International Accounting Standards Board chairman Hans Hoogervorst told attendees at an accounting conference in Moscow on Monday that he believes the U.S. will ultimately decide to support International Financial Reporting Standards.

Hoogervorst cautioned that he was not privy to any inside information. “I have no privileged insight regarding the SEC’s internal decision making,” he said at an Ernst & Young seminar on IFRS. “However, the SEC’s Chief Accountant said in public recently that the SEC will make a decision on IFRS in the coming months. This is not an easy decision to make. The U.S. already has developed a sophisticated set of financial reporting standards over many decades. Transitional concerns have to be carefully considered. That is why I have supported the general approach for the endorsement of IFRS described by the SEC staff’s work plan. It is also important to note that the U.S. is committed to supporting global accounting standards. It is SEC policy, it is U.S. government policy and it is the policy of the G20, in which the U.S. is a key player.

“There are many practical challenges facing the SEC in making the decision,” Hoogervorst added. “I don’t deny that they are real. However, both I and my counterpart at the FASB have made it clear that a continued program of convergence by another name is not an acceptable way forward. I do believe that the U.S. will ultimately come on board. Quite simply, they need us and we need them.”

Hoogervorst also gave a more upbeat assessment of convergence efforts with the Financial Accounting Standards Board than during a recent speech in December in Washington, D.C., during an AICPA conference (see FASB and IASB’s Irreconcilable Differences).

“The IASB and the FASB set out on the convergence path back in 2002 with the signing of the Norwalk Agreement,” he said. “This program was further refined in 2006 when the two boards agreed [to] a Memorandum of Understanding (MoU) to improve and align IFRS and U.S. GAAP. Standard-setters have a reputation for moving at glacial speed. Yet, in just five years the boards have completed most of these projects, leaving just three MoU projects to complete: financial instruments, revenue recognition and leasing, as well as one project that was not listed in the MoU, insurance. The good news is that we appear to be making progress on all of these fronts.”

However, he acknowledged that much work still needed to be done, especially on insurance. “When the IASB began its work in 2001 it knew the industry needed guidance while the board took the time to develop a new standard,” he said. “And so, the board recommended the continued use of local accounting practices for insurance transactions. As a result, there continues to be a great deal of diversity and complexity in how insurance companies report their numbers. Investors often talk about insurance accounting being a ‘black box.’ This lack of transparency can lead to insurance companies to trade at a discount relative to their peers in other areas of financial services. The project is challenging because different financial reporting practices have become embedded in different parts of the world. We are working with the FASB to develop a model that lifts financial reporting for insurance contracts to a common and improved level. We are committed to completing this project in a timely fashion.”

He also acknowledged hitches in the financial instruments and leasing convergence projects.

Hoogervorst commended Russian standard-setters for agreeing to adopt full IFRS as issued by the IASB with no amendments, no additions and no omissions. “This really is very impressive,” he said. “Russia should be congratulated for its full and unambiguous commitment to global accounting standards.”

He said the IASB would continue to work with emerging economies, such as those in the so-called BRIC countries of Brazil, Russia, India and China. He noted that the IASB had formed an Emerging Economies Group, of which Russia is a founding member.

As for future plans, Hoogervorst acknowledged that many constituents had been asking the IASB to complete its “conceptual framework,” the philosophical and methodological underpinning of the board's work. He promised to take a serious look at it.

Hoogervorst also said the IASB had been hearing “loudly and consistently” that it should look at performance reporting and Other Comprehensive Income, but the views on how to go about doing this were mixed.

“Some advocate the elimination of Other Comprehensive Income,” he said. “Others want to retain it, but argue for a stronger underpinning of the concept. Whether to recycle OCI or not also remains at the top of the list for many people. “

New jurisdictions such as Russia have their own requests, he noted, including foreign currency translation, business combinations under common control, agriculture and many more.

“We will have to make a judicious choice here, being mindful that we do not overload our agenda,” said Hoogervorst. “The most common request is for a period of calm. In some cases this request is followed by ‘apart from this one very specific project.’ The difficulty is that the ‘very specific project’ varies in different parts of the world, so difficult choices will have to be made if the period of calm is to become a reality. However, I suspect that after the somewhat frenetic period of the last few years, a slowing down in the pace of change would be welcomed by most, if not all, of our constituents.”

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