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The journey of IFRS standards

April 2018


Hong Kong was one of the first jurisdictions to adopt International Financial Reporting Standards in 2005, and is now one of 157 that require or permit them. Nicky Burridge looks at the past, present and future adoption of global accounting standards, and whether the IFRS world map will ever be complete

Illustrations by Kouzou Sakai



Hong Kong-based conglomerate Jardine Matheson was one of the first international companies in the world to adopt International Financial Reporting Standards (IFRS) in 1993.

“The chameleon-like nature of Jardine [Matheson] made it a sensible thing to do,” James Riley, former finance director of Jardine Matheson and now Group Chief Executive of Mandarin Oriental, explained during a panel debate at a stakeholder dinner in January organized in Hong Kong by the IFRS Foundation and the Hong Kong Institute of CPAs. “We were registered in Bermuda, listed in London and Singapore, and had our main operating offices here in Hong Kong.

“It was an opportunity to make the statement that we were international, and the very different range of businesses we had in different countries, made international accounting standards the best means of having consistency across the globe,” he added.

But being an early adopter was not easy, and although Riley was not employed at Jardine Matheson at the time, he pointed out that the early years of IFRS were characterized by lengthy correspondence and debate between the company and the local standard setter over its implementation. One particular area of contention was investment property valuations. Riley said it was not until 2005 that Jardine Matheson’s market value was reflected in the accounts under IFRS.

The Institute has long played a significant role in the IFRS implementation journey, working to create a Hong Kong standard from the principles issued by the International Accounting Standards Board (IASB), and paying close attention to any aspects of the standards that may be challenging to understand or difficult for companies to put in place.

Christina Ng, the Institute’s Director of Standard Setting, explains that the work done by the Institute is particularly important when new standards impact a wide range of companies.

“We sit around the table with CPAs in practice and in business and look at what [about a new standard] is bothering them, whether there are any operational challenges,” she says. “Our role is to foster the discussion in Hong Kong on the implementation experience, and share that discussion with other standard-setters, including the IASB, to see what we can do about the issues and challenges.”

She adds that it is important that the standards are clear to ensure that when they are implemented, they actually work as intended. To assist companies in the implementation of new standards the Institute also sets up support groups and runs training and education seminars.


“It was an opportunity to make the statement that we were international, and the very different range of businesses we had in different countries, made international accounting standards the best means of having consistency across the globe.”

The big four

Four significant new standards have been introduced in the past six years – IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers, IFRS 16 Leases and IFRS 17 Insurance Contracts.

Hans Hoogervorst, Chairman of the IASB, also on the panel, joked about the challenges of getting these four projects to completion: “When I became chair of the IASB in 2011, [former chairman] David Tweedie told me that before I take office, all the big four projects would be finished. It is now six-and-a half years later and we have finally finished the last one.”

Standards on revenue recognition are now fully converged with United States generally accepted accounting principles (GAAP), meaning companies have the same top line all over the world, while from January 2019 all leases will need to be included on companies’ balance sheets, giving investors greater transparency over their true liabilities.

IFRS 9, the standard relating to financial instruments, came into force at the beginning of this year. Hoogervorst said: “This will force banks to treat bad loans more realistically and accept losses much more quickly, which I think is very important for investors.”

Ng says the standard on financial instruments required very little input from the Institute, but the revenue standard kept it much busier. “There was a lot of noise about it, including in Hong Kong, as there were some areas that were a little unclear,” she says.

She explains that one particular point of contention related to contracts with customers, and the point at which an entity gave up control of the goods and services they were providing to their customer and recognized revenue from it. “This concept is new in the context of thinking about the sale of goods and services,” Ng says. She adds that following dialogue with national standard setters, the IASB issued some changes to the standard to clarify the principles behind it.



Insurance standard

One controversial area has been IFRS 17, the insurance contracts standard, which was issued last year and will become effective from January 2021. “I believe [IFRS 17] to be the most important of them all, because insurance accounting is very diverse all over the world and often of very poor quality. This is going  to be extremely important for the transparency of the industry,” said Hoogervorst at the stakeholder event.

He explained that currently some insurance companies count deposits they receive to invest on behalf of their customers towards revenue, and under historical cost accounting they discount a life insurance contract from 50 years ago at an interest rate of 50 years ago.

“Interest rates are a bit lower these days and the true extent of the liabilities is much higher than what you get through historical cost accounting. These are just two examples of antiquated accounting methods, and these insurance companies have to provide non-GAAP measures to compensate for the poor accounting,” he said.

