News

Robert Bruce Image

The Bruce Column — The changing of the guard

01 Jul, 2011

After a decade under Sir David Tweedie the IASB has a new Chairman. Robert Bruce, our resident regular columnist, assesses the prospects for change under the new Hans Hoogervorst regime.

The changing of the guard down at the IASB has been portrayed as something seismic. Dutch politician takes over from Scottish accountant. But the reality is much more nuanced. The Economist magazine saluted the outgoing Chairman, Sir David Tweedie, as 'the profession's towering figure' and accountancy's 'rock star'. The incoming Chairman, Hans Hoogervorst, has been the Dutch finance minister and health minister in his time, as well as heading up the Dutch securities regulator and chairing the technical committee of IOSCO, the world stock exchange body. No shortage of expertise or experience there. And Hoogervorst is backed up by the obdurate technical skills of his new deputy, Ian Mackintosh, as well.

This was supposed to be a changeover which would coincide with a different world view of IFRS. The idea had been that convergence with US standards and all the changes to existing standards which the IASB undertook to prove its ability to the G20 and other regulators in the aftermath of the financial crisis would be signed off by this point. Tweedie would have sorted out all the loose ends and nailed down the problem standards which were due to deal with the big beasts of leasing and insurance, for example. He would have achieved his oft-proclaimed desire to eventually fly on an aircraft which was on the airline's balance sheet. Had all this been achieved it would have allowed Hoogervorst a clean break and a clean slate with which to deal with the decision by the US regulatory authorities to whether join the IFRS family, and with a future work programme which would feel no pressures from crisis aftermath and which could look, in a more relaxed fashion, at the way ahead.

No such luck. If things are difficult then that is because they are difficult and they will always take longer to sort out than people hope. In their heart of hearts everyone involved has known for at least six months that the deadline of end-June for having all the hard work done was unrealistic. The work-load at the IASB has been astonishing and the hours worked have been long. There should be no shame in not having wrapped it all up. Tweedie's view as he stepped down of, 'that's life', is the right one. As a result the early days of Hoogervorst's chairmanship will seem to be more of the same for a good while. But the remark reveals a profound understanding of what lies underneath.

There is a view that after the current hard slog through difficult issues is achieved somehow life will be different. The sunlit uplands will have been reached. Utopia will have been created in a green and pleasant land of IFRS. But the truth is that yearning for utopia doesn't always get you there. Life is complex. And the role of a global standard-setter is to deal with difficult and seemingly intransigent problems. It will always involve long hours and difficult, if not impossible, decisions. And this is where the skills of both Tweedie and Hoogervorst are so similar. Both see transparency as one of the main answers. Both see pragmatism as the way to get there. Transparency is a contributor to stability. Both take the view that it is the ability of IFRS as a global financial reporting language to make things clear and to allow better and easier business transactions to be made around the world and across borders which is the most important element. As Tweedie said in his interview with IAS Plus at the end of his Chairmanship: 'This game is all about change management. You can say it's technical but how far can you go technically? It's pragmatism'.

Take the recent outbreak of people arguing about bank losses and when they should be recognised. It is an impossibly complex argument and bringing the IFRS and US GAAP systems together is a long way off the simple process which outsiders blithely claim is possible. And it carries the warning that it could simply take bank reporting back to the dark days which people with long memories remember only too well. Loosening the rules and allowing provisioning more or less at will takes you rather too close to the old days when banks could invent what suited them and smooth everything in sight. No outsider, investor or regulator, had a clue what was going on.

The same goes for the difficult, if not insurmountable, problem of bringing the views of the IASB and the US standard-setting body, FASB, together, on hedging, for example. The issues are not just technical. They are cultural as well. And that makes the whole process astonishingly difficult to unravel and overcome.

So that is why, particularly at the outset, the Hoogervorst era is likely to be more of the same. The surprise is that anyone should have thought it might be otherwise. It would be much better to look at where the whole global financial reporting world is now. The process has a critical mass. The US, one hopes, even if in a very conservative and tentative fashion, is likely to come on board. With the largest countries on board it will be harder for anyone else to come up with a coherent argument to stay out. Even India, after Tweedie, in a coup de theatre, abandoned his prepared speech at the recent Bali conference and tore into the Indian arguments about carve-outs, is likely to find a way into the fold.

And there are smaller victories, which are no less far-reaching. The IASB has shown how a private sector body, driven strongly by a public interest ethos, can bring about real global change. And that is reflected by its efforts in its own organisation. Talking with Tweedie at the end of his tenure it became obvious that one of his proudest achievements was the creation of a staff at the IASB which really exemplified the global nature of the challenge. They were, he said, brilliant young people, from all over the world, working together, technically terrific, full of ideas, cerebral and with a real esprit de corps.

