ROBERT BRUCE: We are celebrating ten years of EFRAG at this time. How do you see those last ten years? Talk us through them.

STIG ENEVOLDSEN: If we look back at slightly more than ten years I think it was clear in the late 1990s that there were issues around European accounting and how to move it forward. I remember sitting in a car for three hours with Göran Tidström, the President of FEE (Federation of European Accountants) at the time, and the subject we discussed was that something needed to be done about European accounting. I said to him at the time of our discussion that I would like to be part of the fight in Europe and it had also been the last thing I said to David Tweedie before I retired as IASC Chairman. And when it was clear that the Commission wanted to introduce IFRSs as a requirement for consolidated accounts for listed companies in Europe, Göran got EFRAG established. Then Göran called me and said: 'Would you want to be a member?' I said "yes".

RB: What were those early days like?

SE: EFRAG was the little brother. EFRAG was very tiny: We were only the eleven members and there were no staff, so we had to do all the things in the first six months until staff was employed. Under the good leadership of the first chairman, Johan van Helleman we established all the procedures, including the tradition of draft comment letters. The whole objective of EFRAG was to give pro-active input to the IASB, meaning responses to their discussion papers and their exposure drafts. Input to IASB was always the key objective; endorsement advice was always number two.

In the very early days it was decided to produce draft comment letters and I think that is one of the biggest successes of EFRAG because they are issued very quickly after the exposure drafts have been issued. The draft comment letters are increasingly read all over the world so we see constituents using them as a basis for evaluating the exposure drafts and also for drafting their own comments to either EFRAG or particularly to the IASB.

A measure of their success is that many times we see quotes in letters to the IASB from our draft comment letters. And the IASB and other standard setters used to get very irritated when they saw these quotes and they thought that EFRAG had influenced others to put those views into their letters. But from the EFRAG perspective it was an important success factor.

RB: What was the organisation like when you became Chairman?

SE: I became EFRAG's first full time Chairman in 2004. It was still a very tiny organisation – two staff and a secretary plus me – so it was almost nothing. But as soon as I started I said we must be very high quality, technically, in order to be respected by the IASB and other players in the game. So I hired Paul Ebling from the UK ASB and jointly we set the standards for the quality and the work we would do.

We had two objectives: high quality, technical output, and being visible. EFRAG was not very visible when I took over. So we shared the responsibilities. I travelled Europe and the world and gave speeches and had meetings where people wanted to see me and where I could give a presentation to make EFRAG visible; and Paul did a fabulous job to produce very high quality comment letters. When Jim Leisenring, who as you know is the ultimate technical person, said in an advisory council meeting just before I retired that EFRAG comment letters were thoughtful then I felt that was the highest prize that you can get on earth in these matters. I was really proud because we had then succeeded.

RB: Can we talk a bit more about the fight which you had anticipated in Europe?

SE: Well, I was ten years on the Board of the IASC, the IASB's predecessor body, and there most of the debates were amongst the Europeans. So you had the extremes of the UK at one end and the French and the Germans at the other end, and you had the Nordics and the Dutch somewhere in the middle. You had in Europe the whole spectrum of different views in accounting and at the same time it was clear that it was completely impossible to cooperate, to get anything changed in directives. Even thinking about doing something together was unthinkable. It was not possible to achieve anything. Therefore the Commission came to the wise conclusion that the only way forward - if you wanted to improve European accounting - was to go to IFRS.

RB: And that changed everything.

SE: That was what was decided. You had to go to the standards issued by the IASB to get a positive change. At the same time the European decision made IASB important. They were good, they were important, they were the leader of the pack but the importance really came because their standards had to be implemented. That was the difference between the standards having to be used or not having to be used. The decision made the difference for the IASB.

Another success factor for EFRAG came when we got support in 2005 for establishing the proactive work, which we initially called PAAinE (Pro-Active Activities in Europe). We named it so on purpose because it had a double meaning to me. It was me hinting to them that it was a pain to work together in Europe, but it also had created pro-active activities in Europe. But it was a pain to get anything done. So there was this double meaning.

