The Bruce Column — The changing of the guard

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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

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