In June, Sir David Tweedie will retire as chairman of the International Accounting Standards Board, a position he has held since the organization's inception 10 years ago. We recently asked him about the future of accounting.
Some critics grumble that if the United States does not adopt IFRS, it should be ousted from the IASB and the board of trustees. What's your opinion?
I get quite angry at some of the comments we get insisting that the United States be ousted. People say that America would have to come around because the U.S. share of global-market capitalization is falling all the time. The complaint is, "We're not having [the United States] tell us what to do if they don't use international standards." I can understand that, and you can have international standards without the United States. But you can't have global standards without the United States. So there is more work to be done on that issue.
What's been your experience with professional judgment? Many U.S. practitioners say a heavy reliance on judgment won't work in America's litigious environment.
As a technical partner at KPMG, I was always being asked to evaluate situations that were outside of issued guidance. It's the same in the United States — you get questions you've never thought about before, and there's nothing in the standards addressing it. So you kick it around with the client, the client partners, and other senior partners in the firm. You come up with a position.
[My approach was to] ring up Deloitte, for example, and say, "Have you had one of these [situations]?" There is sort of a technical-partner mafia that gets together and says, "Yeah, we had one of these." So, in a way, the profession fixes the problems.
At that point, I wrote down my final views, who was involved in the discussions, and asked myself if any other accounting treatment could have worked. I would think about whether [the answer and process] could be defended against a grievance claim. You may make the wrong call, but you have to make sure there isn't any negligence. That certainly protects you in the UK, and from what I've heard it will protect you in America as well.
You plan to do more teaching at the university level. Does what you just described pertain to accounting education?
I don't think you should teach the standards. I think you should teach the conceptual framework and then discuss why certain standards have not followed the framework. Ultimately, students will face something they haven't seen before, and they either will request a ruling — which is why you've got thousands and thousands of pages of U.S. GAAP — or they will use judgment. I think it should be the latter.
Your replacement at the IASB, Hans Hoogervorst, is a career politician and regulator. Is this a shift in how the IASB regards that position?
At the moment, the functions of promoting the organization and producing the standards are all rolled into one. I've had to travel across continents for weeks at a time, and if those kinds of requests come in all at once and you're also trying to run the show, it's almost too much. Hans has the right background to meet with all [relevant] groups on their own terms [while vice chairman Ian Mackintosh will focus on standards].