We created proactive discussion papers in order to influence the IASB long term and thereby dealt with not only current subjects where we issued draft comment letters but rather with the longer term issues. Revenue recognition, for example. And now there is work on a disclosure framework: Should there be less disclosure? What would be the criteria for requiring note disclosures? And so on. And as the only region in the world using IFRS, we have, together with European standard setters like the ASB, the Germans and the French, we have established, continuously since 2005, discussions and new discussion papers that have been in the public domain, read by the IASB and read around the world. It has created good thinking and opened up new debates.

RB: And the fight?

SE: As mentioned earlier all views on accounting matters were represented in Europe and the fight envisaged was to get agreement on a common set of standards and get them approved and implemented. The EU Commission decision to adopt IAS was not supported by all the key players in Europe and there are still fundamentally different views on accounting for various things for instance financial instruments. So over the years the hard work has been to get opposing views to meet and to discuss the pros and cons. It has taken a lot of meetings and a lot of discussions, and we are not fully there yet, but the differences have been smaller and I believe that the understanding of the issues and concerns have improved on all sides over the last years.

RB: Your relationship with the IASB?

SE: It has been hard work and very fascinating being in EFRAG. And it has sometimes been difficult working with the IASB. I do not think that David Tweedie and the Board members realised how much I really supported them in Europe. We yelled and screamed but we took on many of the fights in Europe so they did not have to. And in the end we always ended up recommending endorsement of what they issued.

It was sometimes difficult. I had to promote EFRAG but at the same time support the IASB. This was the balance that sometimes was difficult, but I think it worked out in the end. I would say that I have sometimes been criticised quite a bit by the Commission and others for being too supportive of the IASB rather than the opposite. You could say that EFRAG has moved up in standing over the years and I would say it is very visible now, with Françoise Flores as Chairman. EFRAG is now under Françoise's leadership, I would say, the fourth body in the world. You have, of course, the IASB first and the FASB, and then you have the Japanese standard-setter which is one of the most resourceful of the accounting bodies in the world, and then I think, quite honestly, you have EFRAG as the fourth body in importance. The UK ASB was, in the 1990s, absolutely by far the thought leader of the world in accounting. They moved everything forward. David Tweedie was very visionary. The ASB had a good staff doing quality work and they had critical mass. In this relation, one of the biggest concerns, I would say, for EFRAG, which does all their work in cooperation with the European standard-setters, is if the national standard-setters slowly fade away. We have seen this in all the smaller countries. It might happen if the UK ASB moves to a part-time chairman with less resources and there is also a risk that it might happen in Germany if the Germans have to cut down on resources, and it would be a pity for the European input and influence.

RB: What about America? What will happen in Europe when the SEC makes its decision?

SE: Well, I think there are different levels to this. Whatever happens, even if the SEC says no, the IASB and the FASB will still work together. If the SEC says no or may be, there will, clearly, be irritation in the IASB and the cooperation will be less. In that case I think you might see fewer Americans on the Board and as Trustees. There is a limit to how far you can take it and then say no.

RB: And the consequences will be if the SEC makes the decision to follow a path of incorporating IFRS into US GAAP, as was suggested in their recent staff paper?

SE: I think the IASB, and for good reasons, will continue to work closely with the FASB, but they might also need to work more with others, like the Japanese and EFRAG.

But if it is an outright "Yes" to require IFRS for US domestic filers with an endorsement mechanism, it would be a fantastic achievement. We have not even got electrical plugs that are the same around the world and suddenly accounting rules are – that would be just a dream come true. And I think the US will go for IFRS eventually anyway because when global investors want to invest in the US the fact that the US has a different GAAP may cause a bit of problems. That was all different ten years ago, but when investors outside the US now all use IFRS, it might prove to be more difficult to attract investors to the US.

RB: It is all about sovereignty.

SE: Yes, and of course is it very difficult because, as you can see from the condorsement proposal from the SEC staff earlier this year the US – like Europe and others – is very concerned about giving up any sovereignty and also concerned about the cost of implementation – and for good reasons. So they have proposed a condorsement approach that could be seen as a bit concerning if it is not implemented in a very careful way with only few carve-ins and carve-outs. However, if that's the way to get the US on board IFRS, so be it.

