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Hoogervorst outlines thoughts on leases, US convergence and more

  • Hans Hoogervorst (50x80) Image

07 Nov 2012

IASB Chairman Hans Hoogervorst has discussed a broad range of issues over recent days. Key themes emerging include challenges in some of the IASB projects such as leases with its lobbying efforts against the proposals, global adoption of IFRS including in the United States, accountability arrangements for standard setting and future priorities, including the possibility of revisiting the accounting for goodwill.

The IASB has published a transcript of a public lecture Mr Hoogervorst gave the London School of Economics on 6 November 2012.  The speech, entitled 'Accounting Harmonisation and Global Economic Consequences', covered a number of topics.  Many of these topics mirror discussion from a meeting of the European Parliament Committee on Economic and Monetary Affairs (ECON) held a day earlier on 5 November 2012, where Mr Hoogervorst participated in an exchange of views with the members of the committee.


In the lecture, Mr Hoogervorst focused on the challenges facing the leasing project in particular, where he stated that the "vast majority of lease contracts are not recorded on the balance sheet, even though they usually contain a heavy element of financing".    He went on to note that "companies tend to love off-balance sheet financing, as it masks the true extent of their leverage and many of those that make extensive use of leasing for this purpose are not happy", and outlined some of the lobbying efforts going on, including claims in the United States that "leases on balance sheet will lead to 190,000 jobs being lost in the US alone".

Noting such lobbying efforts should not be surprising, Mr Hoogervorst compared the current controversy around leases with past projects such as the expensing of share options under IFRS 2 Share-based Payment and the changes to pension accounting under IAS 19 Employee Benefits, outlining the "uphill battle" the IASB faced.  He concluded that the IASB needs "all of the help we can get, to ensure that we do not get lobbied off course" and "to counter what is a well-funded and well-resourced lobbying campaign".

The lecture echoed his comments to the ECON committee members where he warned committee members about being approached by the leasing industry as they want to "take the bite out of [the] upcoming leasing standard" and hoped he could "count on your sympathy" to support the leasing proposals.

Global adoption of IFRS

In the lecture, Mr Hoogervorst outlined how IFRS has been an important response to "globally interconnected nature of today’s financial markets" and emphasised how "repeated G20 communiqués have supported the work of the IASB and called for a rapid move towards global accounting standards".  He went on to outline his view that "momentum for IFRS becoming global standards has now become unstoppable" with so many countries adopting IFRS, reiterating his comments to the ECON committee that the "use of IFRS has reached critical mass" and he doesn't "think it can be stopped".

Turning to the specific issue of whether, and if so how, the United States will adopt IFRS, in the lecture Mr Hoogervorst stated "it is important that progress is made soon" and hoped for news in 2013.  In more candid comments to the ECON committee, he discussed Canada and Mexico's adoption of IFRS and the "country in between which is still hesitating".  He later went on to comment that it was like "waiting for Godot" and it was "really disappointing" that a U.S. decision had not yet been made, but that once "the presidential elections are out of the way" he hoped that the United States' 'big stake' in IFRS would continue.  Additionally, he stated that the "absence of a U.S. decision is not reason to stall" the IASB's work.


In the ECON committee meeting, Mr Hoogervorst discussed how the IFRS Foundation was making efforts to be 'more inclusive and responsive to constituents'. He later commented that he'd "never before worked in an environment that is so transparent" as that at the IASB.

At a technical level, he noted that the bilateral arrangement between the IASB and FASB was effectively coming to an end, to be replaced with a new multi-lateral arrangement through the proposed Accounting Standards Advisory Forum (ASAF).  Lamenting that IASB-FASB convergence 'had not ended as hoped' and that it is difficult to reach agreement when there are two separate boards, Mr Hoogervorst wondered whether outcomes may have been different in key areas where "convergence was lost" such as financial instrument impairment and offsetting if the Boards were operating in an environment where the U.S. was committed to adopting IFRS.

Responding to committee questions about the IASB's independent status and the importance of standard setting, Mr Hoogervorst noted the 'true devotion' to the public interest embodied in the IASB, governance improvements implemented with initiatives such as the Monitoring Board,  and the endorsement mechanisms that most countries adopting IFRS use.  He reiterated the IASB's extensive due process, which can result in "five to ten years to get a standard done" and affirmed the need to "listen carefully to what constituents have to say", highlighting the important role the Accounting Standards Advisory Forum (ASAF) will have in this process.

Future directions

In both the lecture and committee meeting, Mr Hoogervorst outlined the future direction of the IASB's work plan, focusing on projects such as the restarted Conceptual Framework project, and addressing specific constituent concerns, while maintaining a 'period of calm'.

There was also much discussion at the committee meeting about the IASB's project on financial instrument impairment, including the suitability of the expected loss model and questions why an "unexpected loss" model is unsuitable.

Responding to committee questions about 'country-by-country reporting' for the resources industry, Mr Hoogervorst noted that constituents had not raised this as a priority issue in the Agenda Consultation process and that it was a matter better dealt with by regulation.

Several times during the committee meeting, Mr Hoogervorst raised the question of whether accounting for goodwill needs to be revisited. Contrasting the situation where leases were 'not enough' on the balance sheet, he commented that goodwill might be "too much on the balance sheet" and that this was something he was personally worried about, particularly in relation to banks and prudential reporting.  Whilst not calling for an immediate write off or an 'arbitrary' amortisation of goodwill, Mr Hoogervorst commented that he 'wondered whether standards are strict enough'.

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