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Hoogervorst discusses major IASB projects at European Parliament meeting

  • IASB speeches (blue) Image
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11 Jan 2016

Today, IASB Chairman Hans Hoogervorst spoke with the Committee on Economic and Monetary Affairs (ECON) of the European Parliament at its meeting in Brussels. Mr Hoogervorst discussed four high-priority projects for the IASB in 2016: IFRS 9, the leases standard, insurance contracts and the Conceptual Framework.

Mr Hoogervorst began by discussing IFRS 9 and noted that the introduction of an expected loss model for credit losses is the most important change to the standard. He noted the positive reception the standard has gotten throughout Europe.

The IASB's long-awaited leases standard will be published on Wednesday, 13 January. Mr Hoogervorst promoted the comparability and "economic reality" that IFRS 16 will bring to listed companies around the world. He admitted that it wouldn't be popular with everyone and that half of all listed companies would be affected by changes to leases guidance. However, he affirmed that the IASB had "looked at all the possible risks very carefully" and concluded that the risks and costs associated with the new standard are "manageable".

Moving on to insurance, Mr Hoogervorst said that the IASB expects to (1) finish its deliberations "soon" and (2) publish a new standard "around the end of 2016". He noted the importance of the insurance project:

Today’s accounting Standards for the insurance contracts are highly defective. There is no real global standard and there is a wide variety of practices around the world. Some of these standards provide information that is clearly wrong.

Mr Hoogervorst noted that the IASB's new standard would be based on current measurement, but that the complexity of the insurance industry is making it difficult to resolve all the accounting issues involved. He said that the effective date of the new insurance contracts standard would be later than that of IFRS 9, but understands that this will be problematic to the insurance industry:

We have recently exposed a possible solution to this problem, which includes the option of a deferral of IFRS 9 for pure insurance companies. For conglomerates that combine insurance with banking activities, we will make it possible to adjust Profit or Loss for the effects of IFRS 9 through what we have called the overlay approach. We will evaluate the feedback we get on our proposals in the spring and expect to finalise our decisions well before the summer.

During the following question and answer session, Mr Hoogervorst was again asked by several ECON members about the different effective dates of IFRS 9 and the new insurance standard. He stressed: "We believe there is something of an issue," however, he also stated: "That does not mean that we will want to go all the way in adressing this issue." Again, Mr Hoogervorst highlighted the overlay approach. Asked after the deferral approach and a possible application below the reporting entity level he commented: "That is taking flexibility a bit too far."

Regarding the conceptual framework, Mr Hoogervorst said that the IASB expects to publish a new version in 2016, which will include the issues of prudence and stewardship.

For more information, see Mr Hoogervorst's full remarks on the IASB's website or a video recording of the entire ECON meeting, which also features a Q&A session with the Chairman of the IFRS Foundation Trustees, Michel Prada. (Please note that the recording, including Mr Hoogervorst's introductory remarks, can be watched in any of the EU's official languages).

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