Andreas Barckow, Chair of the International Accounting Standards board (IASB), spoke at the World Standard-setters Conference in London on 25 September 2023. Speaking to standard-setters from over 70 countries, he reflected on the IASB’s heritage and the journey to a global accounting language. He also discussed some of the IASB’s key projects and how it works with the IFRS Interpretations Committee.
Thank you and good morning, everyone! It is a pleasure to welcome you to London and talk with you today, the first day of this year’s World Standard-setters Conference. In my remarks, I want to take you through an exercise that I think will provoke your thinking.
Imagine a world without IFRS Accounting Standards. Companies’ reporting would likely be a patchwork around the world. Not very comparable. Perhaps not very transparent. Maybe not useful at all. Each jurisdiction would have their own requirements. Those requirements may overlap or resemble those in other jurisdictions—or they may be totally different.
A company listed on a stock exchange—or on several stock exchanges—would have to prepare multiple sets of financial statements. It would take up a lot of time; preparing financial statements is a big task.
Investors with the desire to invest in overseas companies would need to learn several different reporting systems. They would have to figure out to what extent information reported in one jurisdiction is comparable with information reported in another. They would have to adjust companies’ numbers to compare them. Even after all this research and analysis, investors might only be able to compare apples with oranges rather than apples with apples—perhaps unknowingly.
Luckily, we’re not there. The IASB has reshaped the global map of financial reporting—with valuable help from National Standard-setters (NSS), for which we are grateful. Today more than 140 jurisdictions require use of IFRS Accounting Standards. Several other jurisdictions permit their use. We have, in effect, a global financial accounting language. The comprehensive set of requirements covers most transaction types encountered by our stakeholders. Our Standards bring efficiency to the markets and for companies. They provide transparency for investors.
Global standards mean that companies can operate in multiple jurisdictions without preparing multiple reports. Companies save money on reporting and on training of staff, and engage more efficiently with investors.
Investors know they can trust the numbers when company reports are prepared using IFRS Accounting Standards. Investors have a solid basis of information for analysing and comparing companies’ financial health. Our Standards help investors more effectively execute their fiduciary duty.
Regulators have a trusted tool that helps them fulfil their responsibilities for safeguarding well-functioning financial markets.
All this matters because better information enables better decisions. Financial markets provide finance to the economy, facilitate the allocation of capital, connect economies, support growth and contribute to financial stability. Well-functioning markets matter to us all.
Developing today’s system didn’t happen overnight. This year marks 50 years since the formation of the IASB’s predecessor body, the International Accounting Standards Committee, or IASC. Accountancy bodies from Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the UK and the US came together—here in London in June 1973—to sign an agreement to form the IASC.
According to that agreement, the IASC’s remit was ‘to formulate and publish in the public interest, basic standards to be observed in the presentation of audited accounts and financial statements and to promote their worldwide acceptance and observance’.
The people helping to form the IASC were united in a vision of the world in which similar transactions would be accounted for in a similar manner no matter where it took place. The initiative responded to the growing internationalisation of capital markets after the Second World War.
The IASC set the foundation for the IASB, which was created in 2001. The IASB built on the IASC’s work and gradually strengthened engagement with stakeholders, its governance and standard-setting process. The IASB in effect ‘grandfathered’ the IASC’s standards. Those Standards are still recognisable as those with an IAS instead of an IFRS prefix.
National standard-setters were involved from the very early days as important partners first with the IASC and later with the IASB. Having a forum for NSS has been important from the beginning. Hence this annual conference, which is the 22nd World Standard-setters Conference.
If somebody sat with a crystal ball 50 years ago, trying to predict the future, they may not have expected us to be where we are today. It has required concerted efforts over time by a lot of people all over the world.
We need to protect what we have collectively achieved, by continuing working together to ensure requirements capture market developments and ensuring the standards are used in a consistent manner globally.
Before I talk about specific technical projects, I would like to discuss the importance of consistent application of our Accounting Standards and the key role national standard-setters plays in this context.
In my first speech at the World Standard-setter Conference as Chair of the IASB back in 2021, I described national standard-setters as the IASB’s ears and eyes on the ground. Your expertise and invaluable understanding of accounting issues arising in your jurisdiction are key in enabling us to make the application of our Standards as consistent and of as high quality as possible.
The full benefits of a global set of standards can only be realised if those Standards are applied consistently by companies around the world. While a huge amount of effort goes into ensuring the Standards are understandable and translatable, it is impossible to avoid questions arising about how to apply the requirements in practice.
Supporting consistent application is an important part of our work. The IFRS Interpretations Committee helps us foster consistency. The Committee is chaired by my colleague Bruce Mackenzie and comprises individuals from various jurisdictions with varied experience in applying our Standards.
The Committee operates in a similar way to the IASB. It holds public meetings and all the topics it discusses are covered in public papers published before the meetings and summaries posted after the meetings. A quarterly podcast discusses the Committee’s work.
