Hans Hoogervorst discusses the objectives of financial reporting

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09 Feb, 2011

Hans Hoogervorst, Chairman of the Board of the Netherlands Authorities for the Financial Markets (AFM), and future chairman of the IASB, spoke in Brussels today on the objectives of financial reporting.

In his speech, Mr Hoogervorst discussed "to which audience financial reporting should primarily be directed" and whether accounting standards should only serve the goal of transparency, or should they have a "financial stability objective". During his discussion on the role of accounting standard setters in creating transparency and stability, he stated:

So accounting standards can make a very important contribution to stability by providing maximum transparency, and by avoiding artificial noise.

However it is important to keep this in perspective. Stability should be a consequence of greater transparency, rather than a primary goal of accounting standard-setters. For this, accounting standard setters simply lack the tools. For example, they cannot set capital requirements for the banking industry. This instrument belongs to the prudential regulators who do have stability as their main mission.

What accounting standard setters can also not do is to pretend that things are stable which are not. And, quite frankly, this is where their relationship with prudential regulators sometimes becomes testy. Accounting standard setters are sometimes suspicious that they are being asked to put a veneer of stability on instruments which are inherently volatile in value.

Click for text of speech (link to IASB website).

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