Japan's Business Accounting Council discusses specifics of initiatives to promote use of IFRSs in Japan

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29 May 2013

Japan’s Business Accounting Council (BAC) met on 28 May 2013 to continue its deliberations about the use of International Financial Reporting Standards (IFRSs) in Japan. No decisions were made during the meeting while the BAC took another step toward concluding the debate.

Following on from the previous BAC meeting in April, the BAC focused on details of three specific initiatives to further promoting use of IFRSs in Japan.

The first initiative is easing eligibility to use of IFRSs voluntarily. The Financial Services Agency (FSA) official suggested permitting use of IFRSs by companies newly going to public as well as companies that do not own a foreign subsidiary with 20 billion yen or more of the stated capital, while retaining some other criteria such as one on entity’s readiness to use IFRSs. BAC members asked questions and made comments on this initiative but no critical new concern was expressed.

The second initiative is introduction of the 4th framework of accounting standards (in addition to Japanese GAAP, designated IFRSs, and USGAAP) that are to be developed through a new “endorsement” process. Handouts for the meeting suggests following three endorsement criteria and related specific subjects that may lead to modification from IFRSs in the process, as well as an idea to use ASBJ, the national accounting standard setter in Japan, as the endorser:

  • Conceptual disagreement eg. non-recycling of OCI & non-amortisation of goodwill
  • Practical burden eg. fair valuation of non-listed shares
  • Coordination with related institutions etc. (application is difficult or too costly in light of industry regulations) eg. unification of fiscal year-ends among group companies and affiliates

Similar to the previous BAC meeting, members are not necessarily supportive of introducing the 4th framework in near future as the additional set of accounting standards that an entity can voluntarily use. There were more questions and concerns expressed by members than voices supportive of suggested initiative. Even among those supportive (mostly limited to preparers), there were comments such that a) modifications to IFRS, if any, should be further limited than proposed in the handout, for example, only to non-recycling, and b) discussions around problems in IFRSs should be more internationally-oriented, rather than being discussed in local/domestic endorsement process. On the endorser, no member fundamentally disagreed with involving the ASBJ and some noted that the FSA should also be responsible.

On the third initiative of streamlining local disclosure requirements of separate financial statements in accordance with Japanese GAAP, the FSA official suggested to replace certain disclosures required under the Financial Instruments and Exchange Act with similar ones under the Companies Act where consolidated financial statements already provide information on a group basis, except for regulated industries for which other industry regulators are to be consulted. Again, similar to the previous BAC meeting, members were sharply divided. Generally, members representing users expressed concern about losing information while prepares showed a strong support of the initiative.

In closing the meeting, the chairman of the BAC noted that, at the next meeting, the BAC would conduct deliberations to finalise this round of debates, based on a summary paper to be provided by the FSA.

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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