Hans Hoogervorst, chairman of the IASB, has reaffirmed stewardship as a central goal of financial reporting and says accounting standards have an essential role to play in encouraging long term investment.
The comments were made in a speech entitled 'Buy-and-hold' should not mean 'buy-and-hope' which Hoogervorst gave last night following the quarterly meeting of trustees of the IFRS Foundation, this time hosted by the ICAEW.
He tackled the accusation that accounting standards have failed to deal adequately with the growing prevalence of short-term horizons in the financial markets. Hoogervorst also challenged the view that IFRS discourages long-term investment by relying excessively on fair value and so encouraging financial engineering and short-term profit taking.
'The truth is that, outside the financial industry, most companies have little to do with fair value accounting. The bulk of their assets and liabilities are measured on a cost basis. Even in the financial industry amortized cost is still an important measurement base. It is no surprise, that most academic research shows that fair value accounting was not a major driver of volatility during the financial crisis,' Hoogervorst said.
He did however point out that the use of current measurement techniques in the financial industry is likely to increase as a result of developments, such as the IASB's forthcoming exposure draft on standards for insurance contracts. The proposed standard will prescribe current measurement of the insurance liability, while many insurers still use historic cost.
Hoogervorst rejected the criticism that this approach will result in greater accounting volatility and said the exposure draft contains 'a host of proposals' to tackle this. However he strongly rejected the idea of measuring insurance liability e based on the expected return on the assets.
At the meeting the ISAB and members of the Accounting Standards Advisory Forum (ASAF), one of its technical advisory bodies, also signed a joint Memorandum of Understanding (MoU) setting out the purpose of the ASAF and its operating activities. The main technical subjects discussed were the IASB's Conceptual Framework and the Impairment projects.
