Global Standards for the world economy

Thursday 24 September 2020

Banner graphic

Web announcements


Speech by Hans Hoogervorst at the IFRS Foundation Conference Melbourne

24 November 2011


On 25 November 2011 [Melbourne] Hans Hoogervorst, Chairman of the IASB, addressed the IFRS Foundation Conference, Melbourne, Australia.









Welcome and introduction

Welcome to this important conference on International Financial Reporting Standards. I am delighted to see so many familiar faces in the audience and your support is very much appreciated.

Each year the IFRS Foundation holds four major conferences in different parts of the world. This year we have hosted events in Sao Paulo, Toronto and Zurich. Today we are in the beautiful city of Melbourne for the final conference of the year.

Australia has traditionally fulfilled a very important international role in financial reporting. Australia was one of the founding members of the ‘G4+1’ group of standard-setters, in many ways the intellectual forefathers to the IASB. It was one of the first countries to adopt IFRSs and since then has continued to play a proactive role in the development of IFRSs.

Australia is not alone. Support for IFRSs has spread across the Asia-Oceania region. Most countries in the region have already adopted IFRSs and we are working with those remaining countries to support their transition to international standards.

Countries across the region have joined forces to establish the Asian Oceanian Standard Setters Group, or AOSSG. The AOSSG has now been up and running for two years and is proving to be a great success.

So much so that other regions are now copying this model of regional cooperation.

Asia-Oceania is the perfect location for our first liaison office outside of London. I look forward to the opening of the new office in Tokyo next year.

Asia is a favourite destination for many of our Board members and staff, so expect to see a constant stream of visitors from London!


Let me turn to the events of today. I will spend 20 minutes sketching out our plans for 2012 and beyond, followed by a 15 minute Q&A. I will then pass across to PK and Wei-Guo Zhang, who with my Senior Technical Directors, Sue Lloyd and Alan Teixeira, will provide a more detailed technical update on the work of the IASB.

After the coffee break, Kevin Stevenson, who is Chairman of the Australian Accounting Standards Board and the newly-appointed Chairman of the AOSSG, will lead a panel discussion on financial reporting issues in Asia-Oceania.

After lunch we will resume with five parallel sessions on various topics. These five are related to the implementation of IFRSs, and four further sessions will be held after the coffee break. The conference will close at around 5pm.

This is a tight schedule and we have a lot to get through, so I will proceed without delay.
I have been asked to talk about IFRSs in 2012 and beyond. I would like to use this opportunity to share with you my thoughts on two specific but highly relevant topics.

These are our work to reform financial instruments accounting and the prospects for global standards.

Reform of financial instruments accounting

Let’s begin with financial instruments.

This project was always going to be difficult. Doing it mid-way through the worst financial crisis in many generations has made it even harder.

We and the FASB have been pulled in different directions. We’ve each tried to respond as best we can, but that has made achieving convergence very challenging.

We have some difficult choices to make, beginning with classification and measurement.
IFRS 9 is a very good standard. We developed it from scratch in less than a year. We fixed the complexity associated with IAS 39. We fixed the ‘own credit’ issue.

The outreach efforts, led by Sue Lloyd, were widely praised for the way we went about the project, seeking input and revising our proposals in real time.
Some countries, including Australia, went ahead and adopted the standard, and since then have invested significant resources in preparing for its introduction.

Meanwhile, the FASB has been refining its approach on financial instruments. 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 we’re not a million miles away.

At the same time, as our work on the insurance standard progressed, it became increasingly clear that we had problems with its interaction with IFRS 9. We gradually came to the conclusion that we could make a lot of progress on both these issues –insurance and convergence- by adapting IFRS 9 in a limited way.

It was not an easy decision to make. Most importantly because we knew that our constituents that have already adopted might not be very happy.

Also it is one thing to say changes are going to be limited, but in practice pressure for wider changes will undoubtedly be there.

Nevertheless, the potential gains are so clear that we decided to go ahead. And you can rest assured that we will proceed with caution and limit any changes to those that are absolutely necessary.

