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Hans Hoogervorst, Chair of the International Accounting Standards Board, delivered his farewell speech at the IFRS Foundation Virtual Conference 2021, as he steps down at the end of this month. He reflected on his 10-year tenure; how IFRS Standards have evolved during that time; and on the importance of independent standard-setting. He also reflected on developments in the economy during his time as Chair.


I am delighted to be with you, for the final time, at this year’s IFRS Foundation annual conference. I had hoped this event would provide a final opportunity to meet personally with all the colleagues and friends from around the world who have made my time as Chair such a hugely rewarding and enjoyable experience. However, that was not to be. So here I am—delivering a farewell speech from my spare room, surrounded by piles of washing. Living the dream.

I came into this job as an Accidental Accountant. I am not an accountant by training and many were surprised when I became chair of the International Accounting Standards Board (IASB). Yet when I was asked in late 2010 if I would be interested in succeeding David Tweedie, I really did not have to think long. The Great Financial Crisis of 2008 had impressed on me the vital interest of solid international economic standards. As Chair of the IASB I had a great opportunity to contribute to the infrastructure of the global economy.

The position also appealed to me because of my passion for economics. While accountants are often looked upon as mere bean-counters, accounting standard setting is a fascinating micro-economic discipline. In fact, as an IMF (International Monetary Fund) director recently impressed on me, proper accounting is the basis for all economics. This was also recognised by Paul Volcker, the most courageous central banker of all times and the first Chairman of our Trustees. Without proper accounting there would be no reliable insight in the performance of the economy and prudential regulators would be wading in the dark. For him, international accounting standards were a no-brainer.

Throughout my tenure at the IASB and as a member of the Financial Stability Board, I have closely followed developments in the global economy and in economic thinking. After all, we do not operate in a vacuum and, as the accounting for loan-loss provisioning shows, sometimes accounting standards need to adjust to new economic insights. So, before I talk about the work of the IASB itself, please allow me to make some observations about the enormous changes in economic thinking we have witnessed in the past decades.

Washington Consensus

Before the Great Financial Crisis of 2008, the so-called Washington Consensus dominated economic thinking among Western policymakers. The term was coined in 1989 by the British economist John Williamson who characterised it as a belief in prudent macroeconomic policies, and in the blessings of the market economy. Large fiscal deficits were to be avoided, interest rates should not be artificially supressed and national economies should be well integrated with the global economy.

I received a foretaste of this thinking when I studied international economics in Washington in the early eighties. My teachers were clearly disillusioned by the stagflation caused by the fiscal and monetary excesses of the seventies. Their hero was Paul Volcker who performed the thankless task of cleaning up the mess.

The Washington Consensus still reigned supreme when I served as Minister of Finance in the Dutch government at the start of this century. Its focus on fiscal discipline certainly helped me, as it had helped my predecessors. Whenever the budget deficit was growing too fast, there was a simple story to tell: the government does not own a money tree, higher government debt will inevitably lead to higher interest rates and rising interest costs will crowd out much more useful public spending, for example on healthcare and education.

This economic thinking involved a lot of tough decision-making and it did not always get you re-elected. But overall, our commitment to budgetary discipline served the Netherlands very well. It forced us to scrutinise all aspects of the welfare state. We left no stone unturned, improving financial incentives in healthcare, the pension system and social security at large. As a result, our economic growth accelerated and the Netherlands was able to maintain a generous welfare state, but on a much sounder economic footing.

Back to stagflation?

Nowadays, many regard the Washington Consensus as hopelessly outdated. The double whammy of the Great Financial Crisis of 2008 and the Covid pandemic simply blew the Washington Consensus out of the water.

The belief in free trade and free markets has taken a severe hit. Criticism of globalisation, once primarily dominant in left-wing circles, has widened its intellectual appeal to the populist right. The excesses of deregulation in the financial sector before 2008 have undermined the belief in free markets more generally.

