Week#2 “New IASB Leader Embraces Challenges”

Read “New IASB Leader Embraces Challenges” which can be

accessed through the DeVry online library. Choose a country that has already adopted IFRS. In 2-3 pages (12-pt type, double-spaced) answer the following questions:

1. Describe the process that your selected country went through to adopt IFRS, such as how long it took for the country to fully adopt IFRS.

2. Did the country adopt IFRS or did they make changes to IFRS to adapt to their country’s culture or regulations?

3. Has IFRS adoption made it easier for companies in that country to access the capital markets?

4. Based on your research regarding your selected country, should the US SEC mandate adoption of IFRS? Why or why not?

5. What is your personal opinion regarding whether the US SEC should mandate the adoption of IFRS?

“‘• .%îi^

F I N A N C I A L R E P O R T I N G / I N T E R N A T I O N A L

New IASB
Leader Embraces

Challenges
A n interview with Chairman Hans Hoogervorst

by Matthew G. Lamoreaux

W
ith more than 100 countries already using IFRS, a full stan-
dard-setting agenda and the SEC poised to decide in the
coming months whether U.S. public companies will report

under intemational standards, Hans Hoogervorst knows his challenges.

But the second chairman of the Interna-
tional Accounting Standards Board (IASB)
is no stranger to challenging financial lead-
ership positions and public service. Most
recently he served as chairman of the ex-
ecutive board of the Netherlands’ Author-
ity for the Financial Markets (a regulator
comparable to the SEC in the U.S. but with
broader authorities) and chaired the Inter-
national Organization of Securities Com-
missions’ (IOSCO) technical committee.

Before taking the reins of the decade-
old intemational standard setter in July,

Hoogervorst had extensive involvement
with the board as co-chair of its Financial
Crisis Advisory Group and chair of the
IFRS Foundation Monitoring Board,
whose membership is made up of finan-
cial market regulators including SFC
Chairman Mary Schapiro.

Between 1998 and 2007 he held a
number of positions in the Dutch gov-
ernment, including minister of finance,
minister of health, welfare and sport, and
state secretary for social affairs. He also
spent three years as a banking officer for

the National Bank of Washington in
Washington.

CHALLENGES
Despite the adoption of IFRS by dozens of
countries (including all members of the
European Union), the U.S. and some other
key economic powers such as India and
Japan have not yet fully adopted interna-
tional standards.

“If we get all those countries on board
… then IFRS will be truly a global stan-
dard, and 1 think there’s a great chance
of achieving that in the next couple of
years,” Hoogervorst said. “What 1 would
see as the second and related challenge
is to achieve consolidation of all the
progress that has been made in the last
decade.”

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F I N A N C I A L R E P O R T I N G / I N T E R N A T I O N A L

This consolidation of progress, he said,
involves strengthening the lASB as an or-
ganization and improving its standards. “I
think that we need to strengthen the in-
frastructure of the organization, the sense
of ownership around the world and rela-
tionships with other authorities with re-
sponsibility for elements of the global
financial system.”

“If you look at it carefully, I think it is
very clear that the SEC is still very much
on track for a decision on IFRS later this
year, and I believe it will be a positive po-
sition, and everything is pointing in that
direction.”

He also pointed out that the SEC staff’s
concept of establishing FASB as an en-
dorsement body for IASB standards in the

“It is very clear that the SEC is still very much on
r̂̂ ^k for n decision on IFRS later this year.”

—Hans Hoogervorst

On standard setting, Hoogervorst said,
the focus needs to be on reducing com-
plexity and improving consistency. “1 think
that whatever our future agenda is going
to look like, we’ll need to work on the con-
ceptual framework to improve the consis-
tency of the underlying philosophy of our
standards.”

POLITICAL VERSUS TECHNICAL
Although he’s not an accountant, Hooger-
vorst doesn’t plan to shy away from tech-
nical issues. “I don’t think it is possible to
split the policy from the technical,” he said.
“I cannot lead this organization if I don’t
get on top of the standards … and I look
forward to that, because I find it intellec-
tually very challenging to do.”

He does, however, intend to make full
use of Vice-Chairman Ian Mackintosh, who
also joined the board in July after heading
the U.K. Accounting Standards Board.