If a question emerges about how to apply our requirement, it can be sent to the Committee. However, it is important to note that its role is not to act like a technical helpdesk. The Committee’s role, supported by dedicated IFRS Foundation technical staff, is to determine whether there is diversity in application that could have a significant effect on companies’ financial statements. If there is diversity, the Committee will research the question to determine whether it can be answered using the Standards as they stand.
The Committee discusses the question in public and determines whether there may be a need to amend any requirements in the Standards. If that’s the conclusion, the task will be handed to the IASB. If it concludes that standard-setting is not needed—for example because the matter isn’t widespread or not likely to have a material effect—it will publish what we call an agenda decision, showing how the question can be answered using the Standards.
The name ‘agenda decision’ may be a bit confusing but it is essentially an important note the Committee publishes after deciding that the Standards provide the answer to the question and that the question does not warrant adding a project to the IASB’s agenda. Before the final note is published, it is consulted on publicly and run past the IASB for negative clearance.
Agenda decisions are important, yet not always well understood. The agenda decisions don’t change or add to the requirements in IFRS Accounting Standards. But they are valuable resources for companies: they may help a company understand how it can tackle similar fact patterns. We expect that companies will consider agenda decisions, which we compile in volumes published twice a year and include in our annual books of Standards.
Sometimes reading an agenda decision may prompt a company to approach a transaction differently. If a company changes its approach, it will have to change its accounting policy. Changing an accounting policy takes time. That is one reason why agenda decisions don’t come with effective dates. We rely on companies, their auditors and regulators to apply judgement when deciding how much time is needed to implement such accounting policy changes.
Another reason for why agenda decisions do not come with an effective date is that agenda decisions don’t introduce new requirements: and the underlying Standard or Interpretation is already in effect, so cannot be declared effective again (lest alone with a different date!).
We sometimes hear from stakeholders that we have replaced Interpretations with agenda decisions. That is clearly not the case. When changes to the Standards are needed, our solution is normally narrow-scope standard-setting because we have found that more efficient in supporting consistent application of our Standards than issuing Interpretations. So rather than having an Interpretation explain how a troublesome paragraph should be read, we fix the troublesome paragraph in the standard itself. This improves the understandability of our standards without adding further complexity.
I ask my fellow standard-setters in the room help spread the word in their jurisdictions about the agenda decisions—and help explain their importance. We have provided you an opportunity to dive deeper into the use of agenda decisions during break-out sessions focused on our work to support consistent application of our Standards.
Let me now briefly touch on two examples of our technical work.
A new Standard is on its way. Many of you know that we are on the ‘home stretch’ in our Primary Financial Statements project. The new Standard—IFRS 18—will affect all companies and will improve the information companies provide about their financial performance. It will give investors better information to enable better decisions.
The new Standard will replace IAS 1 Presentation of Financial Statements—a fundamental Standard and the first Standard issued by our predecessor body, IASC, in 1975. Of course, it has been revised several times since then.
The new Standard will introduce three key improvements. It will bring more rigour to the statement of profit or loss by requiring companies to present two new mandatory subtotals, including operating profit. It will allow companies to include so-called management-defined performance measures should they wish to present them—with certain requirements as to how they are presented to provide transparency. And it will provide new guidance on grouping of the information if provides on ‘the face’ of the financial statements or in the notes.
We expect to issue the new Standard in the second quarter next year. National standard-setters will again play a vital role in supporting the implementation effort. In July we decided that the effective date would be 2027, to allow all our stakeholders enough preparation time.
We will also have a new Standard for subsidiaries of companies reporting using IFRS Accounting Standards but with a reduced set of disclosures. This standard will be greatly appreciated by eligible companies as it reduces their cost of preparing financial statements and having them audited. We’ll provide more information about both these two new Standards in sessions tomorrow.
Before I close, I would like to talk briefly about reviews of our Standards. We are now in a wave of Post-implementation Reviews. These reviews are an important part of our due process. They are our way of checking that the Standards do the job they were created to do. Stakeholder feedback is thus critical in informing our assessment. National standard-setters play a particularly important role. Again, as our eyes and ears on the ground.
Since we last met in September 2022, we have completed the first leg of a review of our financial instruments Standard, IFRS 9, focusing on classification and measurement requirements. And we’ve been seeking stakeholder input to inform the second leg of our review of IFRS 9—on impairment requirements—and of IFRS 15, the revenue Standard. The IFRS 9 consultation closes later this week. The IFRS 15 consultation is open for another month. And if you have not yet responded, we would still like to hear from you!
Next up is our review of the leases Standard, IFRS 16, and the third and final leg of our review of IFRS 9—hedge accounting requirements. Later this year, the IASB will discuss when to start these two post-implementation reviews.
To close, I would like to reiterate what I stated in the beginning of my speech: that national standard-setters have consistently played an important part in shaping global standard-setting over the last 50 years. While I personally won’t be involved for all of the next 50 years, I look forward to our continued close cooperation in the years to come.