Thursday, October 24, 2013

IASB Oversight Chair Warns that Tweaks to IFRS Begins Slippery Slope Back to Fragmented Accounting Standards, Frustrating G20

The Chair of the IASB oversight body cautioned that changes to IFRS by national standard setters threaten to undo the goal of uniform international accounting standards. In remarks in Frankfurt, Michael Prada, Chair of the IFRS Foundation, warned that a tweak here of IFRS and a revision there of IFRS by a national standard setter and the E.U., for example, begins to slide back into fragmented accounting standards. The IASB and securities regulators must be vigilant to ensure that Europe continues to be a champion in global financial reporting for the stability of the E.U. and the global financial system.

Securities regulators have a major role to play together with standard setters, said the Chair. The IASB is part of the global financial architecture and is a member of the Financial Stability Board. While it is imperative that the IASB ensures that its standards are capable of being applied and enforced on a globally consistent basis, securities regulators are best placed to monitor the use and promote the consistent application of those standards.

With regard to the U.S. and IFRS, the Chair said that the IASB has moved from a period of bilateral convergence with FASB to a more inclusive, multilateral approach to standard-setting. This involves much tighter integration with a range of national and regional standard-setting bodies, including FASB. This is best illustrated by the formation of the IASB’s new Accounting Standards Advisory Forum. In only six months, this group has become one of the most important forums for dialogue with the standard-setting community, observed the Chair, which shows how the manner of standard-setting has continued to evolve.

The IFRS Foundation supports the upcoming review of international accounting standards by the European Commission; and indeed welcomes it. The Foundation recognizes the need to work in close cooperation with the European Parliament, the Commission, the Council, and the European Securities and Markets Authority ( ESMA), and many others.

Chairman Prada emphasized that the G20 Leaders have repeatedly requested that the IASB deliver a single set of global accounting standards. The G20 wants a single way to describe the financial performance and the situation of a company, the same throughout the world.

The IFRS Chair acknowledged that the uniformity that comes with globalization is often controversial. It can trample over established and familiar practices that have evolved over many decades, he noted, and cultural nuances can be challenged. The way that a German company is managed can be very different from that of an American company. Yet, he reminded, the G20, which includes Germany and the U.S., has asked the IASB to come up with a single set of metrics to compare these companies on a like-for-like basis.

This is controversial, difficult and time-consuming work, he added, but the IASB continues to make excellent process in signing up more countries and addressing issues in practice. The IASB has earned its legitimacy as a standard setter, he averred, because the transparency of its process has shown that the IASB has weighed all of the options, considered the costs and benefits of its standards, and given proper consideration to the feedback that it has received.

The Chair challenged those who become frustrated with the slow progress of standard-setting or the endless rounds of consultation to ask themselves what aspect of the IASB’s transparency and due process they are prepared to sacrifice. He warned that any alterations could lead to unintended consequences with regard to the independence of the standard setting process.