The Bruce Column — King's College lecture

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08 Oct 2010

Change often happens slowly and people do not notice the revolution that has occurred until after it has happened.

An example of this is the way that a by-product of the unprecedented, and totally unexpected, speed of adoption of IFRS around the world has been the creation of the first truly portable global business language and, as a result has created a truly global profession. Around almost all of the world accountants who are skilled in the global accounting language which is International Financial Reporting Standards, (IFRS), have discovered that their skill and knowledge now transcends the old traditional boundaries. As a result people who used to be experts only in their own country are now experts in almost every country. A whole new global profession has come into being.

The fact that this revolution is now embedded in ordinary business life came home to me as I prepared an annual lecture which I give at King's College in London, one of the oldest and biggest universities in the UK. I was talking to graduate students on the international marketing course. Accounting and financial reporting is a relatively minor part of their studies. But, as I thought about it, the cultural impact seemed enormous and probably under-estimated, if not unknown, outside of the accounting world.

So I was able to stand back and examine how this revolution came about. And it seemed to me that you could identify a specific tipping point in the process which, like all tipping points, was not seen at the time as the extraordinary catalyst that it was to become.

There were two different elements which were to lead up to this and prepare the way. The first was the change of strategic direction which happened to the creation of international accounting standards back in the 1970s. Then at the instigation of one of the accounting profession's most patrician of grandees, Sir Henry, later Lord, Benson, the international accounting standards committee was set up. This is where the move towards international financial reporting standards started. But equally significant was the way the committee worked in the first decade of its work. It worked diligently on creating standards, but it also came to realise that part of the emphasis for its work should be the creation of standards which emerging and developing nations could use. This, it was felt, would help countries develop their own accounting and professional structures, which in turn would eventually enable them to benefit from much greater levels of inward investment and economic growth.

The second significant element was the appointment of David, later Sir David, Tweedie as chairman of the rejuvenated UK accounting standards board, (ASB), in 1990. In its newly-galvanised version it was created to add backbone, common-sense and principle to a financial reporting and auditing community which had been badly damaged in the aftermath of a string of UK corporate scandals in the 1980s, which had culminated in the collapse of the business empire of Robert Maxwell and its looted pension funds. Over the decade of the 1990s the ASB did sterling work in the UK in bringing a pragmatic and principled approach to financial reporting. This emphasis on principles and pragmatism was seen as the means to drive poor and misleading financial reporting out of the UK system. It was a great training ground for the international process which Tweedie was subsequently to undertake and it meant that he was well rehearsed for that international role when it arrived.

All these elements came together in 2000 when Tweedie was appointed chairman of the International Accounting Standards Board, (IASB). Just before his arrival a complex procedure resulted in the acceptance of international standards for cross-border offerings and listings by multi-nationals on global stock exchanges. The stage was set for the first steps in the creation of what had a year before had been urged by the then G7 group of finance ministers and the IMF "to strengthen the international financial architecture".

Then came what we can now see was the tipping point. Europe took the lead. In 2001 the European Commission put forward legislation which would require all listed companies in the European Union to adopt what were then called international accounting standards, as issued by the IASB, by 2005. In 2002 this proposal became law.

This set European companies onto a headlong dash towards implementation. But more important it provided the event which made the rest of the world sit up and take notice. If Europe was going to move onto international standards it left other countries around the world with a stark choice: either they were going to join in or have to take a stance that they wanted to continue to go their own way.

At the time this was not obvious. If you talk to members of the IASB from that time they confess utter amazement at the speed of the take-up. But as the decade unfolded more and more countries moved onto the system of international standards. The revolution was underway. Now some 120 countries around the world use IFRS or are in the process of implementation. All the major global economies, bar the US, have signed up.

And the result, as I found myself discussing it with a hundred or so bright King's College students, has been the glorious flowering of a global financial reporting culture and the creation of the resulting global profession. The students got the message. They too came from all around the world.

Robert Bruce
October 2010

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