Hoogervorst reflects on growth of IFRS as IASB end of mandate nears

International Accounting Standards Board Chairman Hans Hoogervorst reflects on the growth of International Financial Reporting Standards as his decade at the helm of the IASB is expected to end this month.

Hoogervorst, a former finance minister of the Netherlands, will step down on June 30 and will be replaced on July 1 by Andreas Barckow, an accounting professor who has chaired the Accounting Standards Committee of Germany since 2015 (see the story). Hoogervorst, who became chairman of the IASB on July 1, 2011, was talking Thursday at an IFRS Foundation virtual conference on how the IASB strengthened financial reporting requirements by introducing several new IFRS standards, including for revenue recognition, loan losses, leases and insurance contracts, as well as by consolidating the reporting methods of companies around the world. IFRS are now required in more than 140 jurisdictions.

“The enthusiasm for IFRS that greeted me 10 years ago has largely dissipated,” said Hoogervorst. “But in this case, the fact that we’ve gotten a little boring is a positive thing. This means that IFRS has firmly established itself as the main global accounting language. The dream of a single set of global standards has not yet been realized. But the degree of consolidation that has been achieved is simply astonishing, especially in this time of skepticism about globalization. “

IASB Chairman Hans Hoogervorst speaking at an IFRS Foundation conference in Frankfurt, Germany

Courtesy of the IFRS Foundation

When Hoogervorst began his tenure, the IASB and the Financial Accounting Standards Board were in the process of converging IFRS with USGAAP, but the convergence effort ultimately failed.

“During the years 2011 and 2012, the dream of a single set of global accounting standards gradually faded, with the United States Securities and Exchange Commission becoming increasingly hesitant about adopting IFRS”, did he declare. “Following the Great Financial Crisis, companies were under great pressure everywhere and the SEC felt it could not push through a reform that would generate considerable costs in the short term. Japan’s finance minister also became more cautious after the terrible 2011 tsunami. ”

Outside of the United States, however, IFRS has spread widely. “Yet the dreaded dissolution of the IFRS world did not happen,” Hoogervorst said. “One by one, the IFRS family was joined by individual jurisdictions in Asia and Africa, eventually reaching a total of over 140. In Japan, the number of individual companies adopting IFRS has been growing steadily and before long, more than 50% of the Japanese stock exchange will be denominated in IFRS. China has stayed very close, incorporating all new standards and many Chinese companies are able to assert full compliance with IFRS. It is important to note that the European Union, which made the dream of IFRSs a reality in 2005, has so far been able to resist the temptation to add carve-ins to our standards.

Hoogervorst described himself as an “accidental accountant” who came into the field from outside. “I am not an accountant by training and many were surprised when I became chairman of the International Accounting Standards Board,” he said. “Yet when I was asked at the end of 2010 if I would be interested in succeeding David Tweedie, I really didn’t have to think long. The Great Financial Crisis of 2008 had shown me the vital interest of solid international economic standards. As President of the IASB, I have had an excellent opportunity to contribute to the infrastructure of the global economy.

He noted that during his tenure, the IASB succeeded in improving many accounting standards. “IFRS 9 has improved the recognition of loan losses, making it more responsive to changes in the economy,” he said. “IFRS 15 has made revenue recognition more robust and comparable globally. The quality of the balance sheet has improved considerably with IFRS 16 recognizing all lease debts.

He is also eagerly awaiting the new insurance accounting standards that will come into effect in 2023. “If anyone still needs to be convinced of the importance of proper global accounting standards, just look at insurance accounting.” , said Hoogervorst. “Currently, there is great diversity in accounting for income, with some national standards even counting investment deposits as income. In many countries, insurance liabilities are still measured using historical interest rates which are no longer relevant in the current low interest rate environment. After 2023, the effective date of IFRS 17, revenue recognition will be internationally comparable and much more reliable. Insurance liabilities will everywhere be measured at current interest rates, reflecting economic reality much more closely. “

He warned of the risks of inflation going forward after all the government stimulus measures around the world over the past year to counter the economic impact of the COVID-19 pandemic. “Relentless stimuli also have a pernicious influence on economic behavior,” Hoogervorst said. “A generation of investors has grown up expecting authorities to step in whenever the markets have a crisis. Excessively leveraged business models are bailed out time and time again. And I think back to my time as Minister of Finance. My story of not having a money tree may not be so compelling anymore when central banks buy 50% or more of debt issues. Even in the frugal Netherlands, fiscal discipline is now under great pressure. “

Hoogervorst also warned against accounting tricks. “Historical cost accounting, despite its reputation for reliability, is full of subjective estimates, such as the assessment of the value in use or the useful life of an asset. Intangible assets, which are increasingly important as drivers of value for companies, largely escape financial statements, ”he said. “We cannot explain precisely what other comprehensive income is. While accrual accounting is vastly superior to cash accounting, it can also be vulnerable to earnings management, which is the root of many accounting scandals.

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