Accounting standards: The Tower of Babel; Notion of single accounting language is not progressing smoothly

December 30, 2013 Leave a comment

December 29, 2013 5:24 pm

Accounting standards: The Tower of Babel

Notion of single accounting language is not progressing smoothly

The Tower of Babel, with its one-tongue culture, was a good idea that ended badly. The notion of a single accounting language – which should have similar appeal for investors – has not yet incurred divine wrath. But it is not progressing smoothly, either. International Financial Reporting Standards (or their predecessor rules) arrived in the early-1970s. Their usage took a big step forward when they became mandatory for EU-listed companies eight years ago. Today, they are deployed in more than 100 countries.That is the good news; weigh it against the bad. Some convergence projects with big outlier countries are making slow or erratic progress. Japan, for example, has not yet made a full commitment to IFRS, although some companies there do use it. US regulators look unlikely to permit domestic-listed companies to report under these standards any time soon. Meantime, the uneven interpretation of IFRS in corporate statements, especially in the banking and financial services sectors, has hampered comparisons during and after the financial crisis. Last month, the pan-European securities market regulator pointed to a slew of areas where shortcomings were evident – from the information on the use of derivatives to diverse criteria used to assess impaired assets. Investors could only despair.

But perhaps most worrying is the threat of slippage among even the faithful. EU interaction with the IFRS’s standard-setting board has often been fractious and muddied by political objectives. Now Europe’s status as the main IFRS user has prompted a push for more EU influence over this body. And that, in turn, risks opening the door to greater flexibility on how standards (in whole or part) are adopted in the bloc – unwinding some of the “single language” purpose of IFRS. So far, such threats have been kept at bay. But investors should stay alert: Babel was a cautionary tale.

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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