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A top accounting rules setter said on Thursday it was well on the way to becoming the global standard in a veiled hint that the United States should get on board or risk being isolated.
In roughly a decade, adoption of the International Accounting Standards Board’s (IASB) IFRS rules on reporting corporate financial results have spread to over 100 countries and critical mass is expanding beyond core user Europe to include China, the world’s second biggest economy.
“It is my strong conviction that the momentum behind IFRS is so strong right now it can only be delayed but it cannot be stopped anymore,” IASB’s Chairman Hans Hoogervorst said.
The United States has an “extremely important” decision to make this year on whether to replace its own Generally Accepted Accounting Principles (GAAP) standard with IASB rules, Hoogervorst told a webcast meeting of the IASB’s trustees in New York.
By next year two thirds of the world’s top 20 economies (G20) will be allowing or requiring local listed companies to use the IFRS accounting rules.
Mexico, Brazil, Canada, Singapore, Hong Kong, South Korea and China have adopted or were adopting the board’s rules.
“China is almost fully converged. I could not foresee a future where China drifts away from IFRS,” Hoogervorst said.
Japan, the third largest economy, allows voluntary use of IFRS and Hoogervorst expects “quite a few” of its big companies to use them.
He signaled Europe’s voice, although still representing the biggest regional user, will decline in relative terms as new adopters want their “legitimate” requirements heard too.
LEASING PRESSURE
Hoogervorst, who took up the reins 14 days ago, said he will spend a lot of time travelling in Asia, followed by Latin America, so that the IASB acts like a truly global organization.
“We will get our air miles, you can be assured of that,” the former Dutch finance minister and national regulator quipped.
The G20 has called for IASB and U.S. accounting rules to be “converged” by the end of this year to make it easier for investors to compare bank balance sheets in particular.
The IASB sees convergence as simply a stepping stone for the United States to switch to the reformed IFRS rules outright but U.S. regulators still face unease in Congress at handing rulemaking to a body based in London.
There are also concerns that rulemaking quality is suffering if convergence is rushed through to meet a political deadline.
“We will do what it takes … to ensure we get a high quality outcome,” Hoogervorst said.
The IASB has already agreed to put out to public consultation the converged rule on “revenue recognition” even though some believe this is unnecessary.
It is under pressure to do likewise with a leasing rule but at Thursday’s meeting Hoogervorst and his deputy declined to give such a commitment.
Another trustee urged him to quash “reckless comments” that exaggerate how a few countries using IFRS have introduced local tweaks which some feel undermines their universal aim.
(Editing by Greg Mahlich)