Hans Hoogervorst, the new Chairman of the International Accounting Standards Board is, on paper, a very different character to his predecessor, Sir David Tweedie. Tweedie had spent more than twenty years trying to bring order to financial reporting, first in the UK, and then across the world. He was steeped in accounting and knew, as he would tell you, where all the bodies were buried. Hoogervorst is a former Dutch Minister of Finance and securities regulator. He has chaired the technical committee of IOSCO, the global stock markets organisation.

But all these speak of an ability to get things done. And what he shares with Tweedie is important too. Both Hoogervorst and Tweedie place a high premium on drilling complex issues down to their essentials, expressing those essentials clearly and then using that gift to drive the logic towards sensible decisions.

Hoogervorst's view of his priorities makes this clear. The long-awaited decision by the US regulatory body, the SEC, over moving towards IFRS as the US standard hangs over everything. But the IASB is a global body. And that is where the focus lies. 'I think that obviously this is going to be an extremely important year for the future of IFRS with the decision that the United States is going to make', he says. 'Whatever that decision is going to be, we will have to invest a lot to strengthen the sense of ownership internationally in the IASB'.

He puts it in context. 'The reach of the IASB, the IFRS organization as a whole, grew extremely fast. Our responsibilities grew extremely fast, much faster than anybody had anticipated, including ourselves. I think we have to strengthen our infrastructure both in terms of us as an organization and the international infrastructure. I think the reorganization, the rebalancing of the monitoring board, is not just a necessary evil, I think it is positively a very good development and I hope it will increase the voice of our new members, especially in Asia and Latin America. I think the perception that the IASB is too much of a get-together between the United States and Europe is something that is not true but if the perception is there it needs to be redressed'.

And the emphasis on principles being paramount will remain. 'Accounting is based on principles', he says. 'I do believe that an emphasis on clearly articulated principles is superior because it forces people using the standards to think for themselves and it creates fewer opportunities to bend the rules, or to game the rules. If you look at the last, and still current, financial crisis, you do see again that this is the case. Let's not overstate the differences between US GAAP and IFRS. It is not as if US GAAP doesn't have principles and we don't have rules. In my previous life I was a regulator and our legislation was also principle based and my experiences with that that were very good'.

Hoogervorst is also clear that the pursuit of the underlying economic reality in financial reporting is not always going to lead to precise results. But he sees no reason for there to be any tension between the economic effects and the technical accounting. 'I don't think there should be a tension between the two', he says. 'I think the way I look at accounting is that it is basically an economic exercise. When you look at the fundamental principles of IFRS they are very clearly micro-economic principles. So what we try to do is to depict economic reality as faithfully as possible based on the institution, the financial institution, the company. So clearly this is an economic exercise. The main difficulty is that there is a lot of judgment involved. It is not perfect nor an exact science. We try to make it as exact as possible, and that is what we should do, but to value assets and liabilities is extremely difficult and markets don't always have the answer, or they give a different answer every day. So it is just like economic science, it is not an exact science, as has been shown in the last crisis, which almost no economist had been able to predict. We had the same problem. The basic quest for economic 'truth' as we seek it in accounting is what is most difficult and we have to accept that we cannot always be precise and there can be a danger in trying to be too precise in matters which do need judgment'.

The resolution of these issues and the judgement involved can lead to friction. The skill is to try and resolve those. Hoogervorst wants neutrality. 'Our standards should be neutral because they should simply reflect what is there', is his starting-point. 'They should describe the economic reality as it is. I don't think our job is to try to attain, or to have, economic effects. It should be neutral. You want the accounting to describe economic volatility where it exists, but not to be the source it. I think that is what people ask us to do but what people also ask us to do, and which we cannot comply with, is if they have a certain business method, which is not necessarily based on transparency, which they would like us to help them to continue not being transparent'.

In speeches across the last few years Hoogervorst has also analysed the different needs of regulators and standard-setters. He sees resolution up ahead in the future. 'I have raised this issue in many speeches and I have been very critical of the banking regulators', he says. 'But I think we are growing together in our points of view. I think the basis for capital requirements in the new Basel rules is coming much closer to our regular accounting standards, for example the leverage ratio is based on capital as we calculate it, and not the figures that the Basel ratios often were. So I think we are coming together'.

And he sees the IASB moving toward resolution as well. 'On our part the move that we have made is that we have looked again at the incurred loss model which gave too much discretion to not taking timely write-offs on your loan portfolio, not impairing losses until it was really late', he says. I think the incurred loss model gives you too much discretion to book losses if you read it in certain ways it also gives you discretion to avoid booking losses. So we proposed to move from an incurred loss model to an expected loss approach. Banking regulators want it and we agree'.

