Global accounting standards clearly showed the dangers in the financial system, but most people simply closed their eyes to them, International Accounting Standards Board (IASB) chairman Hans Hoogervorst has claimed.
Speaking this month at the Asia-Oceania Regional Policy Forum in New Delhi, Hoogervorst said: “I remain convinced that pre-crisis IFRS delivered all the essential information for market participants to see that trouble was brewing.”
He continued: “IFRS requires just about everything to be put on the balance sheet, including special purpose vehicles and derivatives. So everybody could have seen that the banks were leveraged 30, 40 or even more than 50 times. Everybody could have seen that the banks had next to no tangible capital.
“In sum, IFRS clearly showed the biggest dangers in the financial system. But these dangers were so big and manifold that most people simply closed their eyes to them.”
He concluded: “Accounting in itself cannot overcome the periodic collective madness of financial markets.”
Later this year, the IASB will publish the impairment and classification and measurement chapters of IFRS 9, Financial Instruments, the replacement for IAS 39, Financial Instruments: Recognition and Measurement. “They represent the final elements of the IASB’s response to the global financial crisis,” Hoogervorst said.
The Asia-Oceania Regional Policy Forum is an important meeting of standard-setters, policymakers, regulators and government bodies in the Asian-Oceanic region.
Sally Percy is editor of The Treasurer