Much of the energy within the IASB has come not just from Tweedie's own qualities but from that microcosm of global endeavour which has driven the revolution which has stretched out around the world. Hoogervorst, whatever may be said about his immediate tasks, is well placed to embed IFRS securely around the world.

Robert Bruce
July 2011

Related links

 

 

IASB (International Accounting Standards Board) (blue) Image

Changing of the guard at the IASB

01 Jul, 2011

Today sees the changing of the guard at the IASB.

Sir David Tweedie's ten-year tenure as Chairman came to an end at midnight in London and a new Chairman took over. To mark this event IAS Plus brings its readers an exclusive and extensive interview with Hans Hoogervorst, the new IASB Chairman, while Robert Bruce, regular resident columnist for IAS Plus, provides an assessment of the prospects for change.

Hoogervorst talks of the need to strengthen the sense of ownership internationally in the IASB, in particular in Asia and Latin America. He emphasises the need for standards to be principle-based and rooted in economic reality. He talks of the problems of Other Comprehensive Income and the difficulties of the insurance industry. He says it is too early to tell whether outstanding differences with FASB over financial instruments can be resolved. And he is emphatic that 'ultimately there is only one accounting language. The world language is going to be IFRS', he said.

Robert Bruce argues that following the change in Chairmanship the fundamental qualities of independence, transparency and pragmatism will remain and with an emphasis on truly global objectives the embedding of IFRS securely around the world is likely to accelerate. But there are exceptionally difficult times ahead.

Click for:

 

pocket2011.gif Image

New edition of IFRSs in your pocket

29 Jun, 2011

We have published the tenth edition of our popular guide to IFRSs — IFRSs In Your Pocket 2011.

This 134-page guide includes information about:
  • The IASB organisation — its structure, membership, due process, contact information, and a chronology
  • Use of IFRSs around the world, including updates on Europe, United States, Canada and elsewhere in the Americas, and Asia-Pacific
  • Recent pronouncements - those which are effective and those which can be early adopted
  • Summaries of current Standards and related Interpretations, as well as the Conceptual Framework for Financial Reporting and the Preface to IFRSs
  • IASB agenda projects and active research topics
  • IFRS Interpretations Committee current agenda topics
  • Other useful IASB-related information

We are pleased to grant permission for accounting educators and students to print copies of the PDF file for educational purposes. Please contact your local Deloitte practice office to request a printed copy.

Click for:

IASB (International Accounting Standards Board) (blue) Image

Latest batch of editorial corrections to IFRSs released by the IASB

29 Jun, 2011

The IASB has posted to its website a new batch of Editorial Corrections to IFRSs.

This batch makes editorial corrections and changes to IFRS for SMEs (issued July 2009), Conceptual Framework for Financial Reporting (issued September 2010), Bound Volume (Red Book) 2011, Bound Volume (Blue Book) 2011, IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IAS 19 Employee Benefits (issued June 2011) and Presentation of Items of Other Comprehensive Income (issued June 2011).
Click for:

 

 

ASB (UK Accounting Standards Board) (lt blue) Image

UK ASB tentatively revises forthcoming differential reporting framework

28 Jun, 2011

As part of its ongoing redeliberations, the UK Accounting Standards Board (ASB) has tentatively agreed to a number of amendments to its proposed revised differential reporting framework, to reduce its impacts on certain entities and extend its proposed application date.

As part of its ongoing redeliberations, the UK Accounting Standards Board (ASB) has tentatively agreed to a number of amendments to its proposed revised differential reporting framework, to reduce its impacts on certain entities and extend its proposed application date.

The ASB published its published its proposals for the future of financial reporting in the UK and Republic of Ireland in October 2010 (see our earlier story). The Exposure Drafts set out proposals for a three-tier reporting framework, with the aim of balancing the needs of preparers and users of accounts.

At its meeting held on 16 June 2011, the ASB made the following tentative decisions:

  • To remove from FRED 43 Application of Financial reporting Requirements and FRED 44 Financial Reporting Standard for Medium-sized Entities (FRSME), the requirement for publicly accountable entities to prepare accounts under EU-adopted IFRS. As a consequence the application of EU-adopted IFRS will not be extended beyond the current requirements in law. This measure will particularly assist certain charities that would otherwise be captured as having "public accountability"
  • To change the principles for amending the IFRS for SMEs in developing the FRSME (to be applied by all entities other than those required to comply with EU-adopted IFRS and small companies), to permit or require accounting options that exist in current UK and Republic of Ireland Financial Reporting Standards at the transition date that align with EU-adopted IFRS
  • To defer the proposed effective date of the proposals to 1 January 2014 (instead of 1 July 2013), to allow time for the creation of a new exposure draft of the FRSME.