Balanced budgets are nowhere to be seen. That is not surprising in these testing times, but the size of deficits and debts are truly staggering. On average, budget deficits of the advanced economies are now in double digits. The worldwide total level of debt in the public and private sector is now at an unprecedented 335% of GDP and rising. We have mortgaged our global house more than three-and-a-half times. Monetary conventions have also been put aside. Investors have to pay for the privilege of buying debt from heavily indebted countries. Central banks buy up government bonds on a massive scale, quietly monetising public debti.

Policymakers could not stand, of course, stand aside as the Covid crisis threatened to paralyse the entire global economy.

However, as former IMF Managing Director Jacques de Larosière has remarked, the problem is that the massive stimulus hit an economic territory that had already been heavily mined by unconventional policiesii. He has described how, even in the decades before 2008, monetary policies in the industrialised world had become more and more accommodating. He -and many others- saw the resulting excesses in liquidity and debt as one of the main causes of the Great Financial Crisis of 2008.iii

Yet, fearing that the recession could turn into a depression, the world reacted to that crisis by doubling down on monetary accommodation. Determined to stave off a depression, central banks were determined to drive up inflation and pulled out all the stops after 2008.

In his memoirs Paul Volcker expressed considerable scepticism with these policies. He did not agree with the inflation target of 2%, or just below 2%, that almost all central banks have adopted. He drily commented that an annual inflation of 2% will halve the value of a currency in little more than a generation. He was also doubtful that the rate of inflation could be micromanaged. He warned that once you reach inflation of 2%, it can easily slip to 3% or more.iv Volcker’s warnings seem particularly apt today with inflation climbing above 3-4% in some parts of the industrialised world.

Meanwhile, the natural laws of economic gravity seem to have been suspended indefinitely. While we are still digesting the biggest economic contraction in decades, housing prices are going through the roof, stock markets set record after record, and bankruptcies are at historical lows. One could of course see these counter-intuitive developments as a triumph of economic interventionism. Yet there are also reasons to see them as expressions of excess.v While debt overhang and widespread zombification of the economy will likely depress economic activity in the future, a return of stagflation might very well be in the cards. Even if this does not happen, the unprecedented accumulation of debt represents a severe risk for financial stability.

Incessant stimulus also has a pernicious influence on economic behaviour. A generation of investors has grown up expecting authorities to step in whenever markets throw a tantrum. Excessively leveraged business models get bailed out time and again. And I think back to my time as Minister of Finance. My story about not having a money tree might no longer be so convincing when central banks are buying up 50% or more of debt issues. Even in the frugal Netherlands, budget discipline is now under severe pressure.

Policymakers are aware of all these risks, but they are understandably fearsome of what might happen once interest rates go up again. Yet the longer we go on like this, the more debt will accumulate and the more difficult it will become to raise interest rates and restore prudence. It is clear that the road back to normality will be extraordinarily painful and policymakers will need all the courage they can muster. But we cannot go on adding risk to a global economy that is already way too risky.

Strengthening IFRS Standards

I propose we now leave the extremities of macro-economic policies and turn to the relatively uneventful world of accounting. Financial accounting has a much more modest ambition than macro-economics. We bean-counters do not seek to move or influence markets. We merely aim to describe economic reality as faithfully and neutrally as possible.

This modest ambition is difficult enough to achieve as it is. In an early speech, I sketched some of the many vulnerabilities of accounting. We employ a mixture of current and historical measurement techniques, causing all sorts of accounting mismatches. Historical cost accounting, despite its reputation for reliability, is full of subjective estimates, such as the measurement of value in use or the useful life of an asset. Intangible assets, which are increasingly important as value drivers for companies, largely escape the financial statements. We cannot explain precisely what Other Comprehensive Income is. While accrual accounting is vastly superior to cash accounting, it can also be vulnerable to earnings management, which is at the root of many accounting scandals.

