A Relentless Pursuit of Global Rules

Tom Jones, director of Pace University's international accounting center, looks forward to a world without local GAAPs.

Hans Hoogervorst, currently chairman of the Netherlands Authority for the Financial Markets, will chair the IASB when David Tweedie retires next year. Does that portend more or less political interference for the board?

I know Hans well because he is the head of the monitoring board [the group of regulators that oversees the work of the IASB Trustees]. He will strongly uphold the independence of the board, partly because of his background and partly because of his personality. You can’t set standards by negotiation; it’s impossible, and he’s the guy who knows that well. The fact that he is a European, and a continental European, is also a positive, because IASB has a fair amount of interplay with the continental Europeans, and I think his background will be useful.

Are carve-outs from IFRS — the rule exceptions that some countries write into the standards before adopting them — a real threat to the concept of a single set of global standards?

The carve-out issue is very exaggerated by people who are not enthusiastic about moving to international standards. I hear way more about carve-outs from people who are not using the standards than I ever do from people who are using them.

Take Europe, for example. Those 27 countries are required by law to use international standards, and the only exception is the original carve-out, which is 11 paragraphs out of the entire full set of standards. [The carve-out relates to IAS 39, the financial-instrument standard, and hedge accounting.] It is most unfortunate that it happened, and very unfortunate that it hasn’t been remedied, but that is purely political. Some people were hoping for a European standard, but it didn’t make any sense from the point of view of cleaning up accounting around the world. Still, there are only 29 companies out of 8,000 European listed companies that used the carve-out. So the issue is insignificant.

Was there a change of heart about rushing through rules on financial instruments?

Some people suspected the new rule would not eliminate as much fair value as they had hoped, so they felt IFRS 9 would not yield the benefit they expected. [Most critics] were looking for less fair value with respect to financial instruments, so why would they rush to implement the changes? The other thing is that some of the air was let out of the balloon: a few months had gone by and some of the anxiety about the financial crisis had abated, so there was no rush. Still, people claim that IASB didn’t approve IFRS 9 in Europe. Well, it is going through the normal approval process, and it is likely that the whole rule [classification, measurement, impairment methodology, hedge accounting] will be issued at one time. [IFRS 9 is scheduled to be issued during the second quarter of 2011.]

How do you respond to accusations that IFRS allows too many choices and requires too much judgment, and is therefore lax compared with U.S. generally accepted accounting principles?

IFRS doesn’t allow a lot of choices. That was true of the old standards, about 10 years ago, but the choices are dramatically limited now. The other criticism, that IFRS allows people to use judgment, and therefore you can report whatever you want, is absolute rubbish. I even find that people teaching accounting say that there is more flexibility under IFRS, and that is simply not true.

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