European Audit Committee Leadership Network, January 2018
The International Accounting Standards Board (IASB) develops International Financial Reporting Standards (IFRS) used in over 125 countries around the globe. After publishing four major new standards—on revenue recognition, financial instruments, leases, and insurance—since 2014, the organization is now considering its role in other issues, such as the effectiveness of the overall disclosure regime and the expanding use of non-GAAP (generally accepted accounting principles) measures and non-financial reporting.
On November 15, 2017, members of the European Audit Committee Leadership Network (EACLN) met with Hans Hoogervorst, the chair of the IASB. Mr. Hoogervorst, a former chair of the Netherlands Authority for the Financial Markets, has served as the IASB chair since 2011. His current term ends in 2021.
Mr. Hoogervorst and EACLN members discussed both the IASB as an organization and some of the specific issues and objectives on its current agenda:
The IASB’s structure and process
The IASB is a private body consisting of members with diverse expertise and geographical backgrounds. Its standard-setting process is designed to be transparent and inclusive, encouraging input from a variety of stakeholders. The costs and benefits of implementing new standards are key considerations, though Mr. Hoogervorst acknowledged that the benefits can be hard to quantify precisely.
The IASB’s current focus on better communication in financial reporting
The IASB is currently focusing on making financial communications more effective and meaningful. It is reviewing the structure and content of the primary financial statements and has finalized a practice statement on materiality judgements. In addition, it is digesting comments on improving disclosure principles. Clarity and simplicity are important objectives, but Mr. Hoogervorst observed that the complex realities of business today ultimately require corresponding complexity in financial reporting.
Non-GAAP metrics and other alternative performance measures
Mr. Hoogervorst and EACLN members addressed the value and pitfalls of the non-GAAP metrics companies use to supplement GAAP reporting, noting that while often appreciated by stakeholders, some metrics may obscure rather than clarify. While the IASB might be able to provide more guidance, Mr. Hoogervorst said that more significant intervention is the responsibility of regulators. Both members and guest underscored the role of the audit committee in ensuring that non-GAAP metrics are well defined, consistent, and reconciled to underlying statutory accounts. In the area of non-financial reporting standards, Mr. Hoogervorst foresaw a very limited role for the IASB.