19 November 2014

IASB/Michel Prada: 'Accounting, markets and global economic growth'

Michel Prada, Chairman of the Trustees, delivered a speech entitled 'Accounting, markets and global economic growth' at the Shanghai National Accounting Institute. 

Prada provided an update on the progress towards global accounting standards. On one hand, some view accounting in the form of traditional bookkeeping, recording transactions and providing the checks and balances to help in the orderly management of those businesses. Others view accounting, and, in particular, financial reporting as a communications exercise, providing investors and other market participants with high quality, decision-useful financial information. 

Of course, the reality is that accounting serves both needs. This is especially true in China, where the same set of Chinese Accounting Standards is used by private companies, as well as those listed on public markets. However, it is the latter—financial reporting being an exercise in financial communications—that has served as the primary driver for global accounting standards.

In a globalised economic world, the investor and investee will often sit on different sides of the world. China is a great example of this. Many of China’s largest companies are listed on both domestic and international markets, such as Shanghai, Hong Kong, London and New York. China is a prolific investor around the world, investing in a range of international companies and infrastructure projects. China is also benefiting from inward investment. Leading international companies are increasing their investment in their Chinese operations and activities and, in turn, contributing to the evolution and development of the Chinese economy.

This global market for capital has been an important feature of the world economy for several decades. However, it is particularly important today, because every major jurisdiction seeks to maintain a level of economic growth, to provide further time to heal the wounds from the global financial crisis and to facilitate a continued economic recovery.

China deserves great credit for the modernisation of its accounting systems. Institutions such as this provide a clear signal to the world of China’s ambition to be a world leader in accounting and financial reporting.

At the same time, policy-makers around the world recognise the need for markets to play a more central role in financing the continued global economic growth. Reducing friction in those markets is the central driver of global accounting standards, and Mr Prada believes it is in China’s economic interests to complete its transition to full IFRS, and in doing so reap the benefits and international recognition that come with IFRS adoption.

Full speech

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