But this brings him to the wider issue. 'What we cannot do is make stable that which is not stable', he says. 'I think the financial industry will find itself in an extremely volatile environment for the next decade at least and there is not so much we can do about that. When I see the insurance industry, they basically want almost all of their assets and liabilities to be run through Other Comprehensive Income. If you experience all this volatility and just present a stable profit and loss, is that going to convince investors? Is that going to increase your price earnings ratio, which everybody knows is now very low for insurance companies because nobody trusts the figures?'

With an SEC decision due later in the year over whether the US will incorporate IFRS or not, the progress of the convergence programme of IFRS and US GAAP will be a major issue for Hoogervorst and the IASB over the next few months. Again, he is optimistic that pragmatism can win the day. 'I think convergence has gone and is going well', he says. 'I have now experienced a couple of meetings with FASB board members. I am impressed by their intellect and the depth of their technical resources, but I can guarantee it is not easy for two boards, two different stakeholder groups, to work together. But I think we are doing the best that we can and with a lot of results. It is obvious that we are not going to finish everything by the end of the year but the SEC indicated that that is not the main issue. They want to see progress, but not to the detriment of quality. That is, for example, why we decided to re-expose our revenue recognition proposals. That will lead to a certain delay in issuing the final standard but we want to make absolutely sure that we get it right. It is a very important standard and I believe we can show to the world we have come a long way, 95-99% of the way, but we just want to make sure that every dot, every iota is correct. So I think we are moving along well. On financial instruments we are making good progress in our discussions with the FASB, but it is still a little bit too early to tell whether the outstanding differences can be resolved.

He feels that his background as a former Dutch Minister of Finance helps. 'The best thing is always to anticipate', he says.' And if you can anticipate you can avoid a lot of problems. I know that to be successful, first you have to know exactly where you want to go and you also have to be able to accept that you cannot always get a perfect solution. But as long as you get a good portion of the ideal situation of where you would like to be then you can achieve a lot.'

His predecessor, Sir David Tweedie, was known for having some difficulties with continental Europe, particularly in the early days of the adoption of IFRS by European countries. Hoogervorst is cheerful that those days are in the past. 'You know', he says, 'you often quarrel the most with the ones who are closest to you. And obviously Europe has been a very important part of our family since the endorsement by Europe and has been instrumental in the growth of our organisation and of our influence. And there will be further quarrels and sometimes conflicts but let's not forget they endorsed 99% of our work. And I have just paid a visit to the Commission, and I have known the people at the Commission for a long time, and they are really good people. The power of argument counts for a lot. Also they are vulnerable to pressures, even when they would not like to be vulnerable to them. I am sure that most of the relationships will be constructive'.

This all ties in with arguments over the independence of the IASB, a private sector body dispensing public standards. Hoogervorst is just as forthright about independence as Sir David was. 'I've always said complete independence does not exist. Independence needs to be earned and independence can be earned by the quality of your work and your capability of listening to the outside world, taking all the valid arguments on board, but also showing your strength and independence when you simply disagree', he says.

He is also determined to answer one of the broad criticisms of the IASB that its standards have become far too complex. He wants to make them less so.

'That would certainly be one of my firm wishes, if we can do so', he says, and unveils a plan. 'Is there any way we can reduce the disclosure requirements without reducing usefulness? The Institute of Chartered Accountants of Scotland and the New Zealand Institute of Chartered Accountants have conducted some research on this topic and we intend to discuss their findings in the next few weeks', he says. 'They have modelled some ideas and we have asked them to put them down on paper. This is also a good example of how we would like to co-operate with national standard setters. I am really looking forward to their proposals and hopefully we can do something with that. On the other hand, it is simply the truth that, look at a bank's balance sheet compared with what they looked like 30 years ago, the complexity is not because of accounting. They became much more complicated because banking has become much more complicated. The same goes for many other businesses. The world is complicated and we are not going to change that but where we can simplify things we will do so. If there is one thing where I have always been able to show strength in my political and regulatory career it has been to make more complex things simpler. I am not saying simple, but more simple. So that would definitely be one of my goals'.

And finally I asked what he thought would be the legacy of his predecessor, Sir David Tweedie. 'I think it is much bigger than he himself envisaged 10 years ago', he says. 'People think that should the United States come to a negative conclusion, which I don't expect, obviously that will be a severe setback but I do not think that is the end of the story because look at how much traction we have gained, all over the Americas, Canada, most of Latin America are onboard; a lot of Asian countries are on board or on the verge of getting on board, China has not fully adopted but its standards are extremely close to ours. 'There is no way they are ever going to move in another direction. So I think the momentum is such that yes, we can have setbacks, but I think ultimately there is only one accounting language. The world language is going to be IFRS and it is going to be achieved, if not very soon then later. David is leaving a legacy he can be proud of and I am proud to be taking care of it.

July 2011