IFRS in difficult times: let’s all go to the dogs?

Notes on IFRS as enlightened self-interest, a recent speech by IASB Chair Hans Hoogervorst

Here’s an extract:

  • You have probably heard of the familiar curse: ‘may you live in interesting times’. Although this proverb is usually attributed to ancient China, it is actually nowhere to be found in Chinese literature. The closest Chinese proverb I have been able to find dates from the 17th century. It says: ‘Better to be a dog in a peaceful time, than to be a human in a chaotic period.’
  • Whatever the origin of these words of wisdom, it is clear that both proverbs apply to current times. The world order as we knew it is evidently under pressure. Transatlantic relations have never been as rocky as currently is the case. Brexit was a rough reminder that an ever closer European Union cannot be taken for granted. While one of the main motivations for Brexit was for Britain to close free trade deals with the rest of the world, the prospects for such deals are worsening by the day. We are seeing a strong resurgence of protectionism and the rule based trade system of the World Trade Organization is in grave danger.
  • When global standards are under such pressure, it is fair to ask how IFRS Standards are faring in these difficult times. The answer to this question is: surprisingly well, but we cannot take our progress for granted.

I realize it’s futile to analyze such things too deeply, but just for the sake of the exercise, I might have counselled more reflection on whether the current chaos described – which I’m certainly no admirer of – is sufficient, even for passing rhetorical purposes, to make a human life (that, say, of Hoogervorst himself) inferior to that of a peaceful dog. The proverb seems to speak to war and anarchy: one source explicitly finds it arising from thirst, hunger and homelessness. Looked at that way, the citation is a bit glib and tasteless. Anyway, this is the passage that drives the title of the speech (we touched on some of the background in a recent post):

  • We are a private body and our Standards are not binding. We cannot impose anything and the adoption of IFRS Standards is nothing but the free choice of sovereign jurisdictions.
  • Given the voluntary nature of IFRS adoption, we like to believe that the adherence to our Standards is a reflection of the quality and inclusiveness of our work. More importantly, most of our stakeholders resist the temptation of modifying our Standards as a consequence of what the Dutch call ‘welbegrepen eigenbelang’. In English this means literally ‘well-understood self-interest’, but it could also be translated as ‘enlightened self-interest’.
  • Acting in ‘enlightened self-interest’ means foregoing a smaller self-interest to achieve a bigger self-interest. Even when our stakeholders may not agree with certain aspects of our Standards, they know it is not in their ‘enlightened self-interest’ to modify them. They know this could set in motion a process of gradual balkanization of the world of IFRS Standards, undoing the benefits of a single set of global standards.

The problem though is that such a broad concept of “enlightened self-interest” could be applied to almost anything at all. For example, you may feel you have a strong interest in killing your neighbour, but considering the consequences, it’s in your enlightened self-interest not to. You may have an interest in getting blind drunk tonight, but if you have to work tomorrow, it’s in your enlightened self-interest not to. In other words, in any situation of competition between competing goals and desires, you could cite enlightened self-interest to explain or characterize the decision you reached. Of course, as life is full of such decision points, all navigated with different degrees of deliberation and consciousness, assessing self-interest with different degrees of subjectivity, the concept in itself can tell us nothing.

It follows that to a Brexiter, say, (or perhaps to a body rattled by Brexit) an analysis based on enlightened self-interest might just as easily go in the opposite direction from that indicated by Hoogervorst  – to conclude that even though they agree with large aspects of the benefits of a single set of global standards, the dangers of unfettered globalization and capital movement, coupled with an undermining of national cohesion and identity, suggest as a matter of enlightened self-interest that an assertion of accounting self-determination is appropriate, even if largely symbolic. That may seem dumb to you and me, but citing “enlightened self-interest” isn’t going to help the other side realize it. Ultimately, it’s a malleably empty phrase, like “seeing the big picture,” or “doing the right thing.”

I would concede no ground on something like this. The necessary premise isn’t that it’s in one’s enlightened self-interest not to modify a particular standard, but that there isn’t even a realistic “smaller self-interest” to be gained from doing so. Of course, it’s appealing to be empathetic and conciliatory, but it’s also important to call out chaotic thinking for what it is.  For as long as we’re unlucky enough to live through it as humans, that is…

The opinions expressed are solely those of the author

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