New IFRS Research Centre: Hope for More Evidence-Informed Standards

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© 2014 Wiley Periodicals, Inc.Published online in Wiley Online Library (wileyonlinelibrary.com).DOI 10.1002/jcaf.21985

featur

e article

Cathy J. Cole

As the International Accounting Standards Board (IASB) moves into the middle of its second decade, it has launched a new IFRS Research Centre to provide research support for its standards-setting activities. This is a welcomed development. It is part of a more formalized structure for providing research support for the IASB’s standards-setting activities—and advancing an evidence-based approach to developing new reporting standards. The author of this article believes that the exis-tence of a more well-defined and organized forum for communicating research and soliciting input, such as the Research Centre, should benefit all the IASB’s constituencies. And while there is no guarantee that it will speed convergence, it is a good step forward.

© 2014 Wiley Periodicals, Inc.

New IFRS Research Centre: Hope for

More Evidence-Informed Standards

As the Interna-tional Accounting Standards Board

(IASB) moves into the middle of its second decade, it has launched a new IFRS Research Centre as part of a more formalized structure for providing research support for its standards-setting activ-ities (IASB, 2014g). The goals of the Research Centre are to increase awareness of the research program, to encourage additional research related to international financial reporting issues, and to advance an evidence-based approach to the development of new reporting standards (IASB, 2014h). The adoption of this more formalized structure is a positive development and part of the evolution of the IASB as a standards setter.

EVOLVING STANDARDS-SETTING PROCESS

The activities of the IFRS Research Centre can be con-

sidered part of the ongoing evolution of the IASB and its standards-setting process. This process has evolved significantly since the IASB’s earlier days when a potential project could move from the preproposal stage into the standards-setting phase without necessarily undergoing the same degree of preliminary background research as now seems necessary (IASB, 2014b). Earlier in the IASB’s existence,

the problems were more obvious and the solutions more urgent. The more recently adopted process involves sev-eral phases or pro-grams and includes more initial research groundwork before a proposal is devel-oped and an issue moves into the stan-dards-setting phase. The first phase of the process is agenda consultation, which includes a request for information and inclusion on the IASB’s three- or five-

year plan (IASB, 2014b). This is followed by the research phase or program, which involves gathering research evidence, preparation of research or other papers (e.g., position or discus-sion papers), and development of a proposal (IASB, 2014b). As a result of evidence gath-ered in the consultative and research programs, the IASB may decide to add the project to its standard’s setting agenda and the project would enter the

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DOI 10.1002/jcaf © 2014 Wiley Periodicals, Inc.

the Research Centre is to focus on areas of financial report-ing where there are perceived shortcomings, to determine the type and pervasiveness of these shortcomings, and generally assess how financial reporting can be improved (IASB, 2014e). Accomplishing these goals requires gather-ing evidence, and that is the focus of IFRS Research Cen-tre’s activities. The Research Centre website has four major subsections (IASB, 2014h) (see Exhibit 1 ), which include: How You Can Help, Get Started, Get Involved, and Stay Informed. Under the heading How You Can Help, the IASB identifies a number of projects in the research program (see Exhibit 2 ) for which some pre-liminary efforts have already been undertaken. As previously discussed, researchers who are planning or already working on research in these areas are encouraged to inform the IASB staff of the research plans and results (IASB, 2014e). The Get Started section provides access to a number of discus-sion papers making reference to academic research relevant to IASB agenda items, agenda papers relevant to the IASB’s conceptual framework, and postimplementation agenda papers (primarily related to segment of business reporting and business combinations). While the Get Involved section primarily addresses opportuni-ties for individuals to work at the IASB as practice, industry, or visiting fellows, the sec-tion also refers back to the research topics listed under the How You Can Help section (IASB, 2014e). Finally, the Stay Informed section includes the first issue of the IFRS Research Round-up. This semiannual

