This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

IASB Chairman’s report

Date recorded:

Mr Hoogervorst noted that his oral remarks would concentrate on three areas: financial instruments, leases and insurance.

Financial instruments

He stated that the IASB was ‘nearly done’ with IFRS 9 Financial Instruments: it had issued the chapter on general hedging in November 2013; and it had concluded its deliberations on impairment and amendments to the classification and measurement chapter in January 2014.  He suggested that if one looked at the IFRS 9 package as a whole, it represented a ‘clear improvement to financial reporting’ for financial instruments.

He was confident that the hedging chapter would be welcomed by corporates and financial institutions as it would remove artificial volatility in profit or loss caused by derivatives.

On impairment, he was confident that the IFRS 9 approach addressed both the ‘too little, too late’ criticisms levelled at IAS 39 Financial Instruments: Recognition and Measurement.  In his view, the expected loss model would give much better information.  He also noted that at a meeting with the Financial Stability Board in December 2013, the FSB has noted that, while it was unfortunate that the IASB and FASB had not completely converged, the amendments to the standards resulted in a significant improvement in accounting and encouraged the boards to complete their respective projects.  Mr Hoogervorst noted that while there were ‘significant differences’ between the two models, both models were based on an expected loss approach, addressed all [financial] assets and would result in full lifetime expected losses being recognised on all impaired loans.

The ‘own credit’ issue had been ‘solved’ by utilising other comprehensive income to reflect the notional gain created as a result of deterioration in an entity’s own credit quality.  This amendment had been bundled with the general hedging chapter.

Classification and measurement amendments: these amendments were based on clear and understandable principles and how the entity’s business model was implemented with respect to the instruments the entity used.  He was confident that the resulting financial reporting would be ‘much clearer and more understandable.’  A bonus was ‘better articulation’ between IFRS 9 and the proposed Insurance Contracts standard.

Leases

The IASB’s project to improve lease accounting was ‘both very sensitive and difficult.’  However, the Board was confident that there was growing support for the lessee accounting proposals.  Users wanted leases on [lessees’] balance sheets, he said.

On operational costs, the IASB had to find the right balance between costs and benefits.  In particular, the IASB had to decide whether to simplify or abandon the dual lease model and whether a change was really necessary to lessor accounting.

Ultimately, what the IASB was seeking on leases was ‘better information for CEOs’ so that they understood the leverage in their companies (he drew an analogy to the IASB’s decision to amend IAS 19 Employee Benefits (2011) to require the full pension obligation to be on balance sheet).

Insurance

Mr Hoogervorst noted that the comment period on the revised Insurance Contracts proposals had been quite remarkable not only because most commentators had limited themselves to comments on the five areas targeted by the IASB, but also for the quality and thoughtfulness of those responses.  He noted that the broad themes of the responses reflected concerns about added complexity and whether the IASB’s attempts to address mis-matches between the balance sheet and income statement had been successful.  Some noted that the IASB’s revised proposals had created additional mis-matches.

He noted that the IASB staff had conducted extensive outreach in connection with the re-exposure and had identified a huge diversity in practice—between sectors and jurisdiction and even within regions.  Within the EU there were at least three models in operation: some countries were almost wholly cost-based, while some were more accustomed to using current values (e.g., Sweden and the UK); with other variations in between.  Given this diversity, he noted that the IASB could hope only to strive for ‘an equitable distribution of dissatisfaction and unhappiness’ around the world as it developed final proposals.

There were no questions for Mr Hoogervorst.

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.