The best of all Christmas gifts – a de facto global language!

The IFRS Foundation recently issued a news release announcing its gathering of “solid evidence that IFRS has already become the de facto global language for financial reporting.”

This is based on research of how IFRS used in 122 companies, yielding the following key findings:

  • “Nearly all of the jurisdictions have made a public commitment to global accounting standards and to IFRS as those global standards.
  • IFRS is already required for all or most domestic listed companies in 101 (83 per cent) of the 122 jurisdictions.
  • Most of the remaining countries that do not yet require IFRS for all or most domestic listed companies already permit IFRS for at least some listed companies.
  • Around 60 per cent of the 101 jurisdictions that have adopted IFRS for listed companies have extended that requirement to unlisted financial institutions and/or large unlisted companies.
  • Around 90 per cent of the 101 jurisdictions that have adopted IFRS for listed companies also require or permit IFRS for unlisted companies.
  • Modifications to IFRS are rare and, in most cases, temporary and limited in applicability.
  • 57 of the 122 jurisdictions require or permit the IFRS for SMEs, and another 16 are actively considering it.”

The release quotes Michel Prada, Chairman of the IFRS Foundation Trustees as follows: “The vision of global accounting standards has been publicly supported by almost all international organizations, including the G20, World Bank, IMF, Basel Committee, IOSCO and IFAC. Twelve years after the reform of the IASC and the establishment of the IFRS Foundation and the IASB, we now have firm evidence of that vision now becoming a reality.”

De facto global language?

I doubt if anyone minds too much if the Foundation decides to engage in a little year-end back-slapping. Still, I feel obliged to point out that the claim of being the “de facto global language for financial reporting” may or may not arise naturally from these findings.  Taking “de facto” to carry its usual sense of a state that exists in practice without being so as a matter of law or official establishment, it’s hard to see how something could be identified as a “global language” when it’s yet to be required or even permitted of domestic issuers in the most prominent single capital market jurisdiction, the United States, and when its penetration into some other major markets is far from fully achieved (for example, according to the Foundation’s profile on Japan, where IFRS is allowed but not required, just 20 companies were using IFRS or had publicly announced their decision to do so by the end of May 2013, out of approximately 3,600 companies listed on their stock exchanges).  It might have been more appropriate to refer to “solid evidence that IFRS is moving steadily closer to becoming the de facto global language for financial reporting” or something like that, but no doubt this wouldn’t quite have carried the same snap.

Irreversible momentum

Personally though, I don’t really see the virtue of trying to address such matters with anything more than factual accuracy. If your job was to boost sales of a new soft drink, you might be inclined to pump up its popularity in the hope that the non-converted would succumb to the promise of what they must be missing. The IFRS Foundation presumably thinks IFRS adoption might work that way, and in the recent past, IASB Chairman Hans Hoogervorst seemed to demonstrate a similar strategy, with such statements as: “IFRSs have already achieved critical mass as international standards and with more than two thirds of the G20 now on board, the momentum behind them becoming global accounting standards is irreversible.” But as I wrote at the time, it’s possible to name any number of things in life that reached two-thirds penetration without thus inevitably conquering the remaining third – for instance, that’s just about where the number of countries that drive on the right currently tops out. Even if the momentum behind IFRS is indeed ultimately irreversible, that doesn’t mean it’ll necessarily continue bounding forward without stumbling and sputtering.

It’s also regrettable that the Foundation, for now anyway, is basing its claims on a show of hands regarding who’s in the club, rather than the quality of what they bring to it. One would have to be quite naïve to think the fact of a jurisdiction adopting IFRS guarantees a high level of easy comparability with other adopting jurisdictions, any more than (to pull out another of my overused comparisons) the fact of two people from different sides of the world both claiming to speak English necessarily means they can understand each other without a lot of head-scratching and cross-questioning. The ongoing richness of the agenda for the Canadian IFRS Discussion group meetings, for example, indicates the range of uncertainty and diversity that can exist even within an advanced jurisdiction, let alone between less advanced ones. For now, I think it’s safer – until demonstrated otherwise – to think of IFRS as providing a shared reference point than a guarantee of comparability.

And that’s hardly a trivial achievement. My point here isn’t to be a Grinch, but rather to point out that overinflated claims about what’s going on here won’t be to anyone’s benefit in the long term. I mean, eventually the glitzy promise of Christmas is gone, and you’re back into the cold trudge of January. Oh, happy holidays by the way…

The opinions expressed are solely those of the author

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