On impairment, the IASB and FASB are more aligned. We are still working very closely together, even though the path towards finding a satisfactory solution is extremely difficult. In the current environment it is clear how important the impairment project is. When and how banks write-down losses is of systemic importance to the global financial system. Our job is to develop a standard that requires impairments to be taken in a timely manner, with full transparency and comparability. We need to get this one right.

On hedging, we have come up with a general model that has been very well received. A staff draft of our model will be exposed to make sure we got everything absolutely right. It will also give FASB the time to take a closer look at our proposals. We are convinced our hedging model gives investors a more reliable view on the economic reality of modern business practices. By redressing accounting mismatches it gives investors a much better view of the way companies hedge their economic risks.

The remaining financial instruments project is offsetting. We began the project in alignment, but we’ve ended up in different places. We are going to require additional disclosures to help with comparability, but it is not an ideal outcome.

As I said at the beginning, this was never going to be an easy project. IAS 39, the original financial instruments standard, took more than 10 years to develop.

We don’t have that long. We have to make difficult decisions along the way, and in some cases re-visit work that, at the time, we thought was complete.

The new standard will have to last many years, possibly decades, so it needs to be right.

Please bear with us as we finalise this important project.

The prospects for global standards

The second topic I would like to discuss is the prospects for global accounting standards.
Ten years ago few countries used international accounting standards. Everyone did their own thing, which made international comparability very difficult.

Since then, progress has been truly remarkable. IFRSs are now required or permitted for use by companies in more than 100 countries. The move towards global accounting standards is seen as an essential element of the global financial reform agenda, providing the bedrock on which to build a better, more resilient global financial infrastructure.

That is why successive G20 communiqués have supported the work of the IASB and called for a rapid move towards global standards. In doing so, the G20 has emphasised that the IASB must meet the needs of both developed and emerging economies.

The majority of G20 members now require the use of IFRSs. The ‘big four’ yet to require adoption of IFRSs for all listed companies are China, India, Japan and the United States.

China has come a substantial way in a very short period of time. Chinese accounting standards are now very similar to IFRSs. To come fully on board, China just has to make a very small step. I am convinced that a country that is used to making great strides forward will make this very small step too.

We have a very good relationship with Chinese authorities, an example of which is China’s agreement to provide the secretariat for the newly-formed IASB Emerging Economies Group. We also have technical staff seconded from the Chinese Finance Ministry.

Indian authorities are in the process of revising Indian accounting standards substantially. On the way to full adoption, India still has quite a few obstacles to overcome. Nevertheless, I believe there is a shared desire on both sides to help India become a fully committed member of the IFRS family.

Furthermore, the IASB’s agenda consultation provides an opportunity to perhaps consider issues important to India and other emerging economies. I will visit India in January and I look forward to some productive discussions.

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. Earlier this month the boards met for the 14th time to discuss how to eliminate the remaining differences.

In recognition of this work, Japan now allows certain Japanese companies to report using IFRSs as issued by the IASB. Several Japanese companies have already done so, and I believe many more are planning to follow suit.

Furthermore, Japan is expected to decide next year whether to mandate a national transition from J-GAAP to IFRSs, and if so, when.

There has been some debate about the transition period should Japan decide to fully commit to IFRSs, but this is secondary to the actual decision to switch. Japan too provides us with four technical staff as secondees.

That leaves the United States.

Wherever I go in the world I am asked one question more than any other. Will the US come on board with IFRSs, and if so, when and how?

I have no privileged insight regarding the SEC’s internal decision-making. However, the pace of events does appear to be picking up.

The SEC has repeatedly said that it intends to make a determination this year regarding the possible incorporation of IFRSs.

At our Boston conference, I recognised the many practical challenges facing the SEC in making the decision.

I don’t deny that they are real. The US is the single largest and most liquid national capital market in the world. The US already has developed a sophisticated set of financial reporting standards over many decades. So transitional concerns have to be carefully considered. That is why I have supported the approach for the consideration of IFRSs set out in the SEC staff’s work plan.

It is also important to note that the US is committed to supporting global accounting standards. It is SEC policy, it is US Government policy and it is the policy of the G20, in which the US is a key player.

The SEC staff has nearly completed its thorough and comprehensive assessment of the issues related to US adoption of IFRSs. These latest papers examine how well the standards are being applied by companies reporting using IFRSs and the remaining differences between IFRSs and US GAAP.

