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Opening remarks of the Chairman at the first meeting of the restructured SAC

23 November 2005

In his opening remarks to the first meeting of the restructured Standards Advisory Committee (SAC), Chairman Nelson Carvalho outlines the SAC's responsibilities in advising the International Accounting Standards Board and encourages improvements in disclosure and transparency.

 

OPENING REMARKS OF PROFESSOR L NELSON CARVALHO, CHAIRMAN, THE STANDARDS ADVISORY COUNCIL (SAC) AT THE OPENING MEETING OF THE RESTRUCTURED SAC, LONDON, UK

10 November 2005

Good morning, Ladies and Gentlemen.

First, let me warmly welcome you all to this meeting of the newly reformed Standards Advisory Council of the International Accounting Standards Board.

I hope that my introductory remarks will help to give us all a sense of direction and a common purpose for our work within the guidelines set out in the IASB Constitution of July 2005.

Let me begin by briefly revisiting the case for International Financial Reporting Standards themselves:

  • Entrepreneurs are expected to exploit their abilities to build, to manufacture, to service, to distribute;
  • And that needs proper funding.
  • Margins that yield profits incentivise entrepreneurship.
  • And in turn, profits incentivise investors and creditors.

The challenge in this entire equation is to achieve the lowest cost of capital possible.

Classical theory of finance teaches that, even more than fearing losses, investors and creditors fear the unknown – risks tend to contaminate prices.

Our very first task, indeed, the task of everyone involved in the standard-setting responsibilities in the business world, is therefore to reduce the unknown.

The question is how to accomplish that; the answer, albeit tough to achieve, is easy to identify – disclosure and transparency. Daylight is insuperable as a remedy for fear of the unknown.

Recognition of the economic events that transform the magnitude and nature of equities, then measurement of those events in the appropriate way and communicating them adequately to stakeholders – that is a summary of our mission in life.

A great part of this task lies upon the shoulders of the Board. But as SAC members we too have an important responsibility. Our role is to advise the Board on the right things to do as we see them.

International accounting standard-setting is not a business of playing around with debits and credits, nor is it an exercise in switching charts of account.

The Board’s job, and ours, is to help entities to tell economic events the way they really are. One might ask: what for? There is a clear answer: to help forecast cash flows and support sound economic decisions. In other words, to permit good business enterprises to attract properly priced capital so that entrepreneurs can create enterprises and, consequently, jobs.

Good companies that show investors and creditors how good they are become able to attract capital – which means that they become able to grow more and more.

I invite you to see the work we are doing here as an effort towards increasing employment, creating jobs, and ultimately contributing to economic development. This is the special way that the accounting profession and its stakeholders can contribute to the reduction of poverty and to wealth creation.

And how shall we, as members of the Standards Advisory Council, accomplish our part of this task? The answer is in one simple word: Speak. Speak your thoughts. Share your views. Talk.

This Council is not supposed to vote. The Board is here to listen. Its members will become frustrated if you don’t speak.

Do not feel intimidated by the apparent complexity of the technical details. If technicalities trouble you, don’t feel embarrassed. Details serve a useful purpose only when they lead to solutions. Details always hide both a problem and a suggested solution. Our job is to look for both and tell the Board what we found. We shall look for the problem, we shall look for a solution, and we will either agree with the Board’s views or tell them we see it differently.

Do not feel embarrassed if English is not your mother tongue. There are over 20 nationalities represented here in this Council, and native English speakers are not the majority by a long way—nor are they expected to be. Playing in the international field is a painful exercise. Native English speakers may raise their eyebrows when they hear their language being spoken with grammatical mistakes and strange accents, but those of us who were not born English speakers, when lost in the intricacies of a foreign language, may feel the equal discomfort of being unable to express our thoughts as articulately as we could in our own tongue. So do not think of the world as divided between "English and foreign languages", and remember that English is a foreign language to many.

Do not be afraid of making mistakes when speaking English, or embarrassed if you do—most of those who listen to you aren’t able to commit mistakes in any other languages but their own.

