When: 30 January 2019
Where: Meeting of the Trustees of the IFRS Foundation, Kuala Lumpur, Malaysia
At a stakeholder event organised in partnership with the Malaysian Accounting Standards Board in Kuala Lumpur on 29 January to coincide with the first meeting in 2019 of the IFRS Foundation Trustees, Chair of the Trustees Erkki Liikanen talked about the contribution of Malaysia and the Asia-Oceania region to the IFRS Foundation's work and outlines the key priorities for the Foundation.
Ladies and gentlemen, distinguished guests. On behalf of the Trustees of the IFRS Foundation I welcome you to this evening's event.
My name is Erkki Liikanen and I serve as the Chairman of the IFRS Foundation Trustees. The Trustees are responsible for the governance and strategy of the IFRS Foundation, and we oversee the standard-setting work of the International Accounting Standards Board. The Trustees meet three times a year in different parts of the world, and this week we are meeting for the first time here in Kuala Lumpur.
I would like to begin by thanking Minister Tuan Lim Guan Eng for agreeing to deliver the keynote address this evening. We all look forward to his comments. I also thank Tan Sri Azlan Zainol, Chairman of the Malaysian Financial Reporting Foundation, and Encik Mohamed Raslan Abdul Rahman, Chairman of the Malaysian Accounting Standards Board, for hosting this evening's event with us. Let me also acknowledge the invaluable contribution of Tan Bee Leng, Executive Director of the MASB.
This is my first Trustee meeting as Chairman, having recently retired as Governor of the Central Bank of Finland—a position I held for 14 years. During this time, I was fortunate to work with another longstanding Governor, my good friend Tan Sri Dr. Zeti Akhtar Aziz, former Governor of the Malaysian Central Bank.
Before that, I served as a Commissioner of the European Union at the time when the EU was considering whether and how to adopt IFRS Standards. I wasn't directly involved in that decision—instead I was overseeing the EU's approach to internet regulation. But the internet and IFRS Standards posed similar policy challenges for the EU. Both were international developments, created by technicians operating largely in the private sector.
Both were seen as innovative, market-driven solutions to global issues—the internet providing cross-border flows of digital information, whilst IFRS Standards provided cross-border flows of financial information. Moreover, both had their own governance arrangements which were new.
The European Commission took broadly the same view on both topics. We had no desire to create an EU version of the internet, and neither did we want to create an EU version of IFRS. That decision helped to establish a blueprint for IFRS adoption that has been followed by most parts of the world, including here in Malaysia.
As of today, 144 out of 166 researched jurisdictions now require the use of IFRS Standards for all or most domestic listed companies and financial institutions. Although there are some notable exceptions, almost nine out of ten jurisdictions have now adopted our Standards. That is 98% of Europe, 95% of Africa, 73% of the Americas and 100% of the Middle East. Quite a remarkable uptake in a relatively short period of time.
Asia is also a great IFRS success story. Our research shows that three-quarters of all jurisdictions across the Asia-Oceania region now require the use of IFRS Standards. That number is even higher if you include jurisdictions such as Japan that permit the use of IFRS. Moreover, the remaining major jurisdictions, such as China, India and Indonesia, are substantially converged with IFRS and are committed to completing this process.
However, widespread adoption of IFRS Standards across Asia is only half the success story. As Tan Sri Dr. Zeti has said in many speeches, Asia needs to be fully engaged in the development of international norms, especially in standard-setting bodies where Asia can bring to the table the perspectives of both emerging and developed markets1.
She raises a very important point. Asia is home to some of the most dynamic, high growth economies in the world.
Nearly 40% of Fortune Global 500 companies are now located in Asia – more than in any other geographic region. Because of this, those tasked with oversight of standard-setting bodies need to ensure that Asian views are represented at all levels of due process.
When it comes to IFRS Standards, this is very much the case.
Voices from across the Asia-Oceania region are well represented at all levels of the organisation and our various advisory bodies. The region is home to our only office outside London. Asia is also well represented within our Emerging Economies Group, of which Malaysia is a founding member, and the SME Implementation Group.
However, geographic diversity will only get you so far. Within the IFRS system, it is the best ideas that win the argument, regardless of where in the world they come from. According to IASB Chairman Hans Hoogervorst, here again we see excellent work from this region, and the MASB in particular.