While this first paper concluded that the financial statements analysed generally complied with IFRSs, there were inconsistencies observed – mainly due to a lack of disclosure of accounting policies and how individual standards had been applied. Indeed, this is a common finding for regulatory reviews.

The Wall Street Journal noted the findings of this study were similar to a previous SEC study of Fortune 500 companies using US GAAP. The problem of inconsistent application exists whether companies use IFRSs or US GAAP.

Standard-setters and securities regulators know that we have to improve consistency of application. The preliminary conclusions of the Trustees’ strategy review have concluded that the Foundation and the IASB should play a more active role in matters related to application of the standards.

We will achieve this by working in close cooperation with national and regional standard-setting bodies, securities regulators coordinated by IOSCO and the accounting profession.

However, the important point is this. You can only work towards consistent application if you have one single language, and IFRS is the only candidate. Moreover, if the SEC is an active enforcer of IFRSs for US companies, as well as foreign private issuers, they will be in a position to drive consistency.

The second paper, examining the differences between IFRSs and US GAAP, contains no major surprises. The paper recognises the tremendous progress that the boards have made in bringing IFRSs and US GAAP into alignment. However, the paper also shows how quite a few differences remain, particularly in the detail. Many of these differences are not very important. But getting rid of them through a process of convergence could take up many, many years.

This analysis makes me even more convinced that ongoing convergence is not the answer.

Indeed, in 2006, the SEC urged the IASB and the FASB to stop eliminating narrow differences and focus on the big picture. It is not in the best interests of investors in the US or anywhere else in the world to spend another ten years seeking to eliminate ever-smaller differences, which entail significant costs for change without much incremental benefit.

The convergence process has been extremely useful getting us to a point where IFRSs and US GAAP are much improved. These standards are now much closer together. In the long run, a dual decision-making process is a very unstable way to work. In practice, it can lead to diverged solutions or sub-optimal outcomes at the very end.

To illustrate the point, consider the offsetting project. Put simply, the boards had to decide whether obligations between two parties should be netted in the balance sheet if the reporting entity can only offset these amounts only in times of stress, the US approach, or must also be able to and will do so at all times, which is our approach. The difference can be as big as 40% of a bank’s balance sheet. We began with convergence and ended up with divergence. Obviously this was a very big disappointment. To many investors the balance sheet of many American banks will look much smaller than Asian and European banks that are equally leveraged. This is clearly not in the best interests of investors.

The simple truth is that when you have two independent, highly competent boards sometimes they will agree with each other, and other times they will not. It’s not that one is right and the other wrong – they just reach different conclusions.

The same would be true if I were to split my board in two and ask them to consider 10 projects. I doubt each smaller Board would reach identical conclusions on all 10 projects, so convergence would require compromises to be made.

Convergence therefore does not always result in the highest quality outcome. It has served its purpose, but now it is time to move on.

Our international stakeholders have supported the current convergence process between the IASB and the FASB as a way to facilitate improvements in financial reporting and global adoption. At the same time, many have already indicated that they will not support an indefinite continuation.

Whichever way the SEC goes, what is needed more than anything is clarity. The transition to any new set of accounting standards is a major challenge. If a commitment is given, the IASB will carefully consider issues associated with transition in the United States, as we have for other jurisdictions throughout the world.


Ladies and gentlemen, thank you for your time. The IASB is a young organisation – not yet a teenager but certainly growing up rapidly. I am fortunate to have inherited an energetic and smart group of people who really are trying to act in the public interest, and to do the right thing.
The IASB has many challenges. Despite the 15 board members and 59 technical staff coming from 29 different countries, we still operate out of a single London location, although I am delighted that our first satellite office will operate out of Tokyo and support the needs of the Asia-Oceania region.

The internal structures are evolving as the organisation adapts to its global responsibilities. In many areas such as outreach we are world class. In other areas we have improvements to make.

My commitment to you is to lead an open and responsive IASB, firmly committed to the interest of investors and other users of financial information.

I wish you a very successful conference.




Related information 

  • Click here to download the speech by Hans Hoogervorst at the IFRS Conference, Melbourne