In the past decade, the IASB has worked hard to reduce some of these vulnerabilities and I am truly proud of the progress that we have been able to achieve. IFRS 9 has improved accounting for loan losses, making it more responsive to changes in the economy. IFRS 15 has made revenue recognition more robust and more comparable globally. The quality of the balance sheet has greatly improved with IFRS 16 recognising all lease liabilities.

If anyone still needs convincing as to how essential proper global accounting standards are, just look at insurance accounting. Currently, there is widespread diversity in income recognition, with some national standards counting even investment deposits as revenue. In many countries, insurance liabilities are still measured using historical interest rates which are no longer relevant in the current low interest rate environment. After 2023, when IFRS 17 will be effective, income recognition will be internationally comparable and much more reliable. The insurance liability will everywhere be measured at current interest rates, reflecting economic reality much more closely.

The updated Conceptual Framework has created much clearer principles for measurement, that make it easier for the Board to determine which measurement basis to prescribe in what circumstances.

Many avenues to earnings management had already been closed before my time. Revenue recognition and the insurance Standard have further reduced opportunities to do so. The abolishment of the available-for-sale category for equity instruments in IFRS 9 has also made it less easy to realise profits and losses when they come in handy. Precisely for that reason there is a lot of nostalgia for available-for-sale. I do not wish to rule from my grave, but I certainly hope it will never be brought back. If you don’t like the volatility of equity instruments, don’t invest in stocks.

After we filled most of the gaps in recognition and measurement, we have been able to focus our energy more and more on improving the presentation of financial information. Our Primary Financial Statements project will provide a much better structure to the income statement and will enhance transparency and discipline around non-GAAP measures. Our proposals will greatly enhance the relevance of the income statement and have been received enthusiastically by investors. A better structure of the income statement is also immensely important as more and more financial information is consumed through electronic means.

Our new version of the Management Commentary Practice Statement will provide a comprehensive framework to help companies to piece together all the elements of the narrative section that complement the financial statements in the annual report. Management commentary will provide a docking station in which companies can provide better information about their intangibles, business model and technological capabilities. We also started working on the Management Commentary as we could see the growing need for companies to report on sustainability matters. This is also important with regards to our Trustees’ work on the potential establishment of an International Sustainability Standards Board as a sister board to the IASB within the Foundation’s governance structure. The Management Commentary, as a docking station for sustainability information, may serve as one of the links between the IASB and the potential future ISSB.

Consolidation of the use of IFRS Standards

I am also proud of how IFRS Standards have become firmly established as the leading accounting standard for the global economy. When I started out in 2011, IFRS Standards were still relatively new and there was a lot of nervous excitement about their future. On the one hand, the goal of a single set of global accounting standards was still alive and mentioned in all communiques of the FSB and the G20. On the other hand, there was also a lot of uncertainty about whether the United States would finally adopt. Many feared that if the US failed to do so, the world of IFRS Standards might fall apart.

In the course of 2011 and 2012 the dream of a single-set of global accounting standards gradually faded as the US Securities and Exchange Commission (SEC) became increasingly hesitant about IFRS-adoption. Following the Great Financial Crisis companies were under a lot of pressure everywhere and the SEC felt it could not push through a reform that would generate considerable cost in the short run. The Japanese Minister of Finance also became more cautious after the terrible tsunami of 2011.

Yet the much-feared dissolution of the world of IFRS Standards did not happen. One by one, the IFRS family was joined by individual jurisdictions in Asia and Africa, ultimately reaching a total of more than 140. In Japan, the number of individual companies adopting IFRS Standards grew steadily and before long, more than 50% of the Japanese stock-market will be denominated in IFRS Standards. China has stayed very close, incorporating all the new Standards and many Chinese companies are able to state full compliance with IFRS Standards. Importantly, the European Union, which made the dream of IFRS Standards a reality in 2005, was thus far able to resist the temptation of adding carve-ins to our Standards.

