23 January 2012

IASB: Hans Hoogervorst's address at Ernst & Young IFRS seminar in Moscow

Regarding the IFRS roadmap, Mr Hoogervorst mentioned that the IASB currently has some difficult choices to make, beginning with classification and measurement. The IASB sets out to replace IAS 39 with an entirely new standard. The IASB completed the first part of this work in less than a year, issuing IFRS 9 at the end of 2009. It is a very good standard. The IASB reduced the complexity associated with IAS 39. The IASB addressed the ‘own credit’ issue. The IASB's outreach efforts were widely praised. The IASB sought input and revised its proposals in real time. Meanwhile, the FASB has been refining its own approach on classification and measurement.

They responded to feedback on their exposure draft and moved from a full fair value approach to a mixed measurement model. There are still differences in our positions, but the IASB is not a million miles apart. At the same time, as the IASB's work on the insurance standard progressed, it became increasingly clear that the IASB had problems with its interaction with IFRS 9. The IASB gradually came to the conclusion that we could make a lot of progress on both these issues – insurance and convergence – by revising IFRS 9 in a limited way. And that is what the IASB has now set out to do. These changes are going to be limited, but in practice there will undoubtedly be pressure for wider adjustments. Nevertheless, the potential gains are clear. The IASB will proceed with caution and limit any changes to those that are absolutely necessary. On impairment, after exploring a number of alternative approaches, the IASB and FASB are finally on the same page with a workable model. The IASB has recently agreed on an approach that divides expected loan losses into three categories - referred to by our staff as “The Good, The Bad and The Ugly”. Mr Hoogervorst addressed the hedging project, the insurance projects, the completion of conceptual framework and the elimination of Other Comprehensive Income.

The second topic he discussed was the prospects for global accounting standards. The move towards global accounting standards is seen as an essential part of the global financial reform agenda, providing the transparency on which to build a better, more resilient global financial infrastructure. The majority of G20 members now require the use of IFRSs. With Russia joining Brazil in fully adopting our standards, the BRICs are more than half-way there. Real progress is also underway in China and India. China has come a very long way in a very short period of time. Chinese accounting standards are now closely aligned with IFRSs. Regarding Japan, the IASB and the Accounting Standards Board of Japan (ASBJ) have worked together for many years to bring about convergence of IFRSs and Japanese GAAP. In recognition of this work, Japan now allows large international Japanese companies to report using IFRSs. Japan is expected to decide this year whether to mandate a national transition from Japanese GAAP to IFRSs, and if so, when. The SEC’s Chief Accountant said in public recently that the SEC will make a decision on IFRS in the coming months. 

Mr Hoogervorst concluded his speech with a summary of the support for emerging economies. A single set of global accounting standards must be able to be applied, on a consistent basis, across all different types of financial markets, within both developed and emerging economies. Consistent with requests from the G20, the IASB has taken a number of steps to ensure that the needs of emerging economies feed into the standard-setting process. First, an Emerging Economies Group (EEG) was established, of which Russia is a founding member. The EEG is chaired by the IASB with the secretariat provided by the Chinese Ministry of Finance. The group has met twice and the prospects are encouraging. Second, the constitution of the IFRS Foundation has been amended to take account of a broad range of stakeholders, both by type and location. As a result, emerging economies have the opportunity to be well represented among the Trustees, on the Board and in the IASB's various advisory bodies. Third, the IASB has significantly expanded the amount of outreach it does outside the established financial centres of London, New York and Tokyo.

Full speech

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