Sir David Tweedie led the International Accounting Standards Board for a decade until the end of his second term in June of last year, and now he is getting set to make a similar impact on the valuation profession.
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As the founding chairman of the IASB, he led the way in establishing International Financial Reporting Standards in over 100 countries across the globe while striving to achieve convergence with U.S. GAAP. Last week, he was named chairman of the London-based International Valuation Standards Council (see Tweedie to Chair Int’l Valuation Standards Council).
Tweedie explained his goals for the recently established IVSC in a telephone interview Thursday with Accounting Today. As with the IASB, one of them is to create common standards that can be used by the various valuation-credentialing organizations around the world, as well as to set up forms of regulation, discipline and continuing education.
“OK, you passed your qualification, but are you keeping up to date? Now accountants have all of those,” said Tweedie. “And that’s what, if we’re going to have a unified valuation profession, it needs to do that worldwide.”
Tweedie also shared his views on the currently stalled state of the convergence effort between the IASB and the U.S. Financial Accounting Standards Board.
“There are absolutely the same valid reasons which were initially pushed by the SEC, the fact that we should have one single set of global standards,” he said. “I think it will happen. There has just been a temporary delay of a year or so, but then we move on.”
Excerpts of the interview follow:
Congratulations on your new appointment, Sir David. Could you tell me what your goals will be with chairing the International Valuation Standards Council?
I was present when [IFRS Foundation chairman] Michel Prada launched it probably three years ago. I spoke there because quite clearly there was an overlap between what I was doing then and what the council standard-setting board did, namely that the balance of advantage on valuation does not lie with the IASB because we’re accountants and not valuers.
But clearly, the more you move into areas of fair value, the more you came across valuations, and that came to a real crisis point in the middle of the financial crisis in 2008 and 2009. It was quite clear the markets had frozen. Frankly, there was no guidance whatsoever on how we dealt with illiquid markets, how you valued them. These were instruments that were supposed to be at [market] value and quite suddenly the market had frozen, so now what happens? And we and the FASB were forced to set up working parties, and we aligned the views eventually of the two.
But we felt at that time this really shouldn’t be our role. It should be somebody else doing this, so we did mention that to the IVSC afterwards. It wasn’t their fault. Their expertise was looking at other areas. But now they’ve moved into looking at valuation of financial instruments, credit instruments, intangibles, as well as real estate, which is where the real strength of the profession came from. That’s really where I came across them.
And it’s very important, I think, to make sure that people do look at these values, but especially do them the same way. And we’ve got exactly the same issue. It’s very difficult for the IASB to say, “OK, use IVSC standards,” if not many countries use them. Now, quite a few do, but it’s really the same role as I had in part as chair of the IASB. Can we get people to accept it? It’s trying to find out what is the best way of valuing and using it. Now, I’m not a valuer, so I’m not going to be involved in the standard-setting, but it’s the sheer principle of that.
The second thing is, one of the disadvantages that valuers have is that there are several organizations, each with their own requirements, but they are different, and there isn’t a common, if you like, qualification. With accounting, it’s quite clear there are CPAs and there are chartered accountants, and they’re equivalent, but everybody knows that, at least those who are in the financial sector do. With valuers, we don’t know that. We don’t know what it is.
In fact, anybody can call themselves a valuer, the same way as they call them an accountant, but there are so many qualified accountants, they probably won’t be given much credence. But the trouble with the valuers, it’s a case of “can we sort of mesh them into a profession?”
They’ve got bits of that already. They’ve got a standard-setting board, which is independent. It’s part time, so it’s not as full time as the IASB was, but these are early days. It’s got a standards board that sets the standards, internationally based. It’s got a code of ethics.
What it now needs is two other things, well, more than two. It needs a common qualification, and this is not for the IVSC to do. It’s for all the various valuation bodies. They would continue to exist. This isn’t a takeover bid. But can they agree on what the qualifications should be and all use it?
Secondly, can they put in some common form of regulation and discipline so that people stick with the rules, and if they don’t, remove them? The accountants will do that.
And the third area is continuing professional education. OK, you passed your qualification, but are you keeping up to date?
Now accountants have all of those. And that’s what, if we’re going to have a unified valuation profession, it needs to do that worldwide. So it’s not just the standards, but it’s three roles. One is the standards, two is selling the idea of global standards, and three is the idea of can we get a unified profession? That is how I see the role.
How does it tie in with the work you did while at the IASB? Does it grow out of the work you’ve done with fair value accounting?
That’s where we came across it, of course, but it’s also valuing buildings; there are investment properties to be valued under IFRS standards and FASB standards. Under IASB standards, there’s the question of re-evaluation of the office properties, things like that. Intangibles under both U.S. GAAP and IFRS, and financial instruments are clearly under both systems. We don’t want people valuing them differently in America from the ability to do them in Europe or Asia, or vice versa. Can we agree on what’s the best way, and let’s all do it?
How do you feel about the status now of the convergence efforts and how it’s gone since new people carried on after you left the IASB? Do you think it’s ever going to happen?
Yeah, I think it will happen. I think they’re good people. The fact that the U.S. didn’t make a decision—it’s not a no decision, it is no decision. They’re different. I think Mary [Schapiro] and the other commissioners at the SEC were just swamped with the legislation they had to do, the Dodd-Frank legislation. Putting that into effect, they had a massive load on their plate. I think it just got [too close] to the election to make a decision, because clearly this is something they want to deliberate in time, so I think it’s a shame, but it’s not a disaster. There are absolutely the same valid reasons which were initially pushed by the SEC, the fact that we should have one single set of global standards. I think it will happen. There has just been a temporary delay of a year or so, but then we move on. No, I think it will get there.