IASB’s Senior Technical Direc-tor, Alan Teixeira, states, “Our need for evidence pervades the standards-setting process (Teixeria, 2014, p.4).” Support-ing evidence will be important for moving an issue from the research phase to the standard setting phase of the process (Teixeira, 2014). The early part of the research phase is charac-terized by collecting evidence on whether there is in fact a prob-lem, whether divergence in prac-tice exits, and whether the trans-action or issue is of economic significance (Teixeria, 2014). As the project moves forward, evi-dence is needed on whether there are feasible solutions that are cost beneficial, that can be eas-ily and consistently applied, and will lead to improved financial reporting. As Teixeira indicates, gathering evidence may involve field tests, surveys, modeling, applying proposals to real data, and other forms of analysis. The evidence gathered not only will support the need for a new or modified standard but can be used in the basis for conclu-sions to justify the conclusions reached in the standard and the provisions adopted. Thus, the need for the standard and the specific requirements can then be supported by evidence gath-ered rather than mere assertions expressed by one interest group or another (Teixeira, 2014). Evidence is also important dur-ing the postimplementation review of a standard and is needed to assess the degree of divergence in practice prior to acceptance of an issue for inter-pretation by IFRS Interpreta-tions Committee.

THE IFRS RESEARCH CENTRE

The goal of the newly for-malized research program and

standards phase, resulting in the traditional exposure draft and presumably the ultimate issuance of a standard (IASB, 2014b). The final or imple-mentation phase of the process includes a poststandard review requirement for major standards or modifications.

The general research pro-gram, including the newly launched IFRS Research Centre, is designed to remedy perceived problems in the previous, some-what more streamlined IASB process for reaching the stan-dards phase. The standards-set-ting problems identified (IASB, 2014b) include the failure to complete projects on time or to complete them at all and requir-ing reexposure of documents due to significant revisions after an initial exposure draft. There were also concerns about allocating the limited resources of the IASB in the most cost-beneficial manner to address the most important financial reporting issues. Other issues arising from the prior more streamlined process involved problems getting full constituent acceptance of revised or newly issued standards including dif-ficulty obtaining endorsement of the standard as written in the various jurisdictions applying IFRS, increased demands to justify changes in the standards, and concerns among some con-stituents that once a project is added to the IASB work stream, the issuance of a new or revised standard is a foregone conclu-sion (IASB, 2014b).

EVIDENCE-INFORMED STANDARDS

The new process incor-porates the recent focus on “evidence-informed standards setting” (Teixeira, 2014). The

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© 2014 Wiley Periodicals, Inc. DOI 10.1002/jcaf

demic research findings in its deliberations as important inputs to the process of evalu-ating issues (IASB, 2014e).

OUTREACH GOALS

As in the past, the IASB will continue to consider aca-

publication is designed to high-light existing and new research projects for the benefit of the research community.

IFRS Research Centre: Basic Organization

Section Content

How You Can Help Lists topics of intended IASB research focus during next 2–3 years. Each links to existing information on the topic developed by the IASB staff.

Get Started Provides access to illustrative research papers on topics that may be of interest to researchers.

Get Involved Lists research related positions available at the IASB as well as referencing the topics listed under How You Can Help.

Stay Informed Provides access to the new IASB publication, IASB Research Roundup.

Source: IASB (2014h)..

Exhibit 1

General Research Program Topics

Short- and Medium-Term Projects Longer-Term Projects

How You Can Help projects * How You Can Help projects *

Business combinations under common control Extractive activities

Disclosure initiative Intangible assets

Discount rates

Emissions trading schemes

Equity method of accounting

Financial instruments with characteristics of equity

Other projects Other projects

Foreign currency translation/inflation Research and development activities

Liabilities—amendments to IAS 37 Postemployment benefits

Rate-regulated activities Income taxes

Share-based payments

* How You Can Help (IASB, 2014e) projects are those listed under this heading on the IFRS Research Centre’s website indicating that some research has commenced on these projects. Source: IASB (2014c).

Exhibit 2.



Thus, a critical aspect of the Research Centre is to engage academic researchers and to encourage independent research in areas relevant to IASB projects. The rationale appears to be that both the IASB and the researcher can benefit from a more collab-orative approach. The IASB may gain timely access to independent research results that may be directly relevant to reporting issues on which it is focusing, and the researchers will gain a forum to showcase their research. The ultimate goal from the academic’s point of view would be enhanc-ing the academic’s success in publishing the research in peer-reviewed journals. The IASB suggests that researchers who are conducting research relevant to the IASB’s two- to three-year-ahead research program should consider pro-viding information on their research to the IASB staff through the Centre’s website (IASB, 2014e).