Those who follow the endorsement of IFRS 17 closely, know there is a distinct possibility that Europe will end up making a carve-out of the annual cohorts requirement of this standard for some insurance companies. This would give insurers the possibility to mix old profits (even on contracts that have already expired) with new profits that could be lower due to low interest rates. The resulting income statements could show artificially high profits and even mask losses. Should the EU go ahead with such a carve out, I hope that efforts are made to ensure that companies disclose that they are using the carve out, so that investors can properly take this into account.

All in all, the use of IFRS Standards has consolidated in large parts of the world and it is no longer subject to fierce debates. The culture war between proponents of fair value accounting and the fans of historical cost accounting -still very much alive in 2011- has also lost much of its fire. The IASB steered a well-reasoned pragmatic course in which current measurement steadily gained ground while the pitfalls of fair value accounting were not ignored.

The excitement around IFRS Standards that greeted me 10 years ago has largely dissipated. But in this case, the fact that we have become a bit boring is a positive thing. It means that IFRS Standards have firmly established itself as the leading global accounting language. The dream of a single set of global standards has not yet been achieved. But the degree of consolidation that has been achieved is nothing short of astonishing, especially in this time of scepticism about globalisation.

I would like to think that jurisdictions have converged on IFRS Standards because of the quality of our standards. But equally important is the contribution of IFRS Standards to the ease of doing business. Many Japanese companies voluntarily embraced IFRS Standards, simply because it makes managing a multinational organisation so much easier.

And finally, I think that the governance of the IFRS Foundation has greatly strengthened our credibility. The relative independence of the Board, shielding it from excessive wheeling and dealings, has hopefully contributed to its trustworthiness. Indeed, the enthusiastic response of stakeholders to the proposed role of the IFRS Foundation in sustainability reporting was to a great extent fed by the trust in our governance and due process. 

Closing remarks

I began this speech by recognising the importance people – and in particular the importance of personal relationships in our work. More than anything, the IFRS story is one of remarkable people from around the world working together in pursuit of a common and noble goal.

In particular, I would like to recognise the unsung work of the Trustees, so ably led by Erkki Liikanen and before him by Michel Prada. Their collective wisdom has often been a source of inspiration and support. I also want to profoundly thank my fellow members of the IASB, past and present, for their hard work, their support and above all, their comradery. With a non-technical chair, the collective wisdom of the Board has never been more important! I want to say special thanks to my Vice-Chair Sue Lloyd to whom I have been able to entrust many responsibilities and whose sheer intelligence I have always admired.

In Nili Shah and Lee White I want to thank our remarkable technical and operational staff. There are many talents in our organisations and never before have I worked in a culture that is so friendly and cooperative. My successor Andreas Barckow has a great group of people to work with and given his intimate knowledge of our people and work, I have no doubt he is off to a flying start. And finally I want to thank you, the amazing global IFRS community: IFRIC and ASAF members, investors, preparers, international organisations, national standard-setters, members of the accounting profession, students, to you all. Thank you. I will miss you all, and I truly hope our paths will cross again in the future.

I now turn over to Andreas Barckow to give him the opportunity to introduce himself: Andreas the floor is yours!

i The Belgian economist Paul de Grauwe recently explained how quantitative easing essentially leads to cancellation of public debt. Any interest to be paid by governments is profit for the central banks, who will hand it back to the state as dividend. As long as the bonds are rolled over upon maturity -which they currently are in almost all cases- the state does not have to worry about paying it back either. Paul de Grauwe: Debt cancellation by the ECB: Does it make a difference? February 15th 2021.

ii Jacques de Larosière: Clearing landmines after the war. OMFIF 6 april 2020

iii Jacques de Larosière, The Demise of the Bretton-Woods system explains in great part our present problems. Madrid 10 January 2019

iv Paul Volcker: Keeping at it: the Quest for Sound Money and Good Government, 2018

v Interview with Larry Summers, Financial Times, April 12 2021