As chair of the London-based
International Accounting Standards Board, Sir
David Tweedie is championing an effort to develop
a single set of global financial reporting
standards that will be both understandable and
enforceable. More than 100 countries now require
or permit the use of International Financial
Reporting Standards developed by the IASB. Before
taking on the convergence mission, Tweedie served
as the first full-time chair of Britain’s
Accounting Standards Board. He was knighted in
1994 for his service to the profession and his
efforts to reform British accounting standards in
the wake of financial scandals. Tweedie spoke
recently with Journal of Accountancy
Publishing Director Geoffrey Pickard about
convergence issues and the future of accounting.
JofA: What do you think the
IASB’s biggest challenges will be over the next
three to five years?
Tweedie: Right now, just
over a hundred countries require or allow
companies to use the IASB’s International
Financial Reporting Standards (IFRS). In five
years that figure will probably have risen to 150
We have a major convergence
program with the Financial Accounting Standards
Board based on the idea that if the U.S. has a
better answer, we should have it—and vice versa.
Our two boards made an agreement with the
SEC that, rather than making sure that every
single detail in our respective standards was
aligned, we’d divide the standards into two sets:
one for which we should just pull the principles
into line because the standards were basically OK,
and the other set where we both had outdated
standards, which we would replace by writing new
So by 2011–12, U.S. and
international accounting should be pretty much the
same—with 150 countries using IFRS and several
others using U.S. GAAP. That adds up to about 170
countries accounting in much the same way. So, by
then, if you’re a company in one of the remaining
50-odd countries, you’re going to have a problem
attracting finance. The idea of one single set of
standards for use around the world is gathering
momentum. And that’s why it’s important, I think,
for the U.S. profession to look at what’s
happening internationally, because it’s coming
your way, just as the rest of us are watching the
U.S. because we’re moving together.
JofA: Is comparability
surfacing as an issue as countries adopt
International Financial Reporting Standards with
a national flavor?
Tweedie: It is. At the
IASB we are increasingly concerned about doing
what we call “protecting the brand.” You can see
the importance of this in looking at Australia’s
experience. When they switched to IFRS, the
Australians called them Australian International
Financial Reporting Standards. They are actually
IFRS, but nobody thinks they are because they’ve
got Australian in front of their title.
So now the Australians are going to remove the
people, if they use IFRS, to say so.
other problem we have is a country that says that
its standards are based on IFRS. Well,
what does that mean? We are investigating this,
and I think there is going to be some naming and
shaming. My advice is, if you don’t use IFRS—the
real thing, undiluted—don’t confuse the markets by
using the brand name.
JofA: In July, Zhang Wei-Guo,
chief accountant and director general of the
Department of International Affairs of the China
Securities Regulatory Commission (CSRC), becomes
a member of the IASB board. What prompted that
Tweedie: China initially
showed little interest in using international
standards, but as the economy continued to grow,
the Chinese needed outside investment. But that
was a problem partly because, quite frankly,
investors were scared of the accounting risk—they
did not understand Chinese accounting. China
wanted to join the global accounting community,
but that meant having to build a profession.
The scale and speed of change is remarkable. If
I give a lecture in China, all I can see in my
audience are relative youngsters. This is a
profession of the under-30s.
have told us that for reasons related to their
legal framework, they can’t just take our
standards, but what they have done is take the
principles out of these standards, put them into
the law and then issued mandatory guidance for the
We’ve said, ‘Well, you can only
claim to be compliant if you get the same
And the Chinese are checking up
on that. Hong Kong has adopted IFRS, and its
business community is very keen that mainland
China should also comply with IFRS. So there is a
lot of discussion between the Ministry of Finance
in Beijing and the Hong Kong standard setters to
make sure that the whole of China is in line.
JofA: You’ve been quoted as
saying that principles-based standards are
something that you would be able to explain to
your Aunt Tillie in just a few sentences. Do you
think that current IASB standards meet this
Tweedie: No, I don’t,
certainly not all of them. They’re more
complicated than the standards we used to have in
the U.K. U.K. standards weren’t perfect, but we
didn’t have a lot of problems with them.
What worries me now is that I’m not sure the
auditor can do an audit without referring back to
a specialist. That doesn’t seem right to me. I
don’t think accounting is rocket science. But we
sometimes make it look like it is.
you look at what we’ve done with financial
instruments, you find that we’ve got all sorts of
exceptions and exceptions to exceptions. Not just
in the U.S.—we’ve got them in IFRS, too. The rules
have become so arcane that they are being
interpreted by specialists in specialist
departments. In the end, you find that only a tiny
group of people is capable of understanding one
standard. Well, that’s just crazy.
it like that? Part of the reason is that people
don’t like volatility. They don’t like the answers
that simpler accounting standards would give.
Therefore, they try to get around them, and very
soon an avoidance industry springs up and standard
setters and regulators have been only too ready in
the past to respond by adding further layers of
complexity by devising anti-avoidance rules. And
vested interests press to get the standards
changed by inserting exceptions.