Click for the ASB meeting summary (link to the UK Financial Reporting Council website).

IFRS Foundation (blue) Image

Agenda for IFRS Foundation Trustees meetings

28 Jun, 2011

The IFRS Foundation Trustees will meet in New York on Wednesday and Thursday, 13 and 14 July 2011. The tentative agenda is shown below.

Agenda for the IFRS Foundation Meetings
Wednesday and Thursday, 13 and 14 July 2011
Wednesday 13 July (13:00-14:15)
  • Meeting with IFRS Foundation Monitoring Board
    • Discussion of governance and strategy reviews
    • Update on due process oversight, convergence work and IFRS use throughout the world
Thursday 14 July (09:00-12:00)
  • Report of the Due Process Oversight Committee
  • Report from the IASB Chair
  • Update on the IFRS for SMEs
  • Report of the IFRS Advisory Council Chair
  • Report of the Executive Committee on the status of the Strategy Review
Globe (green) Image

XBRL taxonomy for sustainability reporting to be developed

27 Jun, 2011

Deloitte and the Global Reporting Initiative (GRI) have announced a collaboration to work on a new eXtensible Business Reporting Language (XBRL) taxonomy for sustainability reporting.

The new XBRL taxonomy will enable organisations to deliver sustainability information in XBRL format, with the objective of enabling stakeholders to organise and access sustainability information in a much quicker and easier way. As with XBRL for financial reporting, the use of 'tagged' data will hopefully improve the quality and integrity of sustainability performance data, allowing investors, auditors and other report users to access and compare sustainability information without the need for excessive manual work.

In related news, the Professional Accountants in Business (PAIB) Committee of the International Federation of Accountants (IFAC) and ISACA (the organisation responsible for developing international information systems auditing and control standards) have recently published Leveraging XBRL for Value in Organizations. This publication provides guidance on how to leverage the value of XBRL through effective implementation. It includes discussion of non-financial reporting, noting the inherent ability of XBRL to communicate a wide array of types of data, which supports a range of key performance indicators (KPIs) for performance and sustainability reporting (including reporting under the GRI guidelines).

Click for:

 

IFRS IC (IFRS Interpretations Committee) (blue) Image

Agenda for July 2011 IFRS Interpretations Committee meeting

27 Jun, 2011

The IFRS Interpretations Committee will meet at the IASB's offices in London on Thursday and Friday 7 and 8 July 2011. The meeting is open to the public and will be webcast.

The tentative agenda is shown below.
Agenda for the Interpretations Committee Meeting
Thursday and Friday, 7 and 8 July 2011
Thursday 7 July (10:00h-17:30h)
  • Introduction
  • IAS 16 – Accounting for production phase stripping costs in the mining industry
  • Review of tentative agenda decisions from the May meeting
    • IAS 16 Property, Plant and Equipment – Cost of testing asset - element of cost
    • IAS 19 Employee Benefits – Defined contribution plans with vesting conditions
  • Items for Continuing Consideration
    • IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IFRIC 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment – Use of IFRIC 6 by analogy
  • New items for initial consideration
    • IFRS 3 Business Combinations – Business combinations involving newly formed entities: factors affecting identification of the acquirer
    • IFRS 3 Business Combinations – Common control transactions
    • IAS 27 Consolidated and Separate Financial Statements – Group reorganisations in separate financial statements
    • IFRS 3 Business Combinations – Definitions of a business
Friday 8 July (09:00h-10:45h)
  • New items for initial consideration (continued)
    • IFRS 8 Operating Segments – Aggregation of operating segments and identification of the chief operating decision maker
    • IFRS 11 Joint Arrangements – Acquisition of an interest in a joint operation
  • Administrative session – Committee work in progress

 

Sir David Tweedie (50x80) Image

The IAS Plus Interviews – Sir David Tweedie, outgoing IASB Chairman

24 Jun, 2011

After ten years working to bring harmony and order in world financial reporting, Sir David Tweedie is standing down as Chair of the IASB. In a special interview with Robert Bruce for IAS Plus, Sir David Tweedie talks about his achievements, his battles, and his hopes for the future.

