30 November 2018

IASB's Liikanen: Future of corporate reporting in a digital and sustainable economy

IFRS Foundation Trustees Chair Erkki Liikanen keynote speech focused on whether the EU legislative framework for corporate reporting needs to be adapted to better serve the capital markets and the EU economy.

As of today, 144 out of 166 researched jurisdictions now require the use of IFRS Standards for all or most domestic listed companies and financial institutions. Although there are some notable exceptions, almost nine out of ten jurisdictions have now adopted our Standards. Of those that have adopted, two-thirds have no endorsement process at all.

In parallel, the IFRS system has provided a very effective mechanism for standard-setters to work together to improve the quality of accounting standards worldwide.

An early example of this work was to end the practice of stock options being awarded to senior management at seemingly no cost to the company or its shareholders— according to the financial statements anyway. Financial alchemy at its best!

Post-financial crisis reforms to financial instruments accounting and the new leasing standard that gives much greater visibility of burdensome lease obligations taken on by companies.

People see the benefits of global standards and seem comfortable with the existing endorsement process. Not everything is perfect, but there is not much support for substantive change.

Most respondents felt that IFRS Standards are effective, helping to reduce the cost of capital and increase investments within the EU. Few believed that the Standards have led to procyclicality and short-termism, while most believed that the EU’s policy on IFRS Standards has promoted more integrated capital markets in the EU and internationally. This is encouraging feedback and shows the importance of our Standards to the EU’s Capital Markets Union project and the wellbeing of the global economy more broadly.

Against this general attitude, it is logical that more than three quarters of all respondents supported the status quo of a restricted endorsement process and argued against introducing a ‘carve-in’ mechanism to modify IFRS Standards used in the EU. They argued that that carve-ins could lead to an EU version of IFRS Standards, be detrimental to EU companies active globally and to foreign investments in the EU, and hamper the G20 objective of a single global high-quality accounting framework.

A minority did argue for a carve-in mechanism that, in their view would help the EU to exert greater influence on the standard-setting process of the IASB.

Mr Liikanen wishes to continue the excellent cooperation between the IFRS Foundation and the EU. IFRS Standards are a great example of EU leadership in establishing rules for global finance. It has been a win/win for both the EU and the international financial system.

Full speech

© IASB - International Accounting Standards Board