POSTIMPLEMENTATION REVIEWS

Also highlighted on the Research Centre’s website is the research effort associated with postimplementation reviews of major new or modified standards. In the first issue of the IFRS Research Round-up, IASB Senior Technical Manager, April Pitman (2014) describes the basic objective of postimplementation reviews as assessing whether a standard has improved financial report-ing. Pitman points out that reviewing academic research relevant to a newly issued stan-dard can be an effective way to gather independent data on the effects of applying a new stan-

dard. Since postimplementation reviews are usually conducted two to three years after the standard, research on the post-implementation effects may still be in the early stages. Neverthe-less, the IASB staff has found that reviewing the relevant aca-demic studies in process is help-ful in gaining an independent assessment of a new standard’s effects on financial reporting (Pitman, 2014). As part of the Research Centre’s initiatives, when a new standard is issued, IASB staff will make it clear when the postimplementation review will be conducted and what issues are of interest to provide for better coordina-tion with the academic research efforts in the future (Pitman, 2014).

IFRS RESEARCH FORUMS

The establishment of the IFRS Research Centre is designed to foster greater aca-demic interest in IFRS-related research by improving outreach to the academic community both by better communication of the IASB’s areas of interest and by supporting academic forums on research relevant to IASB topics (Hoogervorst, 2014). The improved communi-cation will come from a number of initiatives, including having a specific website dedicated to research and by providing semi-annual research updates in the new IASB publication, IFRS Research Round-up, which is published on that website. The IASB has also established an annual IFRS Research Forum, the first of which will be held in October 2014 at Oxford Uni-versity, in conjunction with the journal Accounting and Busi-ness Research (IASB, 2014i). Similar to other academic con-

ferences, the research results will be discussed at the research forum and the papers may be selected for publication in spe-cial issues of the peer-reviewed academic journals. The first research forum will focus on the conceptual framework (IASB, 2014i).

CONVERGENCE

While there is no guaran-tee that any new or modified standards that may ultimately develop from the IASB’s research program (see Exhibit 2 ) will enhance convergence with U.S. GAAP, some projects could lead to greater conver-gence. For example, financial instruments with characteristics of equity, which is listed on the research agenda, is certainly related to the IASB/FASB joint project on financial instru-ments. Although not a joint project, both standards setters have some form of disclosure initiative on their agendas. The disclosure initiative listed on the IASB’s research agenda (Exhibit 2), includes a number of subissues including amend-ments to IAS 1 dealing with financial statement presenta-tion, reconciliation of liabilities from financing activities in the cash flow statement, material-ity, principles of disclosures, and a general disclosure review (IASB, 2014b). The latter issues (materiality, principles, and disclosure review) are consis-tent with concerns expressed by some under U.S. GAAP (Financial Accounting Stan-dards Board, 2012, 2013) and under IFRS (IASB, 2013) that the sheer volume of required disclosures, some of which may not be relevant to a specific company’s current financial situation, may obscure material

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WAYS FOR CORPORATE CONSTITUENTS TO GET INVOLVED

While the academic com-munity may be the primary target of the Centre’s outreach and efforts to foster additional research, a general advantage of the new Research Centre to all constituents is that it will pro-vide a single point of reference for information regarding IASB research activities, increasing awareness of these activities and potentially reducing the infor-mation-gathering costs for users, preparers, and other constituents alike. Corporate constituents should be able to contribute to the IASB’s research efforts, as they have in the past, by partici-pating in activities that will now be conducted under the auspices of the IFRS Research Centre. For example, many corpora-tions already voluntarily assist standard setters by performing field tests and similar studies to assess feasibility and costs associated with alternative pro-posals, and it appears that these activities will continue through the efforts of the Research Cen-tre. In addition, IASB Industry Fellows generally come from large international companies for periods of up to two years (IASB, 2014d).

SUMMARY AND CONCLUSIONS

As the IASB organization moves into the middle of its second decade, the launching of a more formalized structure to provide research support for its standards-setting activities is a welcome development. As indi-cated earlier, the Research Cen-tre is designed to increase the awareness of the IASB’s research program, encourage additional research on financial reporting

guidance is developed from a research project, that standard could potentially lead to greater convergence. However, for any issue, a convergent outcome is not necessarily assured as con-vergence may require standards setting by both the IASB and the FASB.

