the world that the IASB is acting in a proper manner at all times is the IASB’s due process, which defines how the IASB goes about its work and discharges its responsibilities to act in the public interest”.

A thorough, robust and transparent due process is essential to maintaining confidence and trust in both the IASB’s standard-setting activities and in the standards themselves that are produced, and written into law by more than 100 countries. Oversight of this process falls to a special committee of the Trustees, known as the Due Process Oversight Committee (DPOC). It is this committee that is responsible for approving, and overseeing the IASB’s compliance with, due process, and reviewing the Trustees’ fulfilment of their oversight function in accordance with the Constitution of the IFRS Foundation.



David Sidwell, Trustee

The DPOC meets the IASB at least four times a year and is chaired by David Sidwell, a former CFO of Morgan Stanley and a non-executive director of both UBS and Fannie Mae in the US. ‘What we are talking about are the procedures and policies that the Board follows in setting standards’, he says. ‘We are not talking about any particular decisions. We are not involved in the setting of standards.’


Balancing independence and accountability

It is a fine line. Independence has to be protected. But so must the integrity of the due process. ‘The Board must maintain a formal and extensive consultation process right the way through to the final standard,’ says Sidwell. ‘The role of the DPOC is therefore to construct and oversee a due process that is as clear and transparent as possible, and enhances confidence and trust in the resulting standards.’

And that starts with the outset of the process. ‘For example,’ he says, ‘the setting of the agenda. We want to ensure that the Board is out there discussing it, explaining why something in particular needs to be done, whether it is based on contact with investors, other interested parties, other standard setters, and so on.’ Then comes the way the subsequent project is handled. ‘Project planning needs to be a rigorous and transparent process,’ he says. ‘We focus on how an exposure draft is developed and publicised, including why they chose outcome A over outcome B, for example, so there can be no doubt, once it is published, that the Board had listened all through the process.’

All of these processes are now published within a dedicated DPOC section of the IASB website. The full extent of the questions asked and the reports made all the way through the process, from deciding to produce a standard to the publication of the final document, can be followed. ‘It is a very important aspect of providing oversight, which reinforces the idea of the Board being put in the spotlight and justifying why it took a particular decision,’ says Sidwell. And it is here that the independence of the Board and the rigour of the DPOC process come together. ‘It is a fine line,’ he says. ‘We are not interested in telling them what to do.’

Clarity of oversight

The detail of how this works is important and the DPOC is making changes in several areas to ensure that the clarity of due process is enhanced. There is a set method of achieving the oversight of due process. ‘There is much more structural dialogue with Board staff along the project time line,’ he says. But he wants to develop the system still further. ‘We will develop a framework to ensure that as each project proceeds along its steps we can validate that the due process is being followed in both letter and spirit. We have already begun to publish a high level summary after each meeting,’ he says. ‘And by the time a standard is issued we will able to say with confidence that a thorough, open and transparent due process was complied with.’

This will tie into the work of the IFRS Advisory Council, which advises the Board on proposed agenda items and setting priorities. ‘As part of this work, we will continue our dialogue with the IFRS Advisory Council, for example, to gauge confidence in the due process being followed by the Board,’ he says. And this brings another potential area into play: the differentiation between complaints about due process and plain old gripes about technical issues. There is a danger that some will start to complain to the DPOC about the Board and due process issues when what they are really unhappy about is specific technical issues. ‘We need to tread carefully in this area, and not to be seen as a mechanism for those who disagree with technical decisions taken by the Board to get the issues back on the table,’ he says.

Enhancements to due process

Another area on which the DPOC intends doing more work is the demonstration of due process achieved. ‘We will look at providing more robust documentation to demonstrate the oversight,’ says Sidwell. This has to be a system that continues to evolve and change depending on how issues develop. ‘Our due process is regarded by many people as best practice among comparable organisations, but we need to stay on top of our game by, for example, discussing with other organisations how they go about it,’ he says, ‘and, so far, our discussions and comparisons give us a sense that the Board’s process is already very strong.’

The DPOC is meeting the IASB on a monthly basis in the lead up to finalisation of the major convergence projects, and a number of the preliminary recommendations from the Trustees strategy review, due to be finalised in August 2011, will fall into the lap of the DPOC. These are likely to include further enhancements to the IASB’s cost/benefit evaluation and impact assessments for major standards, as well as additional regional outreach through enhanced dialogue with national standard-setters and greater use of round table discussions. Whatever the outcome, the DPOC is likely to remain one of the busiest of the Trustees’ standing committees for some time to come.

Further information on the membership and activities of the DPOC is available from