Study Zone

A global perspective - Sir David Tweedie

PQ magazine last interviewed Sir David Tweedie, head of the IASB, seven years ago for our launch issue – in January 2003. So we thought it was about time we caught up with accountancy’s main man to find out what has changed in the intervening years

What impact has the recession had on the perception of the IASB?
It is for others to comment on how we are perceived, but I do believe that the importance of a single set of high-quality global accounting standards – the goal of the IASB – is better understood and supported as a result of the crisis. Recent meetings of the G20 leaders have asked us to speed up our work to complete global convergence in accounting standards. We have been working towards this goal for a number of years and are determined to complete the convergence of IFRSs with both US and Japanese GAAP by 30 June 2011. Aside from convergence, the work programme of the IASB has been largely shaped by our response to the crisis. We are working closely with other international organisations in order to co-ordinate a global regulatory response to the crisis. We established the Financial Crisis Advisory Group, a senior group of leaders with experience in international financial markets, to advise on the standard-setting response to the crisis. The group met on [six] occasions and has now published its report, which is available on the IASB website. As a result of those discussions we have undertaken comprehensive reviews of a number of standards, including the accounting for financial instruments, off balance sheet activities, fair value measurement, and the disclosure requirements for financial institutions.
Much of this work has been completed, and the IASB has received credit for moving swiftly to address these points and for the way we have listened and responded to feedback during the development of these standards.

What do you see as the key issues for regulators in 2010?
There is a range of thorny issues that regulators are currently dealing with, from broad questions about appropriate levels of financial regulation, through to more specific points such as how to calculate capital requirements for financial institutions.
Tackling these issues is complicated by the fact that unlike accounting standards financial regulation is still primarily determined at a national level, which makes it more difficult to achieve a globally consistent outcome.
The IASB works closely with regulators around the world through the Financial Stability Board and other international forums to ensure that our work – to provide information to investors that is useful to them in making economic decisions – is co-ordinated with that of prudential regulators, whose responsibility is primarily that of financial stability.

When we last interviewed you, you said you wouldn’t be doing your job right unless you were the most hated accountant in the world? Do you still feel hated?
Now that’s an interesting question! The financial crisis has changed a lot of things. The G20 and others now routinely call for increased transparency and disclosure. In the area of financial reporting that’s our job, and it’s good to have the G20 supporting our work. Of course, not everyone supports shining a light into some of the darkest corners of finance, so we will never win a popularity contest. The way the IASB goes about its work also has an important impact on how we are perceived. In the last few years we’ve made a number of improvements to the way we communicate and engage with stakeholders around the world.
During the development of new standards we now routinely hold round-table discussions and other face-to-face meetings with a broad range of interested parties, and we also arrange interactive webcasts. All our regular meetings are webcast and we are now experimenting with podcasts. We also publish all sorts of documents both to help those who wish to follow our work to gain a better understanding so that they can engage in the development of new standards, and subsequently to explain how the board has listened and responded to feedback. Most reasonable people will accept that an independent board may choose to follow an alternative path as long as they feel that their views have been listened to. Of course, not all people are reasonable…

Do you plan to stay on as chair of the IASB?
This is my second term, so I have to retire at the end of June 2011. Ten years is more than enough!

When you qualified there weren’t that many standards (sorry we aren’t trying to be rude). Today we live in a world of regulation. Should accountancy students be rote-learning the standards?
Accounting is not rocket science. In fact, it’s not a precise science at all – it is more of a social science. It should not come up with a single, unchallenged, solution. It can come up with several solutions, often equally valid technically. It does not produce one shining, diamond-hard answer.
In the words of John Maynard Keynes, it is better to be roughly right than precisely wrong. In a nutshell, that is what high-quality, principle-based accounting standards are designed to do – to provide a range of answers that are roughly right, rather than a single number that is precisely wrong. Enron gave precisely wrong numbers. During the global financial crisis many large financial institutions (quite legitimately) provided reams of precisely wrong numbers. Did it help? I think not.
To some outside the profession this point is often overlooked. A great deal of comfort comes from the provision of a single number determined by detailed rules. To arrive at such numbers you don’t need to trouble accountants with going through many years of post-graduate training. Just give them a search engine and a check-list. Job done.
I have a somewhat different view of accounting and the profession. Good accounting should be underpinned by judgement. If it lacks that judgement it is worthless. That is why the IASB seeks to develop principle-based accounting standards that require professional judgement to be applied by professionally trained accountants. In short, to return judgement to the profession. This is an important lesson of the crisis, and one that we can all benefit from.
Students have to be taught to analyse the issues and apply judgement to the circumstances prevailing. Accounting theories underpinning the standards should be taught, as well as alternative views – some of the existing standards will change.

How long before we have one set of accounting standards? Is it true that the Americans are coming over to our way of thinking?
To some extent the answer is out of our hands, but I am optimistic that the day is coming. The G20, in which the US has an important voice, has asked us to complete our work towards the convergence of global standards by June 2011. That is the clear intention of both ourselves and the US Financial Accounting Standards Borad (FASB). The US Securities and Exchange Commission (SEC) published in 2008 a proposed roadmap for US adoption of IFRSs.
It is also important to remember that convergence is not just a bilateral process between the IASB and the FASB. Aside from the US there are many other major economies that are in the process of adopting or converging with IFRSs, and some have already got there. We work closely with national standard-setters around the world to bring the best ideas into IFRSs.
We are within touching distance of having global standards. It has taken less than a decade to get to a point where we have around 120 countries now requiring or permitting the use of IFRSs. This number is expected to grow to 150 in the next couple of years as a second wave of major economies come on board, including Canada, Chile, India, Japan and Mexico, to name but a few. It may take a few more years to complete this work, but all of those involved in financial reporting should feel rightly proud of what has been achieved.

What is your favourite standard?
I have high hopes for the new leasing standard – if we get it right it’ll be brutally short but perfectly formed.

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