19 December 2019

IASB – Hans Hoogervorst: Accounting standards and the long term

Given the incentives for short-termism, high-quality accounting standards are essential. Good accounting supports long-term investment by giving accurate and timely information about financial performance, trends and risks. Accounting standards that aim to reflect economic reality as closely as possible help the company and its investors to navigate challenges in a timely fashion.

Some current IASB projects will help companies to better explain their long-term performance to investors. Mr Hoogervorst explained how the IASB's projects on primary financial statements and on wider corporate reporting will help companies to better explain their long-term performance to investors. He then turned to the accounting treatment of equity investments.

In the ED/2019/7General presentation and Disclosures, the IAS proposes defining operating profit, which will enhance comparability and become a powerful instrument for companies to explain their long-term performance to investors. The ED also proposes a note in which companies will have to identify elements of income and expense which are ‘unusual’ in the sense they have limited predictive value. The IASB believes that the proposals will help investors gain insight into the persistence of earnings and will also help companies better explain their long-term strategy.

One reason the IASB decided to update its Management Commentary Practice Statement, is that it currently gives insufficient information on intangibles and sustainability, which are becoming critical a company’s long-term viability.

Full transcript of speech on IASB

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