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Interim discussion paper on IFRS is finalised by the Business Accounting Council of Japan

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02 Jul 2012

As reported in our 17 June article, the Chair of the Business Accounting Council of Japan (BAC) was in the process of gathering comments from BAC members on the draft interim discussion paper on IFRS presented at the 14 June BAC meeting, in deciding whether to hold a live meeting to finalise the paper. The paper was finalised, with a few wording changes to the draft, and released on 2 July. No live meeting was held in finalising the report.

The 13-page paper, built upon discussions by BAC members on IFRS since 2011, provides the following general summary of discussions, as well as broad direction on seven specific topics:

General summary:

The paper admits that 1) there are divergent views on a few issues, 2) no final conclusion has been made, both of which would require further deliberation to deepen discussions. In addition, key message in this section of the report is:

  • The effort toward international harmonisation of accounting standards should be continued, building upon already high-quality and internationally recognised state of Japanese GAAP.
  • In doing the above, the best approach of using IFRS is to be developed, based upon the following, by sufficiently considering its objective and impact on the economy and systems in Japan:
    • It should be permitted that accounting standards used for consolidated financial statements could be different from Japanese GAAP used in separate financial statements
    • IFRSs should not impact accounting by non-public small-medium sized entities.
  • Meanwhile, 1) continued measures are to be taken for convergence if appropriate in light of Japanese accounting standards, and 2) voluntary early adopters of IFRS are to be accumulated further
  • It is important to contribute to the development of IFRSs and to communicate Japan's view as appropriate.

Topic-specific summary:

The report reflects the diverse views expressed by BAC members at past BAC meetings and includes the following broad directions formed on each of seven topics:

  1. International harmonisation of accounting standards: Positive measures are to be taken for convergence to ensure that Japanese GAAP is of high quality and internationally recognised. In doing this, importance should be placed on matters identified in responding to the Agenda Consultation 2011 by Japanese constituents (the “response to AC”), including the concept of net income and the scope of fair valuation.
  2. Use of IFRS in Japan: The most appropriate approach of incorporating IFRS should be explored, reflecting the institutions and economy of Japan, also taking into account the international environment. In addition, it is necessary to identify acceptable and unacceptable requirements in IFRSs, using comments shown in the response to AC, which is to be further considered at practical level. It is important that the BAC refer to such in its future deliberations. There are also requests asking stock exchanges to segregate markets into one where IFRS is used and another with Japanese GAAP.
  3. Communicating views from Japan: It is important to continue contributing to IFRS Foundation/IASB in terms of human resources and funding. It is also appropriate for constituents in Japan to continue concerted efforts toward communicating views, with international coordination. It is  imperative for the satellite office of the IASB to be opened in Tokyo to be fully utilised in this regard. A coordinated effort through a forum such as the one formed on the response to AC should continue to be effective.
  4. Separate financial statements: It is realistic to permit that accounting standards for consolidated financial statements be different from Japanese GAAP used for separate financial statements that are more closely tied to Company Laws, tax laws and other regulations. In addition, it is appropriate to consider measures to ease the burden of disclosure in separate financial statements, by utilising requirements under the Company Laws.
  5. Non-public small-medium sized entities: IFRS should not impact accounting by non-public small-medium sized entities, consistent with existing policy.
  6. Voluntary application of IFRS: Although deliberation of the use of IFRS continues, voluntary use of IFRS are to be accumulated further. Such voluntary use would highlight practical merits and issues of using IFRS and initiatives to deal with them should be considered and implemented. It is also important to actively publicise internationally that the use of full IFRS is already permitted in Japan.
  7. Approach toward principle-based IFRS: Practical measures by prepares, auditors, and regulators need to be further considered, with an appropriate coordination among them.

The full report is available at the website of the Financial Service Agency of Japan today (in Japanese only).

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