25 July 2011
Tom Seidenstein
Chief Operating Officer
IFRS Foundation
30 Cannon StreetLondon EC4M 6XH
United Kingdom
Dear Mr. Seidenstein,
re: Comments on the Report of the Trustees’ Strategy Review,“IFRSs as the Global Standard: Setting a
Strategy for the Foundation’s Second Decade ”
The Corporate Accounting Committee (CAC) of the Securities Analysts Associationof Japan (SAAJ) is pleased to comment on the Report of the Trustee’s Strategy Review,“IFRSs as the Global Standard: Setting a Strategy for the Foundation’s Second Decade”(the Review) put out by the IFRS Foundation. The SAAJ is a not-for-profit organization
providing investment education and examination programs for securities analysts. Its
certified members number 24,000. The CAC is a standing committee of the SAAJ
composed of 14 members, most of whom are users including equity and credit analysts,
and portfolio managers, while a few others are academicians and public accountants.
The CAC writes comment letters to global standard setters including the International
Accounting Standards Board (IASB) and the Accounting Standards Board of Japan(ASBJ), and exchanges opinions with organizations including the ASBJ and theFinancial Services Agency.
General CommentsThe CAC praises the Trustees for putting out a comprehensive strategic review for
the second decade of the IFRS Foundation. The CAC basically supports the Review butthinks there remain some areas that require improvement. The first is Mission. The
Review takes adoption and convergence dichotomically as “Convergence, however, is
not a substitute for adoption” (A2). The CAC thinks a more flexible approach is needed
during the coming transitional period. While there is no doubt that the ultimate goal is
the full adoption of IFRSs worldwide, it will be several years before we see adoption by
Japan and the US, and, after that, adoption by China and India will be a challenge. Inorder to facilitate adoption by these huge countries, convergence will play an importantrole. The second area requiring improvement is Process. The CAC thinks the IASB’s
standard-setting process to date has seen serious problems and that the Trustees need tomore effectively oversee due process. These areas of concern and other points arediscussed in more detail below.
Mission: defining the public interest to which the IFRS Foundation is committed
The CAC theoretically agrees with the observation that convergence is not a
substitute for adoption (A2). The Review, however, assumes that Japan and the US“will make a positive decision on the adoption” (Summary). If these two countries
allowed plenty of time and pursued a more cautious approach regarding possible
adoption of the IFRSs, then convergence could be more positively regarded as a
strategy to nurture environments in which the two countries could easily come to final
decision for adoption.
The observation that convergence is not a substitute for adoption (A2) assumes that,after adoption, IFRSs are implemented and applied consistently worldwide. This leads
to two important missions. The first is to provide extended and easy-to-understandapplication guidance which will facilitate the consistent application of IFRSs in every
country and region. The second mission is to establish a system to monitor and checkconsistent application and implementation worldwide. In this regard, the CAC opinedthat the IASB should tackle the issue in cooperation with local standard setters 1. In thiscontext, the CAC supports sections A3 and A5 of the Review.
Governance: independent and publicly accountable
The CAC completely agrees with the view that independence of the IASB must be
maintained (B1) and that the current three-tier structure is appropriate (B2).
As the CAC clearly mentioned in its comment letter to the Monitoring Board 2, it isdeeply concerned that some proposals in the Monitoring Board’s Consultative Reportseem to intend to expand the power of the Monitoring Board to such an extent thatwould destroy the current three-tier structure to make it a two-tiered one. The Review
stresses that “The Trustees are committed to co-ordinating the conclusion of theirreview with the IFRS Foundation Monitoring Board” (Summary). The CAC asks theTrustees to take full consideration of the above mentioned concern in the coordination
See our comment letter dated 18 February 2011, answer to Question 6.
http://www.saa.or.jp/account/account/pdf/ikensho110218en.pdf
2 http://www.saa.or.jp/account/account/pdf/ikensho110408en.pdf
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process.
The CAC supports the provision of regular public reports (B4).
Process: to ensure that its standards are of high quality, meet the requirements of awell-functioning capital market, and are implemented consistently worldwide
The frequent delay of projects in the past and probable significant changes between
exposure drafts and final standards in major projects including Leases, Revenue
Recognition, Insurance, and Financial Instruments (Impairments), are serious problems
that could undermine credibility in the IASB’s standard-setting process.
The CAC thinks the origin of these problems lies in the IASB’s due process.
Specifically, it thinks the timing of constituents’ opinion gathering through outreachactivities, including public hearings, is too late. Discussion Papers and Exposure Drafts
based upon inadequate information tend to be too theoretical and idealistic. The CAC
thinks the IASB should begin information gathering before drafting a Discussion Paperand that the Due Process Handbook should be partially revised.
The Due Process Handbook stipulates in Paragraph 106 that “Public hearings areregarded as most usefully held after the comment period, when the IASB has reviewed
the views raised by constituents.” The IASB should rather listen extensively toconstituents’ views by beginning outreach activities, including public hearings, before
drafting a Discussion Paper. While the CAC thinks a Discussion Paper could besomewhat idealistic, an Exposure Draft should be very close to the final standard asindeed the term itself suggests.
The CAC’s view that the IASB’s due process has problems suggests that theTrustees’ oversight has not been functioning effectively. The Trustees could perhaps
consider employing full-time staff to help in this area. Also, it may be necessary toreview the composition of the Trustees for effective oversight.
The Review declares “The framework for the Trustees in their oversight of theIASB’s due process should be clarified” (C2). Such framework should include thehearing of constituents’ views well in advance and clarify detailed procedures for
Trustees’ oversight.
In order to develop a single set of high quality global accounting standards,
sustained research and development efforts are necessary. During the first decade of theIASB, significant progress has been achieved in improving IFRSs. However, assymbolized by the unfinished conceptual framework project, there is much to be done.
In this regard, the CAC supports “establish a dedicated research capacity” (C6).

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Financing: ensuring the organization is financed in a manner that permits it tooperate effectively, efficiently, and independently
The CAC agrees that “the funding system must maintain the independence of thestandard-setting process, while providing organizational accountability” (D1).
As the CAC opined in its comment letter dated 18 February, it is of considerable

concern that some, or rather many, countries and regions are not paying their dues. The
first thing the Trustees can do now is to explicitly stipulate “making every effort that thecountries and regions a Trustee represent are paying dues” as an important performancebenchmark for Trustees.
If you have any questions or need further elaboration, please do not hesitate to contact
Sei-Ichi Kaneko, Executive Vice President, SAAJ (s-kaneko@saa.or.jp).
Sincerely yours,

Keiko Kitamura
Chair
Corporate Accounting Committee4