IFRSs 'reduce friction' in the global financial system

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15 Oct, 2014

At the thirty-first session of the United Nations Conference on Trade and Development (UNCTAD) Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) that is currently being held in Geneva, the Chairman of the IFRS Foundation, Michel Prada, spoke this morning about the importance of global accounting standards, how they are applied around the world, and what the IFRS Foundation, with the help of other organisations, is doing to ensure that they are implemented rigorously and consistently.

Mr Prada made the case for global reporting standards by stressing that these liberate companies from the burden of complying with different, and often incompatible, national accounting requirements, give investors access to revenue and profit numbers all calculated on the same basis regardless of the country they are calculated in, and provide market supervisors and government leaders around the world with a standardised set of performance metrics on which to build globally consistent regulatory initiatives. He noted: "[I]t is in everyone's interest to reduce friction in the global system. That is what IFRS does."

However, Mr Prada also warned that these benefits can only fully be realised when IFRSs are adopted as issued by the IASB:

Of course, global standards only function properly if everyone adheres to them. As tempting as it may be for jurisdictions to pick and choose those standards that appeal and omit those that do not, doing so would undermine the very essence of what we are aiming to achieve. The reality is that if you want to reap the benefits of global standards, then everyone must commit themselves to adopt the same, single set of high quality standards.

Turning to the ISAR meeting's overall topic of monitoring of compliance and enforcement of international corporate reporting standards and codes he admitted that although IFRSs are a success story, adoption of them can only be part of the package. As a next step, it must ensure that the standards are being used correctly and consistently within a strong regulatory and legal framework. In this connection he mentioned that the IASB does not have the mandate nor the resources to enforce and monitor application of the standards that it creates. That would be up to governments, financial regulators, and auditors in individual jurisdictions.

Nevertheless, as Mr Prada pointed out, the IFRS Foundation has undertaken a number of initiatives aimed at promoting the correct use and application of IFRSs. In September 2013 for example, the IFRS Foundation and the International Organization of Securities Commissions (IOSCO) announced that the two organisations will deepen their cooperation in the development and implementation of IFRS on a globally consistent basis. And in July 2014 this was followed by similar agreement with the European Securities and Markets Authority (ESMA). Mr Prada also highlighted the efforts of the IFRS Foundation Education Initiative that produces freely available training material that is also translated into all of the world's most widely spoken languages and offers regional multi-day IFRS teaching workshops, especially in the emerging markets.

Summing up the initiatives of the IFRS Foundation, Mr Prada expressed the hope that these efforts should bring great long-term benefits to the global financial reporting community:

By improving the quality of accounting in every jurisdiction, we are not only working to the benefit of those individual countries. We are also contributing to the overall health of the global financial system.

Please click for access to the full text of Mr Prada's speech on the UNCTAD website.

Today's morning session also saw a keynote adress by Gonzalo Ramos, Secretary-General of the Public Interest Oversight Board (PIOB), and presentations by Richard Thorpe, Head of Accounting and Auditing Issues and Policy of the  Financial Stability Board (FSB), Gert Luiting, Advisor at the International Forum of Independent Audit Regulators (IFIAR), Mike Hathorn, Board Member of the International Federation of Accountants (IFAC), Teresa Fogelberg, Deputy Chief Executive of the Global Reporting Initiative (GRI), and Neil Stevenson, Brand Director of the International Integrated Reporting Council (IIRC). All speeches are available on the general homepage of the thirty-first ISAR meeting (under the tab "Presentations").

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