A good example of this is the MASB's work on how to value specific biological assets. The MASB identified a particular issue here in Malaysia and in other countries in this region. They did some excellent research work, and managed very effectively the relationship with the IASB, and that led to amendments to IAS 16 and IAS 41. Another example is the MASB's intellectual leadership in the accounting for Islamic Finance transactions under IFRS Standards. We are grateful to Dato' Mohammad Faiz Azmi, former MASB Chairman, for serving as Chair of our Islamic Finance Consultative Group.
We also appreciate MASB's recent innovation to establish an MFRS Application and Implementation Committee, responding to local implementation questions and informing the IASB about matters that might require further consideration.
At a regional level, the Asia Oceania Standard Setters Group, another group of which the MASB is a founding member, has been an important development to encourage regional cooperation on areas of common interest, and to channel feedback into the IASB's standard-setting process.
This regional cooperation has been very important as companies across Asia-Oceania have prepared for the introduction of major new IFRS Standards, including financial instruments, revenue recognition, leasing and—most recently—insurance contracts. The AOSSG leadership is with us this evening. On behalf of the Trustees, I thank you for your support and cooperation.
So, given the high levels of IFRS adoption around the world, what should our priorities be for the coming years?
First, it is important to consolidate and build upon the achievements of recent years. We all see the developments in the world today—a backdrop of challenges to globalisation, and with it, the difficulties faced by multilateral institutions establishing global standards.
The IFRS Foundation is not totally immune to these pressures, but we are perhaps less affected than most—mainly due to the benefits that companies and investors see in everybody speaking the same, high-quality and globally accepted language of financial reporting.
This point was emphasised by respondents to the recent European Commission Fitness Check consultation on corporate reporting, with a large majority of respondents supporting the EU's long-term support for IFRS Standards as the global standard. The findings were broadly consistent with feedback from similar evaluations conducted elsewhere in the world.
When viewed from a longer-term perspective, the drivers of globalisation—including technology and the free flow of international capital—are unlikely to diminish or go into reverse.
Indeed, the importance of IFRS Standards to the global economy will continue to grow as investors and society in general demands ever higher levels of transparency, accountability and efficiency—the cornerstones of our mission statement.
Second, we need to ensure that IFRS Standards remain relevant in a changing world. IFRS is the de facto global standard in financial reporting. However, investors are not only interested in the pure financial statements. They also want to know about non-financial information—the company's sustainability and environmental impact—what sort of risks these companies face in the long term.
Ideally, they want this information presented in a consistent manner. According to a Financial Times article last week, almost seven in 10 asset managers say the lack of high-quality information is the biggest challenge in adopting so-called ESG principles2.
From an IFRS perspective, the IASB is working on a project to update its Management Commentary Practice Statement. Management commentary is a broad, voluntary framework that provides context for the financial statements. It guides companies in their development of the annual report beyond the financial statements and includes topics such as those sustainability issues that may affect a company's future financial results. The original Practice Statement was issued in 2010, so this latest update will reflect new developments in integrated and sustainability reporting, and particularly the growing interest in long-term value creation.
The IFRS Foundation is also cooperating with other bodies in this space, including the International Integrated Reporting Council, to ensure that we are aware of each other's work and developments.
Finally, there is the question of remaining relevant in a digital world. For many years, the IFRS Foundation has played an important role in the digital reporting space, by providing a Taxonomy to support the electronic filing and consumption of IFRS compliant financial information.
After a relatively slow start, we're now starting to see regulators around the world fully embrace electronic filing. However, there is more to do in this area.
The IASB has recently appointed a staff person to lead its technology-related standard-setting work. As part of this work, we will continue to explore how technological developments affect the way financial information is consumed and what this means for our Taxonomy strategy, as well as how technology-related innovations affect our standard-setting process.
At the same time, we will practice what we preach. Therefore, the IFRS Foundation is about to embark on its own 'digital transformation'. During the Trustees' meeting this week we are signing-off a long-term plan for the IFRS Foundation to completely overhaul its technology systems, and with it a plan to establish a roadmap for the 'digital experience' to be offered to stakeholders around the world.
Ladies and gentlemen, on behalf of the Trustees I thank you for your time and support. IFRS Standards are a great example of what can be achieved when countries work collectively to solve global challenges. Malaysia has been at the heart of this work, and your commitment is very much appreciated.
1Zeti Akhtar Aziz (2014): Towards realising the Asian century
2Financial Times (2019): Defective data is a big problem for sustainable investing (FT subscription required)