The IASB and FASB concluded their joint roundtables on financial reporting issues arising from the global financial crisis with two roundtables held in the offices of the Accounting Standards Board of Japan (ASBJ) on the afternoon of 3 December 2008. The objective of the roundtables was for the Boards to hear input from a wide range of stakeholders on accounting issues that may require urgent attention to help enhance investor confidence in financial markets.

The Tokyo roundtable was divided into two 2-hour sessions. IASB Board Member John Smith chaired both sessions. As in other sessions it was noted that all next steps, in response to calls from constituents, will be considered jointly by IASB and FASB and following their due process. Therefore, no decisions were taken at these roundtable meetings.

The chairman of the ASBJ, Mr Ikuo Nishikawa, welcomed participants and observers to both sessions, while at the second session Dr Takafumi Sato, Commissioner of the Japanese Financial Services Agency, made some introductory comments that included strong support for global high quality accounting standards and the harmonisation between the IASB/FASB. He did not support the recent calls to reduce standards, indicating an expectation that accounting standards would result in fair and accurate reporting of financial position by issuers and a prompt recognition of losses. He expressed a strong view that due process must be followed, and he concluded that standard setters were best placed to create solutions. These sentiments were echoed by many of the participants.

Mr Smith indicted the objective of the roundtable was hear from participants about those issues that had arisen from the global financial crisis, to identify whether the issues were convergence issues, whether any 'fixes' were urgent or whether they could be dealt with as part of a longer term project. He noted that issues raised by participants in their written submissions were very similar to those raised at the roundtables in the US and UK, that he had received a clear message that due process must be followed and, accordingly, it was most unlikely any changes to IFRS would occur prior to 31 December 2008.

Topic 1 – Impairment Issues

Key discussion points around the triggers (what and when) and measurement of impairment included:

• The difficulty in identifying when 'significant or prolonged' had occurred, with some suggesting the test should be 'and' rather than 'or', that the temporary test in FASB should be introduced, and that entities should disclose their accounting policy for assessing significant and prolonged.
• Suggestions that the trigger for AFS debt instruments should be credit related, not just market, with credit related loss taken to P&L and remaining loss left in OCI.
• The difficulty in identifying trigger point for reversal of impairment losses generally , with suggestions that AFS equity reversal of impairments loss in P&L should be permitted with, perhaps, a trigger test similar to that required for impairment with some noting that the inability to reverse impairment losses caused reluctance to, or delay in, the recognition of impairment.

IASB Chairman Sir David Tweedie floated the idea of removing the recycling option (treat all AFS securities as trading) as this would overcome many of the impairment difficulties with all movements being recorded in P&L. This proposal did not receive much support although an IOSCO .member noted that IOSCO members were divided on the issue

There was no apparent appetite by participants for a quick fix in this area before 31 December 2008, with general agreement that any review should be comprehensive and longer term, although there was some support for a review of the impairment and measurement of AFS securities in the short term, with a shorter than normal due process.

Topic 2 – FV Measurement

Most participants felt the guidance issued by the expert advisory panel measuring fair value in an illiquid market was useful, with some suggesting a need for greater guidance around the use of discount rates. Others noted the difficulties auditors face in obtaining sufficient appropriate evidence to support valuations in illiquid or inactive markets.

Some participants commented on user misunderstanding about what was meant by fair value, and suggested the IASB develop ways to educate users about FV and why FV is used for financial reporting.

In terms of disclosure, some suggested a need for more guidance on what and when to disclose information, with mixed views on whether the IASB or industry groups were the best suited to produce illustrative disclosures. Some participants expressed concern with the ever increasing disclosure requirements which tends to reduce understandability of financial statements.

Topic 3 – Other Issues

CDOs. Not a great deal of support for anything to be done in relation to CDOs.

Hedging. Strong support for a total review and rethink on hedging accounting requirements, with a desire for simplification of the rules. Agreed any review would need to be comprehensive, it needed to have high priority, and probably could not be done in the short term and may need to be incorporated into any review of classification (see below).

Simplification of Classification. There was a fair degree of support for permitting redesignation out of the FV option, for example when there is a change in conditions for original designation. However, there was no agreement about the criteria to be applied to permit such reclassification. General agreement that this area need to be reviewed and was a long term project.

Pro-cyclicality. Mr Smith noted that accounting standards should show information to the market, good or bad. The was general agreement with that view, however the IASB was encouraged to review their approach in relation to provisioning which is based on an as incurred model, while many regulators require the application of an expected loss model for prudential purposes. The IASB indicated that it would appreciate gaining a better understanding of the expected loss model, referred to by some as dynamic provisioning.

Future Issues. Participants encouraged the IASB to give appropriate consideration to the following topics: hyper-inflation, foreign exchange translation, and definition of an active market.

This summary is based on notes taken by observers at the Roundtable and should not be regarded as an official or final summary.