IFRS: The case for convergence and global standards

October 2010
International Financial Reporting Standards
World Federation of
Philippe Danjou, Member of the IASB
IASC Foundation
The views expressed in this presentation are those of the presenter,
not necessarily those of the IASC Foundation or the IASB
© 2010 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
Financial information: less is more?
• The crisis has highlighted the importance of disclosure and
transparency in financial reporting
– Investors require more relevant and timely information
– Brought forward the transparency vs. stability debate
– Not mutually exclusive
– Enhanced transparency enhances financial stability
– Standard-setters and prudential regulators can cooperate closely, whilst recognising
different objectives and the limitations of financial reporting
© 2010 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
Financial information: less is more?
• However, more disclosures can increase complexity and
flow of information:
– Too much information can ‘kill’ information
– Financial reports are growing in length and are increasingly more
difficult for users to navigate
– Threat of regulatory arbitrage
• Financial reporting should not mask business complexity,
rather it should describe it
– Complex business structures will undoubtedly result in complex
financial reporting
Financial information: less is more?
• The IASB’s response:
– Potential burden of additional disclosures is reviewed every time a new
standard or amendment is published
– Future intention will be to undertake an entire review of disclosure
– Key goal will be to ensure future disclosures are:
– Not viewed as a ‘box ticking exercise’
– Used to provide investors with relevant information in a user-friendly format to
highlight essential information about a company
– Developed in collaboration with auditors and preparers of the need for such
– Cost / benefit approach of the IASB
– XBRL may be a solution?
Importance of Convergence
• Convergence “facilitates and promotes” a single set of standards by
reducing differences – a means not an end
• IFRS-US GAAP convergence is the first step and key to our strategy
– Norwalk agreement; MoU (2006 – 2009)
• However, 2011 convergence target is not without its challenges
• Revised timeline retains June 2011 target for key projects, whilst
responding to concerns for stakeholders to provide high quality input on
a timely basis
• Focussed efforts on key projects, for example, Financial Instruments
– Difficulties in converging financial instruments accounting due to
FASB’s proposed full fair value model
• Convergence not limited to the US
© 2010 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org
Convergence not as an endpoint
• Ongoing convergence will lead to improvements,
– Differences will persist, despite intense efforts to
converge: continued possibility of regulatory arbitrage
– Convergence without adoption entails cost of change
without getting the full benefit of adoption
– Appetite for endless US convergence diminishing
internationally as consensus on IFRS emerges. In
relation to large and emerging economies, the US could
have a more limited voice
Interaction of financial reporting
& prudential regulation
• Independence of the standard setting body is
paramount – G20 & FCAG
• However, standards should not be set in a vacuum
• Consistent with G20 requests, the IASB has
prioritised dialogue with prudential regulators
– Eg. Basel participation in the development of an
expected loss approach
– Better understand interaction with Basel work on
unexpected loss buffers through enhanced capital
Global convergence
• Political interest in standard-setting
• Not all political interest is bad
– G20 support for completing global convergence by 2011
– Regional and national support for IFRSs
– IASB works in close cooperation with national authorities
• Key is respecting the decisions of an independent
body, having followed an open, transparent and
inclusive due process
Post-crisis standard-setting
“The crisis has changed standard-setting forever, but in a
good way.
It is no longer acceptable to take more than a decade to
develop a new standard, or to simply drop proposals on
to our constituents and wait for the replies.
Proactive, responsive and accountable – these are the
attributes of modern-day standard setting.”
David Tweedie, Chairman of the IASB, May 2010
Questions or comments?
Expressions of individual views
by members of the IASB and
its staff are encouraged. The views
expressed in this presentation
are those of the presenter.
Official positions of the IASB on
accounting matters are determined
only after extensive due process
and deliberation.
© 2010 IASC Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org