The new Chair of the IASB (International Accounting Standards Board) is Hans Hoogervorst, former Minister of Finance of the Netherlands. He usually arrives at the IASB’s London headquarters carrying a mug of coffee that bears a replica of a World War II poster with the caption “Keep Calm and Carry On.” In these times of economic stress and public criticism of accounting practices at financial institutions, those words convey a reassuring sign of his intent to stay the course set by his renowned predecessor, Sir David Tweedie, who oversaw the ascendancy of the IASB to its present position as the pre-eminent international accounting standards setter.

However, Mr. Hoogervorst has no intention of settling for the status quo. Within weeks of assuming his new position last summer, the IASB issued an agenda consultation document that solicited comments from users and preparers of financial statements regarding the IASB’s goals for the next three years.

Among the topics up for discussion are the IASB’s current strategic plans to:

• Strengthen the consistency of IFRS (International Financial Reporting Standards) by completing an update of the conceptual framework and by developing a presentation and disclosure framework;
• Explore the interaction of IFRS with integrated reporting (i.e., a holistic account of a company’s strategy, including both financial and non-financial reporting)
• Fill gaps in IFRS by developing new standards or by making major amendments to existing standards
• Obtain a better understanding of the operational issues associated with new standards by conducting post-implementation reviews
• Improve the uniformity and quality of the application of IFRS

In addition, the IASB is seeking guidance on the priorities among its existing standards-setting projects and on the addition of new or previously deferred projects to its agenda. In the meantime, the board is continuing to prioritize work on revenue recognition and accounting for leases, insurance contracts, and financial instruments.

Among the recommendations on priorities that investor groups (including Toronto CFA Society and The Corporate Reporting Users’ Forum) have already communicated to the IASB are:

• Greater focus on users’ interests in setting IASB’s priorities
• More transparent, comprehensive disclosure of assumptions and methodologies
• Greater comparability between companies
• Greater mindfulness of cost-benefit analysis in deciding on how IASB resources are allocated
• Requests that proposed standards be field-tested to improve understanding of how they will work in practice
• The need for post-implementation reviews to ensure that new standards result in the right form of company reporting; and, finally
• The desirability of building a closer relationship between the IASB and the International Auditing and Assurance Standards Board (IAASB) as auditability is a key issue in building investors’ confidence

“The IASB is asking for public advice on priorities for its agenda”

Specific standards projects that have been suggested to the IASB include:

• Accounting for extractive industries (oil, gas, mining)
• Accounting for rate-regulated activities
• Accounting for income taxes; and
• A standard on the use of discount rates

Notwithstanding the many accounting issues clamouring for attention, Mr. Hoogervorst’s greatest challenge may be gaining the adoption of IFRS by the U.S. and China. (The latter has adopted standards that are on the surface close to IFRS but are relatively short on detailed guidance.)

From a capital markets perspective, the U.S. is the most important country, with a greater market capitalization of public companies than the next six largest stock markets combined, and progress there has been slower than hoped for. Hitherto, the SEC (Securities and Exchange Commission) and FASB (Financial Accounting Standards Board) have been working towards achieving convergence of U.S. GAAP and IFRS with a view to eventual endorsement of IFRS by the SEC as a replacement for U.S. GAAP. However in May 2011, the SEC issued a work plan for incorporating IFRS that included an approach colloquially referred to as “condorsement” – a mixture of convergence and endorsement – under which the FASB would promulgate U.S. GAAP in the future primarily through endorsing IFRS, and would participate in the IASB standards-setting process, but would retain the right to amend or augment IFRS if it believed such action was necessary to serve the best interests of investors.*

Initial reaction to the “condorsement” proposal has been quite positive, and this new approach may accelerate progress towards IFRS adoption in the U.S. A decision by the SEC may come as soon as this year, but in any case, the U.S. now appears unlikely to decide on a permanent course of retaining a distinct and different U.S. GAAP.

“Mr. Hoogervorst’s background as a politician makes him keenly aware of where the IASB’s biggest challenges are and how he must handle them”

Mr. Hoogervorst’s background as a politician makes him keenly aware of where the IASB’s biggest challenges are and how he must handle them. His political skills, not his accounting expertise, were the primary reason for his selection by the trustees of the IFRS Foundation to replace Sir David Tweedie, whom The Economist magazine has described as the “(accounting) profession’s towering figure.” It has always been acknowledged that if victory were to be achieved in the decades-long quest for an internationally accepted system of financial reporting, the final battles would have to be won on the political plain. It is a measure of how far the process has come that the IASB is now facing its final, though most difficult, set of challenges in this field and that it has equipped itself well to meet them. And it appears likely to prevail.

*http://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-paper-052611.pdf