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Japan's Business Accounting Council continues discussions on IFRS

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13 Jun 2013

Japan’s Business Accounting Council (BAC) met on 12 June 2013 to continue its deliberations about the use of International Financial Reporting Standards (IFRSs) in Japan. Although it was previously suggested that this meeting would be the final one to conclude this round of debates, the BAC continued discussions around further details of three specific initiatives to further promote use of IFRSs in Japan. As such, no decisions as to its report were made during the meeting.

The first initiative is easing the eligibility to use of IFRSs voluntarily. The Financial Services Agency (FSA) official presented a summary of views expressed by the BAC member on this initiative and proposed to relax regulations to permit the use of IFRSs by companies that take the step of going 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 the one regarding the entity’s readiness to use IFRSs. No critical concern was expressed by the BAC members.

The second initiative is the introduction of a fourth framework of accounting standards (in addition to Japanese GAAP, designated IFRSs, and USGAAP) that are to be developed through a new "endorsement" process. Based on previous debates, the FSA official presented the following principles:

  • The endorsement process (that could result in partial modifications to IFRSs as issued by the IASB) is to be established in addition to the existing designation process (that is generally to ratify IFRSs as issued by the IASB without modifications), for multiple reasons. The endorsed IFRSs are also for voluntary use and will not be mandated.
  • The endorsement process would commence from an initial assessment by the ASBJ, followed by the FSA's ratification.
  • Three criteria are to be considered in endorsing an IFRS, which are 1) conceptual merits, 2) practical burden, 3) coordination with related institutions etc. (eg. when application is difficult or too costly in light of industry regulations). It was also noted that modifications to IFRSs, if any, should be limited to an extent that can be justified reasonably.

Certain BAC members commented on aspects of the FSA's proposal such as the nature of the endorsed IFRSs (eg. whether such is of transitional nature or not), relationship of the designated IFRSs and Japanese GAAP, and the process/criteria of endorsement. Although some advocated that the ultimate state of the accounting standard frameworks in Japan