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IASB Chairman speaks on fair value accounting and long-term investments

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13 Dec 2016

During yesterday's ANC Symposium on Accounting Research, IASB Chairman Hans Hoogervorst was invited to participate in a roundtable on performance and the public European good. However, he used his openening statement to address a different topic.

Given the symposium was being held in Paris, Mr Hoogervorst commented on what he called "French accounting tradition’s problematic relationship with fair value accounting". He explained that the assumption that the IASB was made up of "market fundamentalists" was wrong as the vast majority of the IASB's accounting standards were cost-based. However, Mr Hoogervorst argued, in some case fair value accounting would be the right choice:

At the same time, I firmly believe that cost-based accounting is inadequate for reflecting the performance of long-term equity investments. Quite the opposite — the longer term an investment, the less relevant its original price becomes. I fail to see how investors would benefit from a balance sheet that shows the original price of an equity investment acquired 20 years ago.

Mr Hoogervorst admitted that market-based valuations of equity could lead to more short-term volatility in the information reported in financial statements. However, he expressed the belief that this volatility reflected the risks associated with such investments and that presenting these equities at cost would not make the volatility go away. He concluded:

Long-term investment should not be encouraged by artificial accounting stability in the numbers. Long-term investment is best served by transparency that the public can trust.

Please click to access Mr Hoogervorst's prepared statement on the IASB website. On his comments that were to the point of the roundtable we already reported in our news item on all of the symposium posted yesterday.

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