Four principles ensuring sustainable funding
The funding of an independent standard-setter operating in a global context can be problematic. Independence means that the funding has to come with no strings attached. However, the global context means that few organisations can provide funding on a similar global scale.
The 2008 budget shows the result of four basic funding principles that the Trustees adopted in 2006 that were aimed at solving the issue.
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Having no established ties to specific regulators or countries means that there is no straightforward link to funding from what might be considered the usual sources.
‘There is no one to mandate a universal levy on international companies or other bodies who benefit from the standard-setting process’ said Tom Seidenstein, Director of Operations, IASC Foundation. In the past this has meant relying on funding from a relatively small group of some 200 organisations and companies to finance the Foundation’s budget.
That began to change in 2006 when the IASC Foundation Trustees laid out specific ground rules to ensure that there could be no suggestion that funding impinged on the independence of the IASB and that the financing would be placed on a more sustainable basis.
It set out four principles:
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The first was that funding had to be broad-based. A sustainable long-term financing system must expand the base of support to include the major participants in the world’s capital markets. This should increase the diversification of the base of the funding.
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The second was that the funding system should be compelling. It should make free riding very difficult. This should be accomplished through official support from the relevant regulatory authorities, for example, and formal approval by the collecting organisations.
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Thirdly, the funding should be open-ended and not contingent on any action that might infringe on the independence of the standard-setting. And finally, the burden of the funding should be shared by the major economies of the world on a proportionate basis, using gross domestic product (GDP) as the determining measure.
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Ultimately the aim is to move to a simple levy system. This would add an element of automaticity to the funding system and reduce any future claims of dependence on single company contributions. ‘Dependence on voluntary contributions could hamper your independence’, said Gerrit Zalm, Chairman of the Trustees. ‘But I have never found a company that refused because it disagreed with a standard. My preference is for a levy system, which already works in several countries. It is good that all companies, who after all do benefit from IFRSs, should contribute. And it is an independent system.’
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Funding: The facts
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Budget
- £16 million for 2008
- £13 million through voluntary contributions
- Remaining: Income through publications
How it works
- Voluntary contributions (countries, international organisations, accounting firms)
- National levy systems in place for some countries
- Aim: A broad-based, sustainable and permanent financing mechanism
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Another issue behind the long-term goal to achieve a universal levy system is to widen the distribution of funding as much as possible.
Seidenstein explained: ‘The wider the sharing of the funding, preferably through a universal levy, the less anyone can suggest that independence could be impaired by undue influence from any quarter. A levy takes away any power that might be gained by contributing and gets rid of the perception that any company could influence the standard-setting work.’
Getting there is a gradual process. A national levy system is in place in the UK and Italy, and is in the process of being established in the Netherlands. Regulatory authorities in Australia and New Zealand have made financial commitments, and broad-based voluntary systems are being set up in many other countries.
Even if a global levy system is still in the future, the principles introduced by the Trustees have shown results. Seidenstein commented: ‘We are at the point when we can honestly say that thousands are involved, but we are continuing our efforts.’ As a result, roughly £13 million of the Foundation’s budget of £16 million in 2008 is already covered through long-term donations.
The remaining amount is covered through income from the organisation’s Publications Department. The aim, however, remains to become fully independent of other sources of income.
‘One of the difficulties,’ said Seidenstein, ‘is that introducing a levy often needs legal changes. There are different models out there though, and we are not too prescriptive. It is very much an evolutionary process.’ But the programme of widening the funding and ensuring that it is sustainable in the long term is in place and will be accelerated. He concluded ‘There will be a steady progression on this.’