Sir David Tweedie is an awkward individual. He has many other qualities. He is humorous, astute, charming and thoughtful as well. But the default setting is very often just simple awkward. Who else would find that presiding over the International Accounting Standards Board, (IASB), for the last time in his decade of chairing the organisation he would feel impelled to put himself down as a dissention for only the second time in his chairmanship? And he was in a minority of three as well. But he felt it was important so he went ahead and did it. There is still something in him of the Scottish rugby enthusiast who revels in a disputed penalty kick in the last minute of a match.

He is stepping down after over twenty years of trying to bring order to financial reporting and get that order embedded around the world. The first decade was spent as Chairman of the UK Accounting Standards Board. He was brought in at a time when chaos and corporate disorder were the name of the game. He spent his ten years diligently bringing everyone to heel. Then he was made Chairman of the IASB to try and do something similar to financial reporting around the world. And his decade has been extraordinary. When you talk to observers and colleagues about the achievements of the IASB the sort of phrase which comes into the conversation is: 'no one would in their wildest dreams would have expected us to achieve this'. From a more or less standing start some 120 countries now follow International Financial Reporting Standards, (IFRS). The G20 has the attainment of a global reporting language as one of its stated goals. Only the US still stands outside and it is widely expected to decide upon a route towards joining in later this year. This is why, when you ask Tweedie what the best time in his Chairmanship was he answers: 'The best is still to come and that will be when the Americans say: 'Yes'".

To understand the scale of what has been achieved it is important to go back to the context at the outset. 'Our role isn't what I thought it was going to be' says Tweedie. 'I thought our job was really to write particular standards, so if the Australians wanted a leasing standard they could take that one, if the French were short of a revenue recognition standard they could take our revenue recognition standard. Instead of which we have become the standard-setter for the world and our role changed at that point. So the last ten years has been fixing what we inherited while selling the global vision. We're almost there. It's not quite there. The American decision is critical because that will influence Japan, which will influence China, which will influence India'.

There were two early changes. IOSCO, the stock market's regulator, announced that the standards inherited by the IASB weren't fit for international purpose. And after a few months the European Commission decided that IFRS would become mandatory for listed companies in Europe from 2005. The roller-coaster ride which started then is still running. But both the IOSCO and the European decisions changed things drastically.

'What we didn't expect was to be the world standard setter and that changed almost instantly with the EC decision', he says. 'But then we were faced with the IOSCO position on the existing standards which they said weren't fit for purpose. They were broadly fit but not as an international set. So we had to fix them and so it was a process of working through the standards to knock them into shape, which took about four years. It was horrible. We didn't like it. There were not a lot of conceptual ideas in it. It was just – "this doesn't make sense, take these four paragraphs out and slot these ones in"'. This work included a patching-up of the standard on financial instruments, a growing area of extraordinary complexity as the financial world did ever more creative things with them. 'With IAS 39 all we could do was tinker', he says. 'We couldn't do much, but tinkering actually made everyone think we had written the thing and we got all the flack for that'. And then came the Memorandum of Understanding with the US authorities to speed the possibility of removing the need for non-US companies to produce a reconciliation statement with the US GAAP rules produced by the US standard-setter, FASB. This grew into the process of convergence between IFRS and US GAAP, which still continues. Hard and unproductive though the work often felt, it did move the process into a truly global arena.

And this is partly why, when Tweedie came to the end of his decade there was frustration that all of the programme insisted upon by the G20 and the needs of the convergence programme had not been knocked on the head before he handed over the Chairmanship to the incoming Hans Hoogervorst, his successor.

'It was frustrating in a way, there were certain things that I knew we couldn't finish', he says. 'It would have been nice to have finished them. But you have to walk away. That is life. We almost got revenue recognition and leases done. We decided to re-expose revenue recognition, not that we had to technically, but it is one of these standards that is all encompassing. It is going to delay the thing for a bit but I don't think there will be many changes. It is more a quality control check. The only problem is if the process becomes a precedent and then everything has to be exposed once you finish it. We have never done that before. If that does happen, then every project adds a year'.

Tweedie espouses the simple and direct life. 'Even if there is a division simply just view position A, and view position B. Then pick one'. Unfortunately life is not that simple. In his farewell words to his last Board meeting Tweedie pointed out that they had been working on the convergence project since 2002 and were still at it. He joked about Winston Churchill's observation about Americans. 'They always come to the right answer', quoted Tweedie, 'but only after they have tried everything else'.

