IASB Chair remains on inconsistent application of impairment testing rules

Hans Hoogervorst, the current chair of the IASB, believes “in many ways, Europe’s decision to adopt IFRS in 2005 was a leap into the unknown. ” Hoogervorst was responding to a just-released report by the Centre for Financial Analysis and Reporting Research in recent remarks at the Cass Business School in London.

The report, Accounting for Asset Impairment: A Test for IFRS Compliance Across Europe, shows inconsistencies in IFRS application and compliance by European-listed companies, particularly in impairment reporting practices. He was “not surprised” by the report, which also found that higher quality reporting is more likely in countries with a strong regulatory environment. A recent SEC staff report on IFRS compliance came to similar conclusions, he said. “This goes to show that in an economy as sophisticated as the United States, using a deeply entrenched national GAAP, you still see challenges with consistent application of the standards.”

As for those who cite the inconsistency of IFRS as a reason for nonadoption, Hoogervorst said: “This argument is, of course, nonsense. The truth is that even an unevenly applied global standard provides much more global comparability than an equally unevenly applied multitude of diverging national standards.” Moreover, “without a global standard, there is absolutely no chance you will ever arrive at global comparability. IFRS vastly improves the opportunities to improve application around the world.”

In the immediate future, the IASB will continue to focus on five areas, including improving IFRS implementation, education, enforcement, and international cooperation. “Addressing the challenge of consistency requires coordinated action by standard-setters, auditors, regulators and others,” Hoogervorst said. With their global reach and resources, “the large accounting firms have a particular important role to play.”