Hans Hoogervorst’s Ken Spencer Memorial Lecture: “Building Trust in Financial Markets: Accounting and moral hazard”

IASB chairman Hans Hoogervorst delivered his speech in Ken Spencer Memorial Lecture titled “Building trust in financial markets: Accounting and moral hazard”. In his speech, he takes a closer look at the moral hazards while people dealing with people’s money. In his lecture, he explores the questions and the role of accounting and their effects on moral hazard.

According to the IFRS foundation constitution: the primary goal of IFSR is setting up standards for high quality, transparent and comparable information in their financial statements so that the investors and stakeholders can make informed decisions. Nevertheless, he further clarifies that the overall vision of IFRS is far ahead that previously mentioned. According to Mr. Hoogervorst the complete vision of IFRS is “building trust in financial markets”. He added: this can only be possible by minimizing the moral hazards through discipline and information assimilation.

Further, Mr. Hoogervorst represents some historical achievements of what IASB performed in this area. He mentioned that the current combat in the ‘lease project” where the leasing project is all about the understatement of liabilities. He also pointed that there was a strong resistance against the liabilities in the balance sheet and he did not have any confusion about discussing the leasing liabilities in the boardroom along with the investors.

However, he also mentioned that sometimes IASB can’t manage everything properly. For example, he mentioned that the incurred model for impaired financial assets was designed for preventing earnings managements by banks. Anyway the global financial meltdown depicts that the model can actually be used to delay showing the true financial condition of companies. Remarkably, Mr. Hoogervorst can’t agree to connect the financial crisis with the current discussion on reintroducing the “Conceptual Framework”.

Finally Mr. Hoogervorst concluded about governance and moral hazard. He raised the question that whether IASB can put pressure on private interests? Lastly, he pointed out the public governance structure and its relation to avoiding the moral hazard. He mentioned the public sector accounting where the public sector accounting standards controlled by the jurisdictions and public authorities.