Into his final seven
months as chairman of the International Accounting Standards Board,
David Tweedie realises the IFRS/US GAAP convergence project needs
to get back on track. The Accountant’s Ramona Dzinkowski
catches up with Tweedie to discuss the importance of a single set
of global standards.


Photo of David Tweedie, chairman of the International Accounting Standards Board The International
Accounting Standards Board (IASB) is in transition following one of
the most traumatic periods in its history. Long serving chairman
David Tweedie is to hand over the reins to Dutch regulator Hans
Hoogervorst next June.

In addition, the US will take
a firm decision on whether or not it will adopt IFRS as the IFRS/US
GAAP convergence project continues. For Tweedie, who has overseen
the spread of IFRS throughout most of the world, the US adopting
would be the icing on the cake of a successful career as IASB

In this frank discussion,
David Tweedie speaks with North American correspondent Ramona
Dzinkowski about his thoughts on US plans for IFRS and the
convergence project.


Ramona Dzinkowski (RD):
One argument for the global adoption of IFRS was that a common
framework for financial reporting would increase the comparability
of financial results between companies from different countries,
creating a level playing field for capital. To what extent does
this apply to the emerging economies?

David Tweedie
Our goal, supported by the G20 and others, is to
develop a single set of high-quality, principles-based accounting
standards. Given that a single standard will need to be applied
consistently in both developed and emerging markets, the IASB works
hard to seek input from all jurisdictions throughout the
standards-setting process.

This is important for several
reasons. First, the G20 and others have encouraged the IASB to
ensure that our standards meet the needs of emerging economies.
Second, many of these economies are the primary drivers of global
growth right now, so their needs should certainly be taken into
consideration. Third, institutional investors are investing heavily
in many of these emerging economies, so comparability of financial
information between all markets is important.


RD: Will the evolving
IFRS have different impacts on companies in different countries but
within the same industry?

DT: Much of
the change will be felt by US companies, regardless of what the SEC
decides on US adoption of IFRS. Our joint work with the FASB on the
improvement and convergence of IFRS and US GAAP means that by 2011
the two sets of standards will be substantially similar.
Convergence, not adoption, will have the greater impact on US
financial reporting.


Pull quote by IASB chairman David TweedieRD: Some have
argued that the IASB and the FASB should just get on with
convergence as quickly as possible, whereas others say that the
more time available, the better. In your view, what are the
advantages/disadvantages for US companies having to adopt IFRS in
2013 compared to a later date, say 2016?

DT: We need
to get the job done, but in a way that does not sacrifice quality
for speed. That’s what our recently announced work plan sets out to
achieve. We have given priority to completing the most important
projects by June 2011. This will be done in a way that minimises
the burden on interested parties who wish to comment on our

The important thing is for
the US to make a decision on US adoption of IFRS in 2011. No one
likes uncertainty. US companies want to know what is coming down
the line and the rest of the world is keen to see that the US is on
board in its support for global standards.

The actual date of switch
over is secondary and should reflect US domestic needs, although
there seems little point in going through the trauma of switching
to converged standards and then again to global


RD: Some observers point
to differences between FASB and IASB proposals surrounding very
complex accounting standards and their underlying concepts. If the
goal is to have a single set of high quality standards, is
convergence the best path forward?

DT: Although
the IASB and the FASB are seeking to develop common accounting
standards, there is no guarantee that two independent boards will
always reach the same conclusion. This is why I do not believe
convergence is a sustainable, long-term solution. ‘Similar’
standards will always be different as the devil is in the


RD: We see some very
complex standards coming down the pipeline in the near future. Can
you provide insight into the main issues to current financial
reporting using IFRS as well as potential economic/industry impacts
surrounding the emerging standards?

DT: Most of the
[controversial] projects you talk about are standards we inherited
from our predecessor body or that were temporarily knocked into
shape in order to be fit for purpose when Australia, Europe and
others adopted IFRSs in 2005.

