This is according to Ian Mackintosh, vice-chairman of the International Accounting Standards Board (IASB). He was speaking at a conference in Johannesburg jointly hosted by the South African Institute of Chartered Accountants (SAICA) and the International Financial Reporting Standard (IFRS) Foundation.
Mackintosh pointed out that although more than 100 countries in the world have already started applying and mandating the use of IFRS, including South Africa, there are several large countries that have yet to decide whether or not, and how to commit to IFRS, as decisions by policy makers in those countries are largely shaped by their views on the achievability of global accounting standards.
According to Mackintosh, the recent financial crisis provided a real-world example of the globally interconnected nature of national capital markets. "When the crisis began back in 2007, the International Monetary Fund reported that the US sub-prime crisis, as it was known back then, was
containable and posed little threat to the global economy.
"At that time, few policymakers realised the extent of interconnectedness and mutual dependence between advanced economies, while reconciling theory between developed and emerging economies. Post-crisis, policymakers are all too aware of how every national capital market in the world, even the largest, functions as little more than a satellite of the global financial system," he said.
Further, Mackintosh explained that recent research by international law firm Baker & McKenzie reported that the level of cross-border mergers and acquisitions transactions now exceed pre-crisis levels. The report further states that powerful macro-economic and political forces continued to provide impetus to the globalisation, and companies around the world were driven by their strategies to move into new markets and jurisdictions.
Consistent with this analysis, McKinsey & Co recently published their own research which showed that more than one-third of all financial investments are in fact international transactions. Moreover, they concluded that the total volume of global flows could triple in the next decade, powered by a combination of rising prosperity, the participation of the emerging world and technological progress.
"These reports, and many others like them, paint a picture of ever-increasing global transactions, undertaken by companies operating in a global marketplace, backed by investors seeking global opportunities and diversification. Against this backdrop, it is increasingly difficult to see different and often incompatible national accounting standards as anything other than a legacy of a bygone era. They add cost, complexity and translation risk to companies and investors operating in today's global marketplace," said Mackintosh.
Speaking at the same conference, SAICA's CEO Dr Terence Nombembe, emphasised the importance of a single set of high quality global accounting standards, stating that this is what the G20 has been calling for, over the years, to ensure all companies around the world report in the same language that is understood universally by preparers and users of financial statements. This facilitates global investment and helps to regulate capital markets.
"I would like to congratulate South Africa, precisely the JSE on their strong regulation of the capital markets and their foresight in requiring and monitoring compliance of company financial statements in terms of IFRS. This has resulted in the JSE being ranked number one for a number of years by the World Economic Forum's Competitiveness Survey.
"I would also like to commend South African companies for their commitment to excellent financial reporting in terms of IFRS as well as the audit profession for the assurance role they provide to the shareholder, investor and user community - resulting in South Africa being ranked number one in the world for the quality of its accounting and auditing standards for four years by the World Economic Forum's Competitiveness Survey," said Dr Nombembe.
