Home' Charter : 0911 Charter Sept Contents 26 Charter I September 2011
Business > Financial reporting
to have masses of what-happens-if literature. You simply say
no, I’m sorry, that’s the broad principle, go do it! This principle-
based approach has taken some getting used to in certain parts
of the world.
However the tide is turning and the United States is now adopting
the same idea for their own standard-setting approach, with a view
to achieving word-for-word standards. But there are still countries,
such as Germany and Japan, that are not used to principle-based
standards and it has been and will be a big change for them.
The other major change in standard-setting was our approach
to outreach. We spend half the time building the standards and the
other half engaging stakeholders and asking about them – a highly
successful approach. As a result we have a much better grasp of
what is going on among stakeholders. We don’t have to wait for
four months for responses to come in on our proposals. We know
from our outreach what the main concerns are. Once the team has
picked up a particular problem they start working on the solutions
before the response letters come in and then, when the letters
come in, we can see if they confrm our thoughts and that is very
helpful and useful.
The IASB has also had to adapt to refect the composition of
the economies now using the standards. While the frst wave
of jurisdictions using the standards were primarily developed
economies, the second wave of adoption has been led by emerging
markets in Asia and South America – the powerhouses of global
We have got to look at the regions that are adopting IFRSs now
– the emerging markets – and assess what we can do to help them
with adoption. What is most important to them is that by adopting
IFRSs they increase their potential to tap the world’s capital markets.
It is as simple as that. It is a force of economic modernisation. That’s
the big picture.
In a world in which capital fows freely across borders, the same
economic transaction should be accounted for in the same way,
regardless of whether you are in Washington, Warsaw, Wellington
or Winnipeg. Global standards make it easier for investors to
make comparisons between companies operating in different
jurisdictions. Multinational companies beneft from reduced
compliance costs and reduced translation risks when consolidating
multiple international subsidiaries into a single set of consolidated
fnancial statements, but above all have better understanding of the
oversees companies they own.
Global accounting standards will enhance the drive towards
the free trade of capital internationally. By adopting a globally
accepted set of standards, all companies – large and small –
are able to attract capital from a larger pool of investors, driving
down the cost of capital and facilitating cross-border mergers
and acquisitions activity and strategic investments. Lastly, a
common set of standards eliminates opportunities for regulatory
arbitrage and permits regulatory authorities to develop more
consistent approaches to supervision across the world. In other
words, fnancial reporting is a crucial element of post-crisis global
My 10 years as chairman of the IASB were the most rewarding of
my career. By the end of that time 120 or so countries are using the
standards. There was a handful when we started and I would never
have dreamed in 10 years that would have happened and that even
the US was thinking of using the standards. None of us expected
that when we started out. It has been a very enjoyable journey.
In a world in which capital flows freely across
borders, the same economic transaction
should be accounted for in the same way,
regardless of whether you are in Washington,
Warsaw, Wellington or Winnipeg
WHAT NEXT FOR IFRS?
Sir David Tweedie’s achievements as chair of the IASB were
quite remarkable. His fair for leadership, negotiation and
collaboration were a key driver in the adoption of international
fnancial reporting standards across borders.
As Hans Hoogervorst takes the reins, one fnal frontier
remains: the convergence of the IASB’s rules with those of
America’s FASB. A path has already been cleared but obstacles
remain in the shape of lease accounting, insurance contracts,
consolidation and revenue recognition. There’s also the thorny
issue of convergence in the fnancial instruments space, as
both boards have independently progressed this topic.
Kerry Hicks FCA, from the Institute of Chartered Accountants
in Australia, predicts that progress will be made. “Over the past
decade we’ve witnessed a seismic shift for fnancial reporting.
Over the next decade the international community will see and
embrace the convergence of IFRS and US GAAP with other
international capital markets, like Japan, following suit. We
are in regular dialogue with the standards-setters and we will
ensure that the views of Australian Chartered Accountants
are heard. ”
To follow developments in the harmonisation of accounting
standards, keep an eye on Charter magazine and
– Andy McLean
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