Outgoing IASB Chair Hans Hoogervorst said he is more worried now than 10 years ago when he joined the board because of the perilous state of the global economy where “money has never been cheaper.”
When the economic stress finally erupts, “do not be surprised if accounting will come under pressure again, as it did in 2008,” he said in a March 9, 2021, speech at the International Accounting Forum for Accounting Standards Setters (IFASS).
That is exactly the point when proper accounting matters the most, Hoogervorst said. “It is in the low tide of a crisis that you can see who is swimming naked,” he said. “And it is the job of accounting to tell the naked truth, no matter how unappealing this might be.”
Hoogervorst said these days investors have to pay to lend their money to highly indebted governments and “junk bonds carry very low yield that were once reserved for triple-A rated companies.”
As a result, debt has exploded. Worldwide total debt-to-GDP ratio is over 355 percent and growing, according to a Reuters report. “Never in economic history has so much debt been accumulated. At the same time, free money has driven asset prices through the roof, ” he said.
Hoogervorst observed that the world is in the midst of a severe COVID-19 recession and rising unemployment, stock prices and housing prices are still breaking record after record. “The global economy is totally distorted, and I suspect many a central banker wakes up in a cold sweat at night, thinking about all the risks lurking in plain sight,” he said. “No one really knows exactly how this will end—I doubt it will be pretty.”
Big Ticket Rules Issued Under Tenure
Hoogervorst joined the IASB as chair in 2011 after serving in politics and as chair of the Dutch securities regulator.
He will be succeeded by Germany’s accounting board chair Andreas Barckow on July 1.
“Unlike a former president, I have already called my successor,” Hoogervorst said. “The good news is that I am planning to leave peacefully. There will be no armed insurrection. No mobs of angry national standard-setters incited to overwhelm the IASB’s offices in Canary Wharf. Actually, there would be no point, because the office has been closed for months due to the pandemic!”
Under Hoogervorst’s watch, the IASB issued some of most significant international financial reporting standards (IFRSs) worldwide: IFRS 9, Financial Instruments, and IFRS 15, Revenue with Contracts from Customers, in 2014; IFRS 16, Leases, in 2016; and IFRS 17, Insurance Contracts, in 2017.
He will vacate the post amid the board’s work to improve the structure of the income statement, an important project given the growing practice of electronic consumption of financial information.
IFRS Used in More than 140 Countries
Over the past 10 years, usage of IFRS standards has grown to more than 140 countries.
Hoogervorst said that adoption rate was “built on independent standard-setting” but it has to be earned and maintained as a right or risk losing it. “That means being attuned to the economic and political environment and being absolutely devoted to quality and to the board’s rigorous due process,” he said.
It’s about trying to find the right accounting solution rather than the politically expedient one, he added. “It means we need to work hard to bring people along with us – explaining time and time again the importance of what we do, and the rationale for the decisions we take.”
This article originally appeared in the March 15, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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