John Smith, Board member, addressed the European Commission Conference "Financial Reporting in a Changing World". An excerpt from the speech is reproduced below and the full speech is also available to be downloaded.
"As the conference title suggests, the financial crisis has changed the world. It has served as a wake-up call to policymakers, regulators and standard-setters. It has exposed critical weaknesses in business practices and financial regulation. It has challenged beliefs that we once held, rightly or wrongly, as axiomatic. We will ultimately be judged on how we respond to this crisis. The result must be a more robust system of financial regulation suitable for the reality of integrated capital markets.
The IASB is acutely aware of the attention that political leaders have given to accounting standards in recent months.
We at the IASB have been and remain committed to responding in an urgent and responsible manner.
Today, I would like to discuss:
- how we have set about doing just that and
- how I see our work proceeding over the next six months.
Of course, in doing so, I am obliged to state the normal disclaimer:the views that I am expressing here are my personal ones. They do not necessarily represent the views of the IASB.
The financial crisis has highlighted three primary lessons for accounting standard-setters.
First: The integrated nature of capital markets, combined with the mobility of capital itself, highlights the need for a commonly accepted set of accounting standards.
Second: Financial institutions, regulators and investors failed to understand adequately the risks being taken. Accounting should play an important role in assisting all parties in this regard. Accordingly, there is a need to provide additional transparency to the risks being taken by financial institutions and provide meaningful information to investors and regulators.
Third: The current accounting rules create numerous options, which reduce comparability and add unnecessary complexity. Accordingly there is an urgent need to address the accounting for financial instruments to reduce complexity, enhance comparability and relevance and provide a basis for convergence worldwide.
We at the IASB are taking actions on all of these fronts.
Towards a global set of standards, the financial crisis has emphasised the relevance of the IASB's mission. More than ever, there is a need for a single set of worldwide accounting standards. This is something that Europe recognised earlier than others. Clearly, the European Union has been a catalyst and the leader in that effort in deciding to adopt International Financial Reporting Standards (IFRSs) in 2005.
Today, more than 100 countries require or permit the use of IFRSs and major economies in Asia-Oceania (Japan), North America (Canada and Mexico) and South America (Argentina, Brazil and Chile) have set out a time line towards the full adoption of IFRSs.
As to the United States, it has created another catalyst to use IFRSs by removing the reconciliation to US GAAP for foreign filers using IFRSs. Clearly, the United States is on a path towards the adoption of IFRSs, the question is, when?
We continue to work with the FASB, and in March, at our joint meeting in London, we reaffirmed our 2011 commitment under our Memorandum of Understanding.
The completion of our joint work with the FASB will result in significant convergence with accounting standards in the United States. This will reduce the cost of transition. But will that be enough to get the United States over the line?
I believe it is in the interest of the United States to adopt IFRSs in the next five years. With Brazil, Canada, China, India, Japan and Korea committed, with the European Union already using IFRSs, the cost to the United States of failing to adopt IFRSs will be high. If it doesn�t adopt, it will be the outlier and those countries already adopting and committing themselves to IFRSs will not accept a situation where the United States remains outside the system indefinitely, yet has a seat at the table.
In the meantime, we continue to work with the FASB in advancing our projects under the MoU and we continue to strive to meet our end of the bargain."
[Read the entire speech by downloading the PDF]