We had always intended to
revisit these standards, and to do so in a way that results in an
improved and convergent outcome. The recent financial crisis has
provided one of the greatest stress tests of financial reporting
for many generations, so we are using what we learned from this
experience to improve global financial reporting

For fair value measurement,
we have adopted the three-level hierarchy that has proved popular
in the US, as well as the recommendations from a panel of experts
we put together on applying fair value measurements when markets
become inactive.

The reform of financial
instruments accounting gets a fair amount of interest. We’ve
already completed the first part of the project in publishing IFRS
9 Financial Instruments, and we are consulting widely on
the second phase of the project dealing with impairment of
financial instruments. We expect to publish the third and final
part of the project dealing with hedge accounting in the next few

Our proposals on revenue
recognition are already published, as are pensions. Proposed
standards on insurance and leases will be published shortly and we
have comprehensive outreach programmes in place for all of these
major standards to ensure that all viewpoints are taken into


RD: In your view, do you
see any new or old arguments emerging from various interest groups
suggesting that there will be clear winners and losers resulting
from the emerging standards and convergence

DT: It’s
difficult to say. In developing new IFRS we do take into
consideration the costs and benefits of change, as well as a
general assessment of the impact of the change. But it’s not our
job to identify the winners and losers as a result of that


RD: To what extent will
the continuing economic malaise in the US have an impact on the
SEC’s roadmap, such as the potential adoption date, if at

DT: I’m sure
the SEC will take it into consideration as part of its cost-benefit
analysis of a move to IFRS. I would argue, however, that it’s more
cost effective to change once, rather than adopting the new
standards under US GAAP, and then switch again to IFRS at some
point in the future.


RD: Some suggest that
mark-to-market accounting has been one of the principal culprits in
the failure of some of the large US financial institutions and the
credit crises in general. How do you respond to this

DT: That’s
certainly a view that I heard expressed vigorously during the
crisis but less so now. Post-crisis analysis has shown that poor
lending decisions, a lack of risk management, over-leveraging and
insufficient bank capital requirements, the complexity of financial
instruments and a lack of due diligence on the part of investors
all contributed to the crisis. That’s not to say that the
accounting was perfect, and we are working through a comprehensive
programme of enhancements that will result in improved transparency
and disclosure of financial information to investors and other
users of financial statements.


RD: If it is true that
IFRS will create greater transparency and comparability, and
increase capital mobility, is there a direct link worldwide in the
adoption of IFRS and the economic recovery in

DT: I don’t
think so. By the time we’ve completed our convergence work, IFRS
and US GAAP will be substantially similar, so I wouldn’t have
thought that switching from one to another would make any material
difference in the US. Elsewhere in the world, particularly in
emerging markets, adopting IFRS undoubtedly helps to attract inward
investment in a region and helps to reduce the cost of capital, so
that may have a positive impact on the economic recovery in certain
parts of the world.


RD: Under what
circumstances do you see that US issuers will accept a
principles-based approach with little or no guidance? Are there
other options?

Financial reporting across the world, including the US, is moving
to a principles-based approach with minimal guidance. The new,
converged standards under US GAAP have been written in this way, so
regardless of whether the US adopts IFRS, principles-based is the
direction of travel. The reasons for this are simple. Producing
audited financial statements in compliance with almost 20,000 pages
of rules is prohibitively expensive, reduces comparability, and
makes little use of the skills and training of accountants to apply
their professional judgment.


RD: Emerging economics
are fuelling much of the world’s economic growth. Can you talk
about some of the unique reporting issues in those economies and
what some of the issues surrounding convergence/adoption

DT: Clearly
there are challenges in providing a single approach to accounting
that meets the needs of both developed and emerging economies. That
is why we go to great lengths to seek input from around the world
when developing IFRS.

For example, it is a great
deal easier to apply fair value measurement when you have deep and
liquid markets as in the US. In countries such as India and Korea,
foreign exchange translations can cause difficulties, whereas we’ve
needed to look at related-party transactions to avoid reporting
problems in China and other countries where the state can hold
equity stakes in many companies.