JofA: In the U.S., FASB and the
AICPA are collaborating on private company GAAP.
What are your thoughts on this initiative?
Tweedie: This is very
similar to what we’re doing. I think this is
something that we will certainly look at because
when we move towards issuing our standard on this
some time next year, we shall look at the U.S. and
see how you have treated issues such as income
tax. Perhaps the U.S. has got a better answer, in
which case we shall be perfectly willing to change
ours over time.
We know there’s not so
much international trade involving smaller
companies, but there is some, so it would be quite
useful if, again, we had a similar standard.
JofA: There has been a concern
in the U.S. about auditability of some fair
value measurements. Are concerns about
auditability as strong in other parts of the
world? And how does the IASB ensure the
auditability of information it requires in
Tweedie: That’s a very
interesting question, because I think the rest of
the world would be surprised that you asked it.
After all, you’ve got deep and liquid markets, so
what about the rest of us? We have taken your fair
value standard SFAS 157, put a cover around it and
published it as a discussion paper, saying, ‘Look.
This is what the U.S. does. Do you agree with it?
Could you operationalize it? Is there more
guidance you need?’ We’re in the process of
getting the answers back now. We will then look at
the responses and decide what to do.
JofA: Has the IASB determined
whether the development of requirements for
management commentary should be a priority and,
if so, whether the IASB would develop a standard
or non-mandatory guidance or both?
Tweedie: We have published
a discussion paper, which was written by staff
from the standard setters of Germany, New Zealand
and the U.K., and from the Canadian profession. It
got a pretty favorable reaction. The topic is not
yet on our agenda. So we have asked the national
standard setters to consider the responses and
recommend what we would have to do to progress to
an exposure draft.
regulators worldwide get a bit nervous about
standard setters prescribing what should go into
management commentary. I suspect that if we were
to issue guidance, we’d start off with a document
that wasn’t mandatory.
Actually, I think
this is the future of financial reporting. I often
say about IAS 39 (the standard on the recognition
and measurement of financial instruments) that, if
you understand it, you haven’t read it
properly—it’s incomprehensible. Many people are
bemused by the standards, so we need to explain
what the accounting effects mean. Furthermore, as
standards remove smoothing devices and reflect the
real economics, we need a vehicle to enable
managements to communicate to the outside world by
giving their interpretation of the results.
JofA: XBRL is and has been an
exciting phenomenon in the U.S., and it’s
spreading globally. As you know, SEC Chairman
Christopher Cox has committed more than $50
million this year to help to advance that. The
Netherlands has implemented XBRL for statutory
reporting. Do you see similar public and private
efforts in other countries?
Tweedie: This is going to
spread. Chairman Cox actually has done us all a
favor by pushing this issue in the U.S. But it was
already starting elsewhere. At the IASC Foundation
we have had an XBRL program running for some years
now. One of the things we have to do is make sure
that we don’t have two XBRL taxonomies for
financial reporting running internationally. So
this is another convergence issue and one that we
are working on to make sure that people using our
XBRL system use exactly the same terms as the U.S.
The central banks are looking at it
worldwide. Other countries are going to look at it
for filing purposes. This is taking off. And it’s
going to make a huge difference as people can
drill down into the information.
JofA: The joint conceptual
framework will serve as a basis for U.S. GAAP
and IFRS. Similarly, the Enhanced Business
Reporting Consortium is developing a structured
framework for non-GAAP information. Has the IASB
addressed this issue and, if so, what’s your
current thinking about a non-GAAP framework?
Tweedie: We haven’t done
much in non-GAAP information mainly because we’ve
been so busy trying to make sure we’ve got all our
existing standards in good shape. However, this is
obviously going to be an important topic for the
future. Again, it’s tied up with the management
commentary. What important drivers and other
aspects of a company’s performance and financial
position should we report? I can see this being
the next major issue after the conceptual
JofA: Talk about GAAP
convergence. In 2002, the Norwalk Agreement
between the IASB and FASB was to move toward a
convergency—U.S. GAAP and IFRS. Are you
satisfied with the progress of this convergence?
Tweedie: Well, we weren’t
until recently. Take income taxes—we’ve already
spent two or three years on it, and we still
haven’t published an exposure draft. We thought
that, if we continue like this, we’ll get our
standards converging in something like 20 years’
time. And people will not wait that long.
So that’s where I think the SEC and the FASB
helped us enormously by saying, ‘Look. Why don’t
we accept that removing every difference will take
too long? We still want to converge. It is a
process. In some cases we need only to change a
principle or two. Forget the detail. Where we
realize that we’ve both got some pretty outdated
standards, let’s jointly write the new ones.’ So
this is the new program.
And for example,
in April we (met) the FASB in London, both boards,
full boards, (met) together for a couple of days.
We do this twice a year. In October, we come to
Norwalk (Conn.). There are good relationships
between the boards. We swap papers—the FASB staff
writing them for us; and we’re writing papers for
the FASB. I think this is the way the future is
going. Gradually, we’re going to pull this all
together. There is no point having two different
JofA: How is the rest of the
world reacting to what you just said?