Ng agrees that IFRS 17 is important because there currently is not a consistent accounting standard for the insurance industry. But she adds that because different jurisdictions have different endorsement processes for IFRS Standards, some insurance companies in Hong Kong are concerned that there will not be a truly global standard and they will be disadvantaged in the global investment market.

The insurance industry is also worried there will not be sufficient numbers of actuaries to enable them to implement the new standard on time. The Institute remains in active dialogue with IASB to try to address these concerns.


“When I became chair of the IASB in 2011, [former chairman] David Tweedie told me that before I take office, all the big four projects would be finished. It is now six-and-a-half years later and we have finally finished the last one.”

More definitions

There are calls for the IFRS to become more prescriptive in the future about providing definitions for items on the financial statement. “This is something that investors have been asking us about for a long time,” Hoogervorst said.

He conceded that while IFRS defines revenue and profit and loss, it does not define much else, although the IASB is currently looking at providing principle-based definitions for more items on the income statement. “Both preparers and investors are interested in subtotals, things like operating income, earnings before interest and taxes (EBIT), adjusted EBIT, drilling down the numbers, and there we don’t define very much,” he said.

Melissa Brown, Partner at Daobridge Capital, and another panellist at the event, thinks this development would be very positive for investors, particularly given the rise in passive investing based on algorithmic strategies. “If you look at the trends [in investing] having something that is a bit more prescriptive that deals with very fundamental issues, where there is far too often a lack of clarity, is very, very important,” she said.

While there are parts of the IFRS framework that could benefit from more definitions, providing these is difficult to do in practice, Ng points out. “A definition has to have the capability to make something clear, but when we come to the real nitty gritty of what is operating income or what is EBIT, I think it is a tall order,” she says.

Ng notes that companies in different industries have different definitions for these items, depending on their core business. Another challenge, she adds, is coming up with a definition that is narrow enough to be useful but not so narrow that it cannot be applied across different companies.

During the panel debate, Hoogervorst said that there will always be value drivers for companies that cannot be adequately captured in the financial statements because they are hard to recognize and hard to measure, such as the value of intangibles.



The global future of IFRS

According to IFRS, 144 jurisdictions require IFRS standards for all or most domestic publicly accountable entities (listed companies and financial institutions) in their capital markets The U.S., however, continues to use its own standards. Hoogervorst does not think there will be convergence with the U.S. on accounting standards during his chairmanship, although he hopes that over the long term, they will come on board.

Ng sees some technical difficulties in convergence, pointing out that while IFRS is principles-based, U.S. GAAP is more rules-based and goes into a lot of detail on its application to a specific transaction. “Before I retire as a standard-setter it would be a great dream to see one true set of accounting standards for the world, but I think the U.S. has good reasons for why it can’t converge with IFRS now,” she says.


“From a market comparability perspective, it has improved the standing of Hong Kong-listed companies and increased their investment attractiveness.”

Despite the challenges IFRS has sometimes posed, Ng thinks adopting the standard has been beneficial to Hong Kong companies  due to the city’s status as a major financial centre. “From a market comparability perspective, it has improved the standing of Hong Kong-listed companies and increased their investment attractiveness,” she says.

Ashley Alder, Chief Executive Officer of the Securities and Futures Commission of Hong Kong, agrees. During the panel debate, he said the International Organization of Securities Commissions views the project as being “enormously successful,” leading to a high level of convergence.

For Ng, the main change she would like to see in the future is accountants having the courage to use their judgment more. She explains that too often people see accounting or financial reports as a compliance exercise instead of a useful tool to communicate with their stakeholders. This leads to what she describes as "a lot of boilerplate stuff" in which accountants repeat words and phrases from a standard but do not really tell the story of what the company is doing.

“It may be beyond our scope, but I think we could do something as standard-setters to change mindsets and behaviours among companies reporting and auditors practising under IFRS,” she says. “Forming judgments for accounting or reporting purposes is a thought process, and IFRS being a set of standards based on principles require a lot of sound judgment. In the early days of adopting IFRS, it may have been acceptable to be nervous about applying judgment. Hong Kong has adopted IFRS for more than 10 years now; making judgments should be our second nature.” 

Watch the Joint Hong Kong Institute of CPAs-IFRS Foundation dinner panel debate here


According to the IFRS website, 144 jurisdictions require IFRS standards for all or most domestic publicly accountable entities (listed companies and financial institutions) in their capital markets. All but one of those have already begun using IFRS standards. Bhutan will begin using IFRS standards in 2021.