Speak. Share views. We are more interested in the quality of your opinions than in the correctness of your grammar.

The terms of reference of this Council call us to:

  • provide input on IASB’s agenda
  • also on project timetables
  • and to provide advice on projects, regarding practical implementation and application.

I must warn you that we shall experience some moments of frustration.

First, we certainly don’t expect that all these wise, expert and important people around this table share exactly the same views on every issue raised for our consideration – otherwise we would have no reason to exist.

Second, we certainly are not allowed to think that life began today. We have inherited commitments, agenda, appointments, compromises. These will have to be faced and managed as we meet them in the coming months and years. The world is not out there waiting for us to tell it how it should be run. We are finding a work in progress already started - our job is to finish it as adequately as we can.

We have a second role: that of Ambassadors to IFRSs. If we have disagreements within ourselves or with Board, there are appropriate routes to cross to overcome such disagreements.

In any case our goal is to support the answers given by the IFRSs as the best possible ones.

Another issue that occurred to me to alert you to is the time it takes to produce an IFRS. From inception, and that means when a subject is added to the agenda for development of a statement or standard, through to the time of issue in final form, we are talking about 2 to 3 years on average. If that seems slow to you, I might mention that in one country a particularly difficult issue was added to its standards board’s agenda in 1986 and the output came in 2000 – fourteen years later. The development of a standard can therefore be discouraging, because it is time-consuming, but it is necessary. The research supporting the draft and the due process in terms of exposing drafts for discussion may take a long time– and we must accept the facts of life in this respect.

In practical terms, what that means is that we shall not be debating what will come out in the next few months but rather what may come out in the next 5 to 10 years. If we understand those time frames, we will reduce our frustration.

On Education, you will be hearing about some initiatives. However, it should be stressed that the IASB and the IASC Foundation are not engaged in the business of education. It is neither their mission nor their mandate. But they well understand that education is far too important an issue to ignore and they will contribute towards that goal without getting committed to providing the education other stakeholders may be in better position to provide.

Out of the 6 stages of the standard-setting process, no less than 4 deserve or require our participation as a Council. These are: setting the Board’s agenda, commenting on the discussion papers and exposure drafts it publishes, and debating issues of implementation or clarification of an IFRS.

Broadly speaking, we are particularly well qualified to perform that role – we encompass preparers, analysts, auditors, academics, regulators, industry specialists and standard-setters. No other group has such strength of multi-disciplinary elements to exchange views and offer suggestions.

We have to avoid a few traps. First, we should not fall into the temptation of supporting adaptation instead of adoption of IFRSs. The UN covers about 195 countries – if adaptation is the route chosen by any fraction of that total it will spell failure for the ideal of establishing and implementing a sound, robust set of technically superior accounting standards.

A second trap to be avoided is the dominance of Board’s views. We are not to behave as a group of school boys and girls being lectured. We are to receive the Board’s input on issues, but we are required to develop our own views and more – to share them with the Board. We must limit ourselves to strategic issues – details are not our business, and the placing of commas is not our preoccupation. We are not the standard-setters – the Board is. We are here to alert the Board on whether, in our view, the standards it is setting are relevant and its approach is correct as each of us see it.

There is no way that the Board or I will be able to respond to each and every suggestion or comment any of you will make. The right and best place to look for answers to anyone’s comments is the basis for conclusions published with each standard. But much before that, please do respond to the discussion papers and exposure drafts published for comment. Please do have your constituents, if you have them, replying to those requests for comment.

Taking these steps will enable that your views to be taken into consideration. Also, do participate in round-tables and workshops – these are an efficient way of exchanging views and testing ideas.

I am assigned with the task of liaising between you and the Board, and between you and the Trustees. Please do not hesitate to contact me whenever you deem it necessary to bring matters to their attention.

Let’s prove that the wonderful group of people the Trustees have appointed as Council members is absolutely up to their mission – to provide valuable and sound advice to the Board.

Thank you.