This has particular resonance in the international context. Tweedie's view is that countries need to sign up to the whole deal and if they don't like the whole deal then they need to get inside the IASB decision-making process and influence it. 'Ultimately you've got to make a choice and they have got to accept that choice. Take India, for example. They say: "Well, we want IFRS but we want 10 carve-outs. And the argument I put to them is do you think what you are doing is an improvement for your country or is it not. And if it is not, then just stay with your own standards. But if it is, then you have to do what we have to do when we sign off on a standard individually. And in almost every standard we put out there is something in it you really dislike. But on the other hand you have to look at it and say, on balance, is it better than the one it's replacing, and if it is, our rules are that you must sign for it. And I think countries have got to do that as well. You may not like some of our standards but you are taking the lot. Then work from the inside to try and get it changed. With the new standards we will review them after two years anyway so if you can get enough support then, when the agenda comes up, get it changed'.

But the world really awaits the decision of the US regulator, the SEC, to provide some kind of green light to a programme which would lead to the US, eventually, joining with the rest of the world in using IFRS. Like so many issues in the world of accounting the problem is not a technical one. It is a cultural one.

'I think the idea of American exceptionalism dies hard', he says. 'America doesn't hand things over to international bodies very easily. And I think the SEC has a difficult decision. It quite clearly believes in global standards and you get someone like Tim Geithner who will say that financial reform globally is impossible unless we get the accounting architecture sorted out and Jean-Claude Trichet said the same thing. They accepted that we ought to have one set of standards at the G20. The problem I think they have is that a lot of American companies focused on domestic clients and they say "why change, this is going to cost me money. I'm used to our system so why should we do it"'.

So it comes down to the political niceties. 'My personal view is that they are more likely to say yes than no, as a consequence of saying no is to question the value of the last nine years of convergence work. The agenda has been slanted towards getting them in'.

The real impact of the IASB's work is often lost in a miasma of technical arguments. The economic impact, in the wider sense, is sometime obscured by this. Tweedie quotes the relative share of the global equity markets. 'When we started the US share of the global equity markets was 52% and Asia was about 14%', he says. 'Now America is 31%, and Asia's 32%. Europe takes about 30% and hasn't changed much'. This is partly why the US needs IFRS in the long run. And it is also partly why the balance of power in the IFRS world is changing.

'Cumulatively it will reduce the cost of capital', he says. 'There are studies that have shown that in Europe IFRS has reduced it by 47 basis points. That is a huge amount and the more that can be done, the more you end up with more investment and more growth. So we are talking macro-economics. We are not just arguing over what type of lease accounting you have. It's very important that we do that and that's the big global effect'. And it is not confined to the largest companies either. The SME standard has extended the value of IFRS to a mass of smaller companies which now do business right around the world. 'We are hearing from people: "We now understand our suppliers, we understand our subsidiaries and it is better when we get the whole system together". It's an idea whose time has come but it should have come a long time ago really', he says.

Now he hands over the Chairmanship to Hans Hoogervorst, a former Dutch Minister of Finance and securities regulator. They get on well together. Hoogervorst co-chaired the Financial Crisis Advisory Group. He was Chair of IOSCO's technical committee. He may not have an accounting qualification after his name, but he knows the business. I asked Tweedie what advice he had for Hans. 'I don't think you need to give Hans very much advice', he says. 'That's why he is such a good choice. This game is all about change management. You can say it's technical but how far can you go technically? It's pragmatism'.

And in any case the IASB is now a very different organisation to the one Tweedie first joined. We were speaking the morning after the staff had given him a farewell party. ' As I said to the staff last night, I am handing my baby over for adoption', he said. 'But the baby's ten and a half years old now and heading towards teenage years, which need a different form of parenting.'


June 2011

IFRS Foundation (blue) Image

Trustees announcement regarding the IFRS Advisory Council membership

24 Jun, 2011

The membership terms for the IFRS Advisory Council are set to expire on December 2011. The Trustees of the IFRS Foundation has announced its plans regarding the future of the IFRS Advisory Council's memberships.

The Trustees have agreed to extend the terms of the Advisory Council leadership. Chair Paul Cherry's term is extended two years, ending on 31 December 2013; vice chair Charles Macek's term is extend three years, ending in December 2014; and vice chair Patrice Marteau's term is extend one year, ending December 2012. In addition, the Trustees have agreed to keep the current representative membership model with some minor modifications. These modifications are (1) inviting regional standard-setting bodies; (2) more participation from academia, other internationally recognised professional bodies interested in financial reporting, and SME community; and (3) greater participation from developing markets and other economies adopting IFRS.

Click for:

 

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.