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Prada warns that modification of IFRSs will lead to lack of international recognition

  • IFRS Trustees speeches Image

Nov 13, 2014

The chairman of the IFRS Foundation Trustees, Michel Prada, delivered a speech entitled, "Accounting, Markets and Global Economic Growth," at the Shanghai National Accounting Institute. In his speech, Mr. Prada explained how the application of global standards is interrelated with economic growth and commented on the situation in China.

Mr. Prada's overview of the success of IFRSs around the world was similar to his explanations in Tokyo earlier this week. He praised IFRSs as global standards for financial information that can help to power the global economy, which would be especially important today, "because every major jurisdiction seeks to maintain a level of economic growth, to provide further time to heal the wounds from the global financial crisis and to facilitate a continued economic recovery."

Shifting from the world economy, Mr. Prada then discussed the role of efficient markets in China in connection with the 2020 reform program that identifies the decisive role of markets and the need to facilitate overseas companies' entry to China and Chinese companies' expansion abroad. He stressed that the IFRS Foundation is very willing to work with the Chinese authorities to achieve this goal and stressed the hope that a funding mechanism might be found that allows China to fully contribute to the costs of the IFRS Foundation, and would increase Chinese support for the Asia-Oceania office of the IFRS Foundation in Tokyo.

However, Mr. Prada identified the modification of IFRSs as the major challenge China is facing. He noted the efforts China has made in modernizing its accounting systems and called these efforts a "considerable undertaking for a country the size of China." He also mentioned that it is very impressive that the new Chinese standards are required for use by all large and medium-sized Chinese companies, not just listed ones. Yet, similar to the point about familiarity he made in Japan, Mr. Prada pointed out that international investors are wary when the IASB's standards are modified, even if only in small ways. He commented:

China has not fully received the international recognition it deserves by your efforts to move to global accounting standards. It is the same problem faced by any jurisdiction that chooses to adjust IFRS to meet local requirements. Other jurisdictions that have adopted IFRS in full and without modification often assume that the adjustments must be substantial to warrant such a change. So, the question for China is whether the relatively minor deviations from IFRS warrant the lack of international recognition that results from those changes? This is a question that China alone can answer.

The full text of Mr. Prada's speech is available on the IASB's Web site.

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