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Japan's Business Accounting Council advances discussions on IFRS

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24 Apr 2013

Japan’s Business Accounting Council (BAC) met on 23 April 2013 to continue its deliberations about the use of International Financial Reporting Standards (IFRSs) in Japan.

Following on from the previous BAC meeting in March, the BAC discussed directions and policy issues regarding the use of IFRSs in Japan. Although there was no formal decision made at the meeting, it was observed that there was no objection against the idea of lowering the existing regulatory hurdle for voluntary use of IFRSs by amending the eligibility criteria (see our IAS Plus jurisdiction page for Japan for details on the criteria).

The first part of the meeting was about the Accounting Standards Advisory Forum (ASAF). The chair of the ASBJ outlined the objectives and the members of the ASAF and then explained the discussions held at the first forum meeting that he took part in, particularly around the conceptual framework. A few questions and comments were made by the BAC members. During his explanation, the chair touched on the ASBJ’s plan to set up a new ASBJ technical committee on ASAF related work.

The rest of the meeting was spent on the use of IFRSs in Japan. The Financial Services Agency (FSA) official summarised the current situation surrounding IFRSs in Japan and globally and the views expressed by BAC members at the previous meeting. He then proposed that the BAC deliberate short-term directions to be followed by Japan, focusing on issues identified in the interim discussion paper issued in July 2012 by the BAC. It was also noted that the deliberation would need to reflect matters such as 1) the 2008 G20 communiqué about the single set of high quality global standard, 2) the need for international harmonisation of accounting standards, 3) the use of IFRSs in the monitoring board membership criteria, 4) provisions in the IFRSs that are problematic and/or under development, 5) the internationally uncertain environment such as the use of IFRSs in the US, 6) the need to enhance predictability as to the future state of the financial reporting framework in Japan, and 7) the varying cost-benefit balance among different entities.

In addition to the proposals above on broad directions, BAC member views were sought on short-term specific initiatives such as 1) lowering the regulatory hurdle for the voluntary use of IFRSs, 2) responses to uncertainty that may be faced in practice by using IFRSs that are principle based, 3) communicating views from Japan, for example by an effective use of the Asia-Oceania Office of the IFRS Foundation in Tokyo, 4) the need for an additional endorsement process to review each of the IFRSs individually, in addition to the current ‘designation’ process for IFRSs as issued by the IASB, 5) the need for an in-depth review of the provisions in IFRSs, to decide whether application of these is appropriate in Japan, 6) streamlining local requirements to disclose for separate financial statements in accordance with Japanese GAAP, and 7) any other short-term issues, including necessary measures to be taken by stock exchanges.

More than 15 members of the BAC expressed their views mostly on certain specific initiatives. On the first initiative, BAC members expressed support in general. On the second issue, one BAC member noted that applying any accounting framework requires professional judgment in practice. On the fourth and fifth initiative, which could result in a fourth framework of accounting standards in Japan (in addition to Japanese GAAP, designated IFRSs, and US GAAP, all of which are currently used in Japan), views by the BAC members were mixed and concerns as well as alternative ideas were expressed. On the sixth initiative, opposite views were expressed by the preparer representatives who favour a lessening of the burden and the user representatives relying on the information currently provided.

A BAC member asked about the timeline. After confirming that no objection was heard on the first initiative, the FSA official explained that deliberations on policy initiatives would continue. However, he expressed his expectation that a BAC opinion would be formed without spending too much time on the short-term actions. He admitted that debates as to actually mandating the use of IFRSs would require further time.

Handouts for the meeting are available on the FSA’s website (Japanese only). The next meeting date has not yet been announced.

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