The Bruce Column – Hans Hoogervorst and Ian Mackintosh: Some insights into their thinking

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11 Oct, 2010

The much anticipated announcement that when Sir David Tweedie steps down from his ten year tenure as Chairman of the IASB at the end of June next year it will indeed be Hans Hoogervorst who takes over as Chairman with Ian Mackintosh as his Deputy means that the Tweedie tradition of independence and pragmatism will be upheld.

Hoogervorst is a man of great political experience as both a former Dutch finance minister and securities regulator. "I have investor protection in my DNA", he said on his appointment. "I strongly believe that a global set of accounting standards, set for investors by an independent standard-setter, is an essential component for the world's financial markets. These will remain my priorities".

And he has made his views clear in the past. "Accounting standard setters can be expected to maintain a pragmatic approach in problems concerning fair value accounting and provisioning", he has said. "But it is equally clear that accounting rules cannot make stable what is inherently unstable".

And Ian Mackintosh is of a similar view. I interviewed him just before he headed off to the Trustees' meeting in Korea which confirmed the appointments.

Mackintosh is a thoughtful character of great experience. Talking to him last week he advanced the title of a book written by a former Sri Lankan Minister of Justice as summing up his philosophy for the future. It is called: 'A Warm Heart, A Cool Head, And a Deep Breath'. Mackintosh adapts it to his task ahead. "Have the right intentions," he says. "Think it through and don't jump in".

These are calm and thoughtful words from a man who will be taking up one of the most fraught positions in the accountancy world. And he does not underestimate the task ahead. First up is the work programme which was pledged by both the IASB and FASB to the G20 Group of Finance Ministers in the aftermath of the financial crisis. "The IASB and the FASB will probably make it through to their reduced target in June 2011", he said. It is a huge challenge and there are formidable obstacles. "But the big question", he said, "is convergence on financial instruments". In the US, as he points out, FASB has come under considerable pressure. "FASB got 1900 responses to its proposals", he says.

Then there is the question of whether or not the US will join with much of the rest of the world in allowing its major companies to adopt IFRS. It all depends on the main US regulatory body, the SEC. "The next big step is from the SEC as to whether they will adopt or not", he says. His view is an optimistic one. He is, after all, an optimist by nature. "I think that they will", he says, "in some form. It's a hope and a belief".

Other consequences would follow. "The IASB will have to map out how it absorbs the US into its family", he says. "And that is when the real work will start". He sees this as his defining task at the IASB. "It is the beginning of another sort of work", he says. "All the countries which adopt IFRS have their own problems and the US is just so much bigger". His optimism comes to the fore again. "But the problems can be overcome". Have the right intentions, think it through and don't jump in will be his guiding light.

He has the experience, and it is global experience. He has been a keen supporter of idea of the fledgling Asian-Oceanic Standard Setters Group as a means of re-balancing power in the standard-setting world, which has long been dominated by the two blocs of Europe and the US. He is a New Zealander and has been involved in the standard-setting world for years. He has been a Deputy Chairman of the Australian Accounting Standards Board and was a member of its Urgent Issues Task Force. A decade ago he became Chief Accountant of the Australian Securities and Investment Commission and was then Manager, Financial Management, South Asia, at the World Bank. He has also taken a keen interest in accounting standards for the public sector. He has chaired both the Australian Public Sector Accounting Standards Board and the IFAC Public Sector Committee. And since August 2004 he has been Chairman of the UK Accounting Standards Board where he has diplomatically steered a careful course towards a coherent set of domestic standards and the use of the IFRS for SMEs.

All this comes at a time when politicians are looking into the role of accounting in the financial crisis. Hoogervorst showed himself to be a forceful and diplomatic character through his co-chairing of the Financial Crisis Advisory Group, which was set up by the IASB and FASB to consider financial reporting issues arising from the crisis. And, as his words to the International Centre for Financial Regulation earlier this year show, he is a determined character with a strong view of the value of good financial reporting.

This is what he said about the aims of financial reporting on that occasion: "The object of financial reporting is to provide as accurate a picture as possible of the financial position of a company or organisation", he said. "I deliberately say 'as accurate as possible', because financial reporting is not an exact science. Asset valuation is in many respects more of an art than a science. Accountants and their standards should therefore always be pragmatic, with a tilt towards conservatism. If one knows that valuation necessarily involves judgement, it is better to be safe than to be sorry".

And he followed that up with some warning words, particularly for politicians: "Despite these relativist comments, it is of great importance that strict and objective accounting rules exist", he said. "Firstly to prevent manipulation of figures, and secondly to increase the comparability of the financial performance of entities.

"It would be logical to assume that if accounting rules are intended to lead to as accurate a picture as possible, that these should be essentially equal for all parties, whether they are companies, governments or foundations. They should also have an equal value for all interested parties, irrespective of whether they are investors, depositors or prudential regulators. But this is exactly where opinions begin to differ.

"First of all, accounting rules are not the same for everybody. The problems surrounding the Greek government budget show that the financial reporting of governments is still at a stage of primitive anarchy. Although the deception with respect to the Greek budget was extreme, the tricks applied were certainly not unique. In the run-up to EMU, many Euro countries applied tricks that, in the world of business, would irrevocably have led to legal sanctions.

"Only a few governments recognise future social security expenses in the state balance sheet, even if they are legally binding. If they did, it would be clear that government finances in the Western world are in an even more alarming condition than they already appear to be. This explains why few fervent supporters of accounting orthodoxy can be found among politicians".

Robert Bruce
October 2010

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