“We have so much work ahead of us,
it is more than one person at the top can
do, especially the extent of the global out-
reach that we have to do,” he said. “So I
will share that with Ian, and also the in-
ternal management of our organization.”

SEC’s IFRS TRANSITION
FRAMEWORK
On the so-called “condorsement” approach
to IFRS transition floated by the SEC staff
in May (see “Beyond Convergence,” Jo/A,
Aug. 2011, page 46), Hoogervorst re-
sponded positively

U.S. “is not all that different from how
other countries adopt IFRS.”

Hoogervorst does see potential objec-
tions to the approach based on its com-
plexity but said “it will work itself out in
practice.”

US. ADOPTION “OPTION”
On U.S. adoption of IFRS, Hoogervorst ac-
knowledges that all U.S. public companies
may not be ready for it. “I have no inside
knowledge, but if 1 was the SEC, I would
start with the larger U.S. companies, par-
ticularly those who are internationally ori-
entated. If that means providing an option
for those companies to voluntarily adopt at
an earlier stage, I think then we would al-
ready have gained a lot. This would provide
the necessary momentum for the remaining
listed companies to adopt at a later stage.”

Hoogervorst made it clear that he be-
Heves that most U.S. companies want the
SEC to mandate a clear time frame for the
bigger companies and the possibility of
voluntary adoption. On the question of
whether the SEC simply giving U.S. pub-
lic companies the option to adopt IFRS
without a mandate would be a step in the
right direction, he was unequivocal.

“That would be very positive indeed,
because we know that a lot of interna-
tional-orientated companies would like to
have that option, and once they have
crossed the bridge, others will follow. It’s
not sufficient in the medium to long term,
but it would be a very good beginning.”

PREPARING EOR ADOPTION
Hoogervorst said the main lesson learned
from other IFRS adoptions around the
world is that “everybody can do it.” “If
you look at the Americas, Argentina,
Brazil, Canada, Chile, Ecuador, Mexico
are all switching to IERS. These are major
trading partners with the United States,
and in the case of Brazil one of the major
economies now driving global growth.
Businesses can deal with the transitional
arrangements given sufficient time and a
clear and unambiguous decision.”

“If you give them clarity, clear dates, a
clear commitment, they will get the job
done,” he said.

Not to miss an opportunity to promote
the benefits of IFRS, “what you would ex-
pect intuitively,” he added, “is that aca-
demic research has demonstrated that yes,
indeed, because of increased comparabil-
ity, increased reliability of accounting stan-
dards, the cost of capital has come down
in countries adopting IFRS, and that even
goes for advanced economies with well-
developed accounting standards, such as
the United Kingdom.”

RISK OF NONCOMMITTAL U.S.
When asked what would happen if the
U.S. did not commit to using IFRS,
Hoogervorst appeared genuinely sur-
prised. “You know, it is truly hard to imag-
ine,” he said. “What is clear is that there’s
only one set of accounting standards that
has a chance to become the global lan-
guage, and that is IFRS.”

He believes an SEC decision this year
against incorporating IFRS would simply
delay the inevitable and reduce U.S. in-
volvement in the IFRS due process.

“Suppose there was a truly negative de-
cision at the end of the year, it is highly un-
likely that we would have the international
support for a new convergence program or
the very close, almost exclusive relation-
ship we have with the FASB at this mo-
ment,” he said. “That would all end.”

“I simply don’t think it’s in the Ameri-
can interest for that to happen. It’s not in
the interest of FASB for that to happen. It’s
not in the interest of the U.S. business

32 JournalofAccountancy September 2011 www.journalofaccountancy.com

F I N A N C I A L R E P O R T I N G / I N T E R N A T I O N A L

community for that to happen. … The
United States has always been a leader in
intemational financial reporting. For
decades, U.S. GAAP was the gold standard
of financial reporting. For the last decade,
the U.S. has been highly influential in the
development of IFRS. Why would the U.S.
choose to give up this leadership position,
especially given the nine years’ worth of ef-
fort that has already been put into bdng-
ing IFRS and U.S. GAAP into alignment?”

XBRL
Citing positive feedback from the investor
community, Hoogervorst supports the
IFRS Foundation’s commitment to ad-
vancing XBRL technology, but he cautions
that XBRL needs to be kept in perspective
as a technical tool.

