IASB and the diplomatic challenge ahead

International  accounting standard setters just gave themselves a whole new project, in many senses one of its most ambitious to date.
Hans Hoogervorst, IASB chairman
In a speech in Mexico yesterday the chairman of the International Accountanting Standards Board (IASB), Hans Hoogervorst, revealed  what the board would be doing in future. At the moment its time is dominated by the project to converge international standards (IFRSs) with those used in the US. Now, however, Hoogervorst has floated the idea that he needs to creat more stability around the use of the standards.
At the moment more than 100 countries use IFRS but they do so on an informal basis. There is no formal arrangement binding these countries to listen to the IASB.
Hoogervorst said it was “now time to move from this loose affiliation to a more integrated supply chain based on strengthened and more formalised relationships.”
He added that the “formalisation of this network will greatly assist out global standard setting activities by binding-in national and regional standard-setting bodies more closely and earlier on in the standard setting process.”
This is an interesting point of discussion. With relations as informal as they are what’s to force any country to abide by international standards once adopted? Who monitors that they are being properly applied? At the moment the IASB has no function which allows it to assess whether its standards are being properly used or indeed whether they are being abused. 
To attempt a more formal arrangement is to extend what has been a huge experiment in law making. In this one key area, accounting standards, many of the world’s countries have decided that the IASB is the best place for making rules. But there’s nothing to say they have to listen to the IASB. The board remains an advisory body at distance. Nations merely look at what the board has on offer and decide whether they want to buy.
The board, an independent international body, answers to no single country and has limited accountability (though it has to be said it has worked hard on increasing how it answers to stakeholders). To formalise its relations will be to take the next step in this lawmaking experiment.
At this point there’s no telling what these formal relations will look like. It could happen in any number of ways.
But Hoogervorst has given himself a huge piece of diplomatic work as he attempts to persuade nations that somehow their relationship with the IASB should be set in stone. First he will have to explain exactly what “formal” and “binding” mean in his mind.
This will undoubtedly riase more questions about its accountability and whether any one country has more influence than another.
In some places this will be a difficult sell. The US, in the process of deciding on IFRS, has spent a lot of time debating how it retains control of its accounting. In papers from the Securities and Exchange Commission, there’s no mention of formalising its relations with the international body.
If the idea is to gain any traction Hoogervorst will need to make political allies, win their support and then their public backing. He may have to go to some very senior people indeed.
Interesting times ahead.


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