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February 3, 2015

The importance of being IASB chairman: Hoogervorst tackles Swiss IFRS-shy companies quoting Oscar Wilde

By Vincent Huck

Taking advantage of an IFRS Foundation Trustees’ stakeholder event in Zurich, and quoting Irish poet Oscar Wilde, IASB chairman Hans Hoogervorst spoke about the reasons behind Swiss companies move away from IFRS, mainly complexity, and said his organisation would not compromise on faithfully reflecting economic reality.

"Oscar Wilde once said that the truth is rarely pure and never simple. I doubt Oscar Wilde had any interest in accounting, but he could have been talking about it," Hoogervorst said.

In Switzerland companies can choose to report under IFRS, US GAAP and Swiss GAAP. Swiss companies embraced IFRS when it was introduced, but recently they seem to be moving away from it.

Since 2008 nearly a quarter of all Swiss listed companies (34 out of the 145) switched from IFRS to Swiss GAAP, according to a research paper by Peter Fiechter, Jerome Hlberkann and Conrad Meyer of the Universities of Neuchatel and Zurich.

"Most of those companies were SMEs listed on the domestic segment of the stock markets. Some, however, are bigger and one is even listed on the Swiss Market Index," Hoogervost said. "The main motivation seems to be concerns about complexity and disclosure overload."

The complexity and the length of financial reporting is a reflection of an increasingly complex economic environment, he continued. "If we really want simple reporting, we should do away with derivatives, defined benefit pension schemes should go out of the window, companies should stop dressing up liabilities as equity instruments, companies should stop taking over other companies, insurers should stop mixing insurance with investment products and the list goes on …"

Clearly it isn’t going to happen so complexity is a reality professionals have to live with, he added, but said the IASB is determined to make disclosures more manageable.

"Financial disclosures have been ballooning for many years, and some of the information disclosed provides little in the way of useful information to investors," he said. "Tackling this problem requires co-ordinated action by standard-setters, regulators, companies and auditors."

Hoogervost announced the publication of a discussion paper in 2015 in order to identify and develop a set of general principles for disclosure in IFRS. "If you believe that improvements in disclosures are required then I ask you to take the time to comment on our proposals. […] We all need to work together in order to solve this problem," he said.

He concluded his speech saying that he hoped he had made it clear that complexity in financial reporting is taken very seriously by the IASB, and added: "We are ready to act where we can, but I have also made it clear that we cannot compromise on our primary goal of faithfully reflecting economic reality."

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