Noting the
globalization of capital markets and financial reporting, IASB Vice Chair Ian Mackintosh
emphasized the high importance of having globally congruent international
accounting standards. It makes no sense for each and every country to maintain
its own different set of accounting standards, he averred, especially at a time
when investors need cross-border comparisons, multinational companies need to
avoid the cost of multiple reporting
requirements, and regulators need a globally consistent measurement of
financial performance on which to base their initiatives. But in recent remarks,
the Vice Chair said that sovereignty threaten the goal of globally consistent
IFRS.
If each jurisdiction uses a different set of accounting
standards, the basis for coming up with even the most well understood of
numbers, such as revenue or net profit, can be very different. A famous example
of this from the automotive sector occurred back in 1993 when Daimler-Benz
switched from German accounting principles to US GAAP in order to become the
first German company with a secondary listing in New York. A profit of around
600 million Deutschmarks that had been recorded using German GAAP turned into a
loss of almost 2 billion Deutschmarks when reporting using US GAAP. This helps
to explain why the G20 Leaders have consistently supported the work of the IASB
and expressed their repeated support for global accounting standards and the
goal of a global language for financial reporting.
For global IFRS to work, noted the IASB Vice Chair, each country must agree to stick to the
internationally agreed standards and to resist the temptation to tinker with
the standards. A failure to adopt a global standard, or a decision to amend or
add to that global standard means it simply isn’t a global standard any more,
reasoned the IASB senior official.
Recognizing that adopting verbatim the standards of an
international body cuts across the notion of sovereignty, the IASB has been
working diligently to develop a multi-national standard setting process that
will allow a country to comfortably adopt IFRS without any tinkering. The Board
has invested heavily in sophisticated outreach and stakeholder engagement
programs to ensure that the views of all constituents across all parts of the
world are heard as part of the standard setting process. Also, there are high
levels of international diversity at all levels of the IASB. For example, the
Board has almost thirty different nationalities among its technical staff, he
pointed out, and the membership of various advisory bodies is also highly
international.
Moreover, during 2013,
the Board took further steps to emphasize the multilateral nature of the
standard setting process. Central to this effort was the creation of the
Accounting Standards Advisory Forum, to bring in national and regional bodies
with responsibility for accounting standard setting within those jurisdictions.
In addition, he noted that there
are safeguards in place to ensure that the IASB is not simply passing down
diktats from an ivory tower. Many jurisdictions have implemented endorsement
mechanisms to act as a form of sovereignty circuit-breaker. The existence of
this mechanism avoids a situation where IFRS developed by the IASB are
automatically written into jurisdictional law. Some of these endorsement
mechanisms, such as the one in Europe, involve multiple steps and evaluations
to assess whether the adoption of that particular new IFRS is in the interests of
the jurisdiction.