EVOLVING ROLE OF FINANCIAL REPORTING

The research program is intended to extend its focus beyond financial reporting as it exists today (IASB, 2014e). One event intended to encour-age international debate on financial reporting generally is the Tommaso Padoa–Schioppa Memorial Lecture, which is being inaugurated in 2014. The lecture series is designed to encourage thinking and research that focuses on “the interaction between financial reporting requirements and public policy” (IASB, 2014j).

Another example of the broader research focus is the recent research paper on “inte-grated reporting” issued in conjunction with a meeting of the IASB’s Capital Markets Advisory Committee. As dis-cussed in that research paper (IASB, 2014a), integrated reporting is a style of reporting that apparently arises from con-cerns regarding environmental sustainability and would pro-vide information on the choices made by a specific company in the trade-off between eco-nomic results and such factors as environmental sustainability and social responsibility. While there is apparently little current demand for this type of report-ing among organized investor groups (IASB, 2014a), report-ing needs could change in the future.

relevant information in the financial statements. In addi-tion, the preparer community often expresses concerns that certain disclosures cannot be justified on a cost/benefit basis. To the extent that the IASB research projects explore the greater use of entity discretion in providing disclosures, the development of disclosure prin-ciples that focus on enhancing disclosure of material relevant information, and the review of disclosures that do not add value to financial reporting, the project appears to be moving in a direction consistent with that of the Financial Account-ing Standards Board disclosure framework project (FASB, 2014; IASB, 2014b).

While a somewhat narrower topic, common-control business combinations address an issue that occurs with some frequency in IFRS compliant jurisdictions. Since there is no specific IFRS guidance on the issue, while there is some guidance under U. S. GAAP and in other jurisdic-tions (IASB, 2007), the issuance of IFRS guidance could poten-tially lead to greater harmoni-zation and reduced diversity in practice. Another example of an area of potential conver-gence arising from the IASB research program is the issue of rate-regulated industries. The U.S. and certain other jurisdic-tions have specialized industry guidance allowing deferral of regulatory assets, whereas IFRS does not (IASB, 2014f). Recently, the IASB adopted an interim standard (IFRS 14) that permits first-time adopters to continue application of their existing GAAP requirements for rate-regulated industries, while the related research proj-ect is still in process (IASB, 2014f). Thus, if new IFRS



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International Accounting Standards Board (IASB) . ( 2014 g, April 22). IASB launches the IFRS Research Centre . Retrieved from http://www.ifrs.org/Alerts/PressRelease/Pages/IASB-launches-the-IFRS-Research-Centre-April-2014.aspx

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Pitman , A. ( 2014 ). Enhancing the IASB’s research capacity . IFRS Research Round-up, 1 (1), 5. Retrieved from http://www.ifrs.org/IFRS-Research/Stay-informed/Documents/IFRS-Research-Round-up-April-2014.pdf

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December 2007 meeting: Common control transactions. Retrieved from http://www.ifrs.org/Current-Projects/IASB-Projects/Common-Control-Transactions/Meeting-Summaries-and-Observer-Notes/Documents/AP0712b05cobs.pdf

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International Accounting Standards Board (IASB) ( 2014a ). Agenda paper 3: Capital markets advisory committee February 2014 meeting: Integrated reporting. Retrieved from http://www.ifrs.org/Meetings/MeetingDocs/Other%20Meeting/2014/February/AP%203%20Integrated%20Reporting%20CMAC%20%20February%202014.pdf

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topics, and assist the IASB in its move to a more evidence-based approach to standards setting. The existence of a more well-defined and organized forum for communicating research and soliciting input such as the Research Centre should benefit all the IASB’s constituencies.

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Hoogervorst , H. ( 2014 ). Enhancing the IASB’s research capacity . IFRS Research Round-up, 1 (1), 2. Retrieved from http://www.ifrs.org/IFRS-Research/Stay-informed/Documents/IFRS-Research-Round-up-April-2014.pdf

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Cathy J. Cole is an assistant professor of accounting at the University of Texas at San Antonio, where she focuses on instruction and research in financial accounting and capital markets. Prior to joining the univer-sity, she was an associate chief accountant in the Office of the Chief Accountant at the U.S. Securities and Exchange Commission (SEC) in Washington D.C. Prior to the SEC, she was an assistant professor at Virginia Polytechnic Institute and State University, a program manager for a professional education organization, and an audit manager with a national CPA firm.