Tweedie: They’re jealous,
frankly, because they see two gorillas out there
and they’re in danger of getting squashed between
You know we have people saying,
‘Well, we’re as important, so we’d like to make it
And the answer is, ‘Sorry.
Not many people are following your standards. A
lot of people are following U.S. GAAP and a lot of
people are following IFRS. But join in and help us
both to write the “gold” standard for the world.’
This is one of the reasons I see the IASB’s
members increasingly coming from many countries
not previously represented on the IASB—there are
big economies around the world that are not
represented on the board, or not well represented.
You can see them saying, ‘We want to come in, and
we also want to have a big say in the future.’ And
I suspect that the
trustees who oversee the IASB are going to look at
that. If countries put forward the right people of
independent mind who are genuinely seeking to
improve financial reporting, there’s a fair chance
those people will be selected for the board. But
I’m sure that there will always be a solid core of
Americans on the board because you’ve got a huge
economy, and that makes sense.
JofA: If your 2009 convergence
target isn’t met, some argue that non-U.S.
companies should not have to do the IFRS to U.S.
GAAP reconciliation. Some in the United States
would argue that this could put U.S. companies
at a significant disadvantage. Do you agree?
Tweedie: No, I don’t think
I do, because the standards are moving rapidly
towards each other. The danger, I think, is that
if the reconciliation requirement is not removed
there will be political pressure elsewhere to say,
‘Well, let’s stick it to the Americans. We’ll make
them reconcile elsewhere.’ That would be a
complete waste of resources. I think the SEC is
genuine in proposing the removal of
reconciliation, provided that our standards are
good enough, are being applied properly and the
convergence program is continuing.
Chairman Cox put it very well in envisaging
removal of reconciliation provided that the SEC
can see continued cooperation and clear narrowing
of differences—and we’ve got a base that the
standards are pretty similar as it is now—and
provided the accounts are audited properly—that’s
going to be a key question. There will be no use
for people to claim, ‘We use IFRS,’ when they
don’t. I think the SEC could come down very
heavily in such cases, and we’d be quite happy
about that for companies when, quite frankly,
they’re not telling the truth. All of this is
going to put pressure on the regulators, too, to
make sure that the auditors have done their job.
So I think it’s a very helpful exercise, and that
the United States has been very open and very
international in this.
JofA: In the United States, the
efforts of the Financial Accounting Foundation
and the AICPA and others have been focused on
keeping FASB independent of the political
process. How are politics going to affect what
Tweedie: Oh, it affects it
all right. People say that standard setters are
not affected by politics. Of course, we are. Like
politics, standard-setting is the art of the
possible. You know, you can lead from 20 yards
ahead. But if you’re two miles ahead, you lose the
troops. And we’ve got to make sure that we bring
people along with us and take the long view. So we
get politics all right, as does the FASB. The FASB
has done a pretty good job of standing up against
it. But we get it, too.
I think one of our
problems is when the European Union decided to
adopt our standards—which it decided in 2000—it
was a decision made with great courage and, as I
expect many would admit, in almost total ignorance
of what exactly the existing standards required.
I think that in principle it was an obvious
and sensible decision because Europe could not
have produced a set of standards in five years
from scratch. They just couldn’t have done it. So
it was the sensible thing to do. But when, for the
first time, people in Europe started looking at
the standards, they said, ‘Oh, my goodness, IAS 39
is a FAS 133 type of thing. We hate it.’
So did we have fights? Yes, we had massive
fights. And eventually the European Union carved
out part of our standard on financial instruments
by making it optional.
We had a real
standoff with them. We refused to change the
standard. And that’s why they took this bit out.
And that’s why the EU refers to our standards as
IFRS ‘as adopted by Europe.’
JofA: You are a full professor.
We have some challenges in the U.S. in
attracting young people into the profession. Is
this a problem you’re seeing in your country, or
more importantly, in other parts of the world?
Tweedie: No, not really. I
think it’s fun enough. The scandals that we have
seen in recent years are often attributed to
accounting although, in fact, I think the U.S.
cases are corporate governance scandals involving
fraud. If anything, however, the scandals have
made accounting more exciting to people.
Where I take issue with universities is in
their teaching of accounting standards. They do
that to help their students with their
professional training. I think the universities
should be teaching them to think. I see all these
kids learning all the rules about leasing and I
think, some day soon, we’re going to get rid of
all those rules.
If we move to
principle-based standards, those students are
going to have to come back and say, ‘Well, how do
I do this?’
When I was a young accountant,
we didn’t have any standards in the U.K., so you
were on your own. And it was the old partner, with
a lifetime of experience and judgment, who was the
guy who got you through the challenges of
As we start pressing on
judgment, we’re going to bring the professionalism
back. I don’t think we’re professional enough in
the profession at the moment because we ask our
colleagues to learn a huge amount of rules. And a
lot of them don’t make sense. The question ‘Where
does the profession go from here?’ is one that we
need to confront now, because I don’t think we can
continue going in the direction we’ve been
traveling for many years.