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October 3, 2011

Hoogervorst confident US will adopt IFRS

IASB chairman Hans Hoogervorst has told the Economic and Monetary Affairs (ECON) Committee of the European Parliament he is confident the US will incorporate IFRSs into its reporting framework but is unsure how.

Hoogervorst said a negative decision by the US Securities and Exchange Commission would be a huge disappointment after years of convergence but would not mean the end of IFRS adoption throughout the world.

Hoogervorst discussed two other main topics: the importance of the IASB’s relationship with Europe and his observations on the role of accounting standards and the financial crisis.

Hoogervorst said in many cases there has been insufficient transparency for investors to be fully aware of the risks they were taking.

“If volatility is indeed the new normality, how should accounting standard-setters respond?” he said. “Should we artificially shield investors from learning of this underlying economic volatility or should accountants try to describe, as accurately as possible and with full transparency, this new normality?

“Most people I speak with believe that financial reporting should tell it how it is, rather than how we would like it to be.

Hoogervorst continued: “Asking accountants to describe economic volatility is one thing, but we should be careful that in doing so financial information does not become the source of economic volatility.”

The chief standard setter said it is for this reason the IASB has been “pragmatic” about which measurement techniques to adopt, employing a mixed measurement approach.

“Our upcoming hedge accounting rules will prevent artificial accounting volatility to companies who hedge their risks,” he added. “Accounting should not mask volatility, but neither should it be the source of it.”

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