“Investors say, ‘Yes, it is a very useful
tool. Please go on with your activities in
this respect. But please make sure that it
remains a technical tool and that it does
not determine the direction of your stan-
dard setting.’ ”

“So our standard setting should not be
ddven by XBRL, but the other way around.

tion is working to improve the IFRS XBRL
taxonomy so that it’s easier to use and also
eventually will allow XBRL filings of IFRS
financial statements via the SEG’s elec-
tronic filing system.

“I know it’s still currently not yet pos-
sible for the SFG to accept XBRL filings in
IFRS, and for that reason, both the XBRL

“Both the XBRL teams at the SEC and our
Foundation are in frequent contact to make

that the IFRS taxonomy does meet SFC
expectation*-̂ ”

And if we keep that order, then I think it
is a very useful technical tool.”

To that end, he said the IFRS Founda-

AICPA RESOURCES

JofA articles
• “Beyond Convergence” Aug. 2011, page
46

• “Convergence Milestone,” Aug. 2010,
page 26
• “Technology Considerations for Convert-
ing to IFRS,” April 2010, page 26

• “IFRS for SMEs-U.S. GAAP Comparison
Tool Available Online,” April 2010, page 30

• “Countdown to Convergence,” March
2010, page 24

Use journalofaccountancy.com to find
past articles. In the search box, click “Open
Advanced Search” and then search by title.

JofA videos
• “Sir David Tweedie: The Role of the U.S.
in IFRS”
• “IFRS Update: What the Nevi/ Timeline
Means for CPAs”

• “Paul Volcker on the Impact of IFRS
Adoption in Global Capital Markets”

Use journalofaccountancy.com to find
videos. Click on the “Video” tab, then scroll
down the right rail of the video player to find
recent videos. To find older videos, click fhe
video player’s “Archived Videos” tab.

Publication
• IFRS Accounting Trends & Techniques
(#0099110, paperback; #WIF-XX, online
subscription)

CPE self-study

• IFRS Certificate Program (#159770)

Conference

• AICPA/IFRS Foundation Conference on

IFRS: The North American Perspective,

Ocf. 5-7, Boston

For more information or to register or make

a purchase, go to cpa2biz.com or call the
Institute at 888-777-7077

On-Site Training

• IFRS Essentials wifh GAAP Comparison:
Building a Solid Foundation (#IFRS)

• IFRS Update and Review of Complex

Topics (#IUP)

• Introduction to IFRS: Grasping the Big
Picture (#CL4IUSA)

To access courses, go to aicpalearning.org
and click on “AICPA On-Sife Training,” then

search by “Acronym Index.” If you need

assistance, please contact a training

representative at 800-634-6780 (option 1).

Website

• IFRS Resources from the AICPA,

ifrs.com

OTHER RESOURCES

Website
• SEC’s IFRS Work Plan,
tinyurl.com/356rwmn

teams at the SFC and our Foundation are
in frequent contact to make sure that the
IFRS taxonomy does meet SFC expecta-
tions,” he said.

RESPONDING TO CRITICS
Hoogervorst responded to a U.K. House
of Lords report in March that suggested
IFRS was conducive to “box ticking” and
imprudence during the financial cdsis.

“If you look at how IFRS held up dur-
ing the financial crisis, I think you can
draw two conclusions,” he said. “First of
all, in terms of box ticking, 1 think that the
principle-based approach of IFRSs held
up well.

“In terms of prudence, I think we
learned one lesson from the cdsis, which
is that the incurred loss model resulted in
a cliff effect that discouraged banks to
begin impaidng when they should have.

“Both the L^SB and the FASB accept we
have to develop an expected loss model
which is more forward-looking, and you
might want to call that a little bit more pru-
dent than what we have now. Although I
know that the term prudence is a very sen-
sitive term, I believe that, you know, if you
cannot be sure, it’s better to be safe.” •••

Matthew G. Lamoreaux (lamoreauxm@gmail.com)

is a freelance writer.

To comment on this artide or to suggest an idea

for another article, contact Kim Nilsen, executive

editor, at knilsen@aicpa.org or 919-402-4048.

www.journalofaccountancy.com September 2011 Joumal of Accountancy 33

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