Final Observations of an Accidental Accountant: Part 3

On the 3rd of June, Hans Hoogervorst, Chair of the IASB delivered his farewell speech at the IFRS Foundation Virtual Conference 2021 titled: “Final Observations of an Accidental Accountant”. He reflected on his 10-year tenure; how IFRS Standards have evolved during that time; and on the importance of independent standard-setting. He also reflected on developments in the economy during his time as Chair. Here is an excerpt from that speech. This is the last of a three-part installment. 

Consolidation of the use of IFRS Standards 

I am also proud of how IFRS Standards have become firmly established as the leading accounting standard for the global economy. When I started out in 2011, IFRS Standards were still relatively new and there was a lot of nervous excitement about their future. On the one hand, the goal of a single set of global accounting standards was still alive and mentioned in all communiques of the FSB and the G20. On the other hand, there was also a lot of uncertainty about whether the United States would finally adopt. Many feared that if the US failed to do so, the world of IFRS Standards might fall apart. 

In the course of 2011 and 2012 the dream of a single-set of global accounting standards gradually faded as the US Securities and Exchange Commission (SEC) became increasingly hesitant about IFRS-adoption. Following the Great Financial Crisis companies were under a lot of pressure everywhere and the SEC felt it could not push through a reform that would generate considerable cost in the short run. The Japanese Minister of Finance also became more cautious after the terrible tsunami of 2011. 

Yet the much-feared dissolution of the world of IFRS Standards did not happen. One by one, the IFRS family was joined by individual jurisdictions in Asia and Africa, ultimately reaching a total of more than 140. In Japan, the number of individual companies adopting IFRS Standards grew steadily and before long, more than 50% of the Japanese stock-market will be denominated in IFRS Standards. China has stayed very close, incorporating all the new Standards and many Chinese companies are able to state full compliance with IFRS Standards. Importantly, the European Union, which made the dream of IFRS Standards a reality in 2005, was thus far able to resist the temptation of adding carve-ins to our Standards. 

Those who follow the endorsement of IFRS 17 closely, know there is a distinct possibility that Europe will end up making a carve-out of the annual cohorts requirement of this standard for some insurance companies. This would give insurers the possibility to mix old profits (even on contracts that have already expired) with new profits that could be lower due to low interest rates. The resulting income statements could show artificially high profits and even mask losses. Should the EU go ahead with such a carve out, I hope that efforts are made to ensure that companies disclose that they are using the carve out, so that investors can properly take this into account. 

All in all, the use of IFRS Standards has consolidated in large parts of the world and it is no longer subject to fierce debates. The culture war between proponents of fair value accounting and the fans of historical cost accounting -still very much alive in 2011- has also lost much of its fire. The IASB steered a well-reasoned pragmatic course in which current measurement steadily gained ground while the pitfalls of fair value accounting were not ignored. 

The excitement around IFRS Standards that greeted me 10 years ago has largely dissipated. But in this case, the fact that we have become a bit boring is a positive thing. It means that IFRS Standards have firmly established itself as the leading global accounting language. The dream of a single set of global standards has not yet been achieved. But the degree of consolidation that has been achieved is nothing short of astonishing, especially in this time of scepticism about globalisation. 

I would like to think that jurisdictions have converged on IFRS Standards because of the quality of our standards. But equally important is the contribution of IFRS Standards to the ease of doing business. Many Japanese companies voluntarily embraced IFRS Standards, simply because it makes managing a multinational organisation so much easier. 

And finally, I think that the governance of the IFRS Foundation has greatly strengthened our credibility. The relative independence of the Board, shielding it from excessive wheeling and dealings, has hopefully contributed to its trustworthiness. Indeed, the enthusiastic response of stakeholders to the proposed role of the IFRS Foundation in sustainability reporting was to a great extent fed by the trust in our governance and due process. 

To view our related Courses – IFRS Training material on the standards discussed above, follow the links before: 

COVID-19 & IFRS | COVID Impact on Financial Statements | IFRS Training 

IFRS 9 Financial Instruments in South Africa Updated 2020 2021 | IFRS Training 

IFRS 16 Leases Updated | 2020 | 2021 | IFRS Training 

IFRS 17 Insurance Contracts Updated | 2020 | 2021 | IFRS Training 

IFRS Masterclass Updated | 2020 | 2021 | IFRS Training 

Source: ifrs.org

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