Christopher Coles, Director of Taught Postgraduate Degree courses for Accounting & Finance, summarises a recent guest speaker event featuring Sir David Tweedie, a renowned figure in the accounting profession.  

Every year, the Accounting and Finance subject area invites a number of guest speakers to give talks on matters of interest to staff and students alike. Initially, the talks were intended as a way to enable postgraduate students to network with each other, but they have grown in popularity and nowadays, undergraduate students and students from other subject areas in the Adam Smith Business School are also invited. These talks have dealt with matters as diverse as risk management in banking, corporate finance for small and medium sized enterprises, Islamic Finance, and human rights in business.  

One of the recent guest speakers was Sir David Tweedie, a highly eminent figure from the world of financial reporting. Sir David, the current Chairman of the Institute of Chartered Accountants of Scotland (ICAS), visited the University on 11 February 2013 and presented a talk on International   Financial Reporting Standards (IFRS). He is also former Chairman of the International Accounting Standards Board (IASB), a post which he held from 2001 till 2011. During this decade, IFRS rapidly became the favoured system of accounting standards for most of the world. As a “principles-based” system, it proved highly adaptable and more ready to cope with the changed circumstances of globalisation when compared to alternative, rules-based financial reporting systems.  

IFRS was designed for global usage and its prevalence leads to increased benefits for business, for investors, and for governments alike. The benefits of global adoption of IFRS include greater   transparency in the detail of accounting reports, greater worldwide consistency in the application of standards and improved comparability between business entities’ results. IFRS has also reduced business costs by replacing several different national systems with one widely-applied method of reporting   company performance, thus facilitating investment decisions. The replacement of former national standards has also freed up national standard-setting bodies from the burden of preparing new standards to meet changed circumstances. In most cases, newly adopting nations will incorporate IFRS into their pre-existing accounting standards framework and to some extent this relieves the need for national governments to oversee regulation and continued amendment of financial reporting rules in their own jurisdictions.  

Yet the decade of Sir David's stewardship was also a turbulent one, marked by te ongoing global financial crisis which started in 2007...

During Sir David’s stewardship of the IASB, adoption of IFRS grew strongly.   More and more nations subscribed to IFRS either in whole or in part, and nowadays almost 100 nations use it; these include nations such as Germany, France, South Africa and China. Growth continues, with both less-developed and developed nations joining; as an example, Japan is likely to fully adopt IFRS in favour of its existing compliance with American Financial Reporting Standards (FRS) within the next few years. Yet the decade of Sir David’s stewardship was also a turbulent one, marked by the   ongoing global financial crisis which started in 2007, and one very important nation in particular (the USA) has not shown the same level of enthusiasm for IFRS. In his talk, Sir David referred to the longstanding issue of breaking down the barriers between IFRS and the American FRS. Whilst a great deal of work on “convergence” and ironing out certain differences in treatment between FRS and IFRS has taken place throughout the decade, progress has been cautious. It remains to be seen if America (especially “small town” America) will become an enthusiastic participant in IFRS. This process of convergence (and not adoption) between IFRS and FRS is not helped by the voluminous documentation surrounding (rulesbased) FRS and by the huge size of the US domestic market. Indigenous US firms, not engaging in any international trade, display a reluctance to exchange their home-grown FRS in favour of a “foreign” import.  

Sir David pointed out that three key areas of financial reporting remain as stumbling blocks to the progress of convergence; these are:  

1) the recognition of revenue
2) accounting for leases  
3) accounting for financial instruments.  

To the outside observer, it might seem strange that so much time and effort has been expended over getting agreement to consistent treatment of such matters, but these matters are very important; for example, the financial service industry has suffered a great deal as a result of the financial crisis and mark-downs of financial assets inevitably lead to weak balancesheets and reduced confidence in the viability of such entities.

As to the future, there remains much work to be done, not only in convergence but also in connection with scrutiny of earlier standards which now require updating. More countries will join IFRS but Sir David referred to the “diminishing returns” likely to be seen in the future, given the great progress made since 2001.  

Sir David’s talk was very well received by staff and students alike. He made some interesting observations, such as the issue of businesses leasing rather than owning assets in order to   present favourable performance ratios to potential investors. Leasing is so prevalent in some industries that he pointed out that he had not flown on an aircraft actually owned by the airline   whose livery it carried! We are very grateful to Sir David for providing such an insightful and entertaining talk.