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IASB: Bad accounting breeds bad policies

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13th Mar 2015
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IASB chairman Hans Hoogervorst came to Edinburgh this week to counter resistance to the board's stance on valuing assets and financial instruments at fair value rather than historic cost.

It is hard to distinguish between what is a short-term blip from something that is the beginning of a long-term trend. That is why, in accounting, providing current information - and not just historic cost - can be so important. 

Hoogervorst argued passionately for accounting that is based in the now. “Both investors and managers are best served by accounting standards that reflect the economic reality,” said Hoogervorst. “Not by standards that create fake stability by smoothing out problems over the years.”

The long running debate has taken on a sharper edge as the board has been working on updates to IFRS 19 'Employee Benefits' to reflect the changing nature of pensions investments - and to clamp down on accounting treatments used to soften the impact of market swings on pension fund assets.

“If you want to know how crucial proper accounting for pensions is, just look at an area where it is highly deficient, I am of course referring to the accounting for pensions in the public sector,” said Hoogervorst. “This lack of proper accounting hides from view a very inconvenient truth.”

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