New IASB chief hopes for harmony in accounting

The chairman-elect of the International Accounting Standards Board is confident that a transatlantic rift over how to value loans and other financial instruments could yet be resolved and boost plans to harmonise financial reporting around the world.

Hans Hoogervorst said he thought the US would adopt International Financial Reporting Standards produced by the IASB in place of US GAAP, its own standard.

Mr Hoogervorst, a former Dutch finance minister, was named on Tuesday as the man who will succeed Sir David Tweedie at the helm of the IASB when the Scot retires from the post next summer.

Sir David has been one of the driving forces behind an attempt to make IFRS – the system followed by listed companies in the European Union and an increasing number of countries in Asia and Latin America – interchangeable with US GAAP.

The aim is to make it easier for investors to compare companies across borders and so bring down the cost of capital for businesses. The US will decide in 2011 whether to switch to IFRS.

However, the convergence project Mr Hoogervorst will inherit next summer has been undermined by differing approaches to reforming financial instrument accounting on either side of the Atlantic.

The US Financial Accounting Standards Board, which oversees US GAAP, has suggested a model in which banks and other entities would be obliged to use more fair value accounting – also known as mark-to-market – for their financial assets.

The proposal has led to protests in the US. The London-based IASB, on the other hand, favours a less controversial approach that does not have the same emphasis on fair value.

Amid talk that the FASB might soften its position, Mr Hoogervorst told the Financial Times that common ground might yet be reached by the two standard-setters on this key issue. “It is not a foregone conclusion to me that in the end there will be more divergence than convergence [on financial instruments]. I think both systems could come very close together,” he said.

Asked whether the US would adopt IFRS, he replied: “I think so.” However, he declined to say what might happen if it did not, arguing that he refused to think about that particular scenario.

Sir David has been more forthcoming on that issue, suggesting recently that a refusal could either isolate the US or weaken the attraction of IFRS as an international standard in Asia and Latin America.

Mr Hoogervorst is the head of the Dutch financial markets regulator. But even though he has high-level financial experience, he is not a professional accountant.

He argues that this is not an unfamiliar situation for him to be in, saying that his political career involved a stint as the first Dutch health minister not to have a medical background.

“The fact that I was able to look at the medical world with fresh eyes was a major contribution to my success as a health minister,” he said, conceding however, that he still faced a steep learning curve in his new role.

The appointment of a former minister to the top job at the IASB is a recognition of how accounting has become even more of a political football in the aftermath of the financial crisis.

However, Mr Hoogervorst is keen to distance himself from the notion that accounting standards should be a regulatory tool rather than used to serve investors. He stresses that the standards should be drawn up independently from politicians, a principle that has not always survived government pressure in the past.

“Why I think I could be effective in this job is that I know what it is to be diplomatic but I know also what it is to be determined,” he added.

Fonte: Adam Jones, Accountancy Correspondent, Financial Times