RB: If they did say no would that start people thinking that perhaps there should be a pan-European standard-setter?

SE: I think not, because basically we have the IFRSs. The IFRSs have improved accounting in Europe so much. We have IFRS. There is now respect for European accounting around the world. Financial reporting in Europe is at a high level with transparency and it supports the single market and our capital markets and thereby the European economy. Why would we try to undermine such an achievement?

To set up a standard setter you would have to get the Europeans to agree on the set up and on accounting subjects and I think that might be very difficult.

I think it is a lot better, and much more likely, that Europe will strengthen its input and try to get EFRAG more involved in the world.

RB: And how do you see things changing at the IASB?

SE: I think some of the concerns with the IASB when it was set up were with the governance. It was a copy of the American FASB model and the Europeans were not happy from the outset with the governance model. I think that has been improved satisfactorily over the years. We have got proper oversight and also accountability, so that is now fine. It is also very transparent. However we should ensure that we do not require much more, because then there might be a risk of becoming an administrative burden for the IASB. It is now close to going too far.

I still advocate that they should be better at re-exposure. However with their re-exposure of leasing and revenue recognition and, most likely also insurance, it seems that they have got back to where, I think, really David Tweedie originally wanted to be: We look at things and then we re-expose to ensure we have got it right. But because of the haste for him to try and achieve his agenda for June 2011, I think sometimes, and rather against what he really would have liked to do, he compromised some of the procedural things. I think there are some criticisms of David but I think David has done a marvellous job. I have worked with him for 20 years, from when he was chairman of the ASB in the UK and I was Chairman of the standard-setting body in Denmark. In reality he was helpful to EFRAG in the way that he for ten years continuously allowed a Board Member to come every month to our meetings and participate. It was a quiet way of supporting Europe in the right direction and supporting me as Chairman of EFRAG. And he allowed us to have two or three meetings tête-à-tête a year. In addition I think he has done a marvellous job getting his vision of the IASB and IFRSs sold to the world. That was his job in the first ten years, moving from being an unimportant global standard setter to being the leader of accounting rules. When he started, accounting was okay in the UK – it was quite good – but he has improved the world. I think that is a marvellous achievement for him.

And the quality of standards has improved. The quality of the standards is very high, to my mind a bit too detailed and too many disclosures, but that is a matter of taste and judgement rather than anything else. So I think that has been very good.

RB: And how do you think that David Tweedie's successor, Hans Hoogervorst, is doing?

SE: I think there is a style change between a longstanding Chairman of the UK ASB and then Chairman of the IASB, and a Dutch Chairman of a Regulator, and being Dutch and being Scottish is different in style. They are different. David has these enormous strengths of being a professional standard setter and a professional accountant so he really knows what he is talking about. I think he was a particularly good politician in his relationship with the US. I think he had slightly more problems with Brussels, but Hans Hoogervorst clearly is much more familiar with Europe being a former Finance Minister and Chairman of the Dutch Regulator. He was also involved in IOSCO and Chairman of the Monitoring Board, so he knows all the games at the higher levels.

I think it is still early days. I think Hans has said all the right things but I do not think it is fair to judge him at this stage and say at this stage that there will be significant change. I think it remains to be seen. It is not the first month, or the first three months, that counts. It is one year, two years, the long term stretch, work that counts. So, I think it would be unfair to both David and him to evaluate now whether there is a significant amount of change.

RB: Why has the whole endorsement issue been one which appears to be so difficult for people to deal with? We are still waiting for an endorsement of IFRS 9 and there are endless arguments and some bitterness.

SE: We have endorsement of IFRS in Europe and that's because it is a sovereignty issue for politicians. You do not give away your sovereignty without safeguards and the endorsement process is a safeguard. You have seen the Japanese doing the same. And now the US seems to want to do the same thing. Maybe they have copied the Europeans. I don't know. But I think you have to have checks and balances and I think this was the European balance. Personally I think it is irritating that it takes too long. It should not take a year. Make a fatal flaw review: 'Is it absolutely stupid? No? Go for it!' So it could be done in three months, two months – whatever. In the early days we did it in one or two months. However I understand that when there are different views on accounting – as we have in Europe - then more formal and time consuming procedures are needed.

There have been complaints about the one and single carve out that we have had in Europe of IAS 39, hedging requirements, but I do not think that people understood that this was a matter of IFRS or not; either we got that carve-out and got IFRS for banks, insurance companies, everyone, or we didn't have IFRS. So I think that was the price we had to pay. On IFRS 9, I think if you look back financial instruments was a very problematic issue in Europe and when IASB started re-opening the issue of financial instruments some started their footwork and they were not happy and they were very concerned about what would happen in the subsequent phases. David, and I think rightly so, split the project into phases.

Then the crisis was less serious and the question was raised "how can we introduce IFRS 9 if we do not know what the hedging requirement, the Impairment requirement or everything else will be in the end?" And I think, to postpone endorsement was a price worth paying, to ensure we did not get a full blown fight against IFRS. And I hope the concerns have more or less disappeared, because of the IASB proposals on hedging requirements.

RB: What should the priorities for the IASB be over the next few years? And what are the current European priorities? How do you see all of that working out?

SE: I think it was good to have an agenda consultation. They have needed that over the years. I think that is good. They can clean up some of the old items and get some new ones on the table. I think it is very important that they look at the conceptual framework and particularly look at the disclosure framework. In EFRAG we are working on a disclosure framework, trying to provide a discussion paper on the subject. It has just grown out of proportion with the notes and disclosures. So I think they have got it right saying: 'We want a framework and a disclosure framework'. And then of course they have to set standards. That is part of their game. And then they wanted to have these post implementation reviews. I think it is important for their work but I am not sure that they should do it, because do they have the competence to do so? Maybe they should say we have to have this done but somebody else has to do it.

These days, after EFRAG, I am back in real life business and with clients and reviewing things, and it is obvious that all the minor changes coming from IASB every year are not needed. The firms and the clients, they solve the issues. You do not need to change a little bit here, a little bit there. It does not change accounting seriously. By all means take the bigger projects, the major projects that really significantly change accounting, and if there are really bad things, have a look at them, but maybe only once a year and one thing a year. They cannot all be so bad that you have to change 15 small things, 15 interpretations or what have you. Another thing is that IASB wants to have research and I do not think that they should do research themselves. They should use academics for that.

RB: And what of the future of financial reporting?

SE: The final thing the IASB need to do is to look at the future development of reporting. If you think about reporting they should look at trying to be a leader of reporting. Reporting is not only the financial statements, which they should improve, but it is also reporting in the Director's report, the governance report, corporate social responsibility, and so on.

And there is a more important point. If you look at financial statements today it is all produced on paper like we did 100 years ago. My grandfather was an auditor and he did all this on paper and it still looks the same, 100 years down the line.

So I think with the internet and with the technology today we should change it and I think it would be good to see the IASB being involved in monitoring that type of change. They have looked at XBRL but that is only a narrow thing. You need to try to use the internet to get the messages of reporting out to younger users. Look at your children. They are all on the internet. They do not have a telephone book or they do not have a card for Copenhagen or London – they look it up on the internet. And financial statements – they are still on paper. We must adjust and be modern and that is one of the projects that I work on in Copenhagen. We must find a way to get it more interesting and to meet the expectations of the younger generation. And it may require a different layout. We are used to a layout that fits A4 paper. But we may need to think about a different layout because it may need to fit your iPad, my computer, maybe mobiles in the future.

Being the leader on a worldwide level the IASB should ensure that they monitor that. And I think it would be absolutely naïve if we stayed back and continued to do what we have always done with this significant change in technology and the way we all operate in our everyday lives. We cannot go on like this. We must change that. And I think that is a priority.

Also it gives us a lot of new possibilities to explain in a more coherent and better and more active way. If you read a figure you want to get all of the information about the figure. That is not possible on paper. You would have to go to page 32 and 64 to get it. Now you can just click it in from the sides or the top at the same time if you want it. So I think that is where they should also look to ensure that we satisfy the readers' and the users' needs, not only on measurement and recognition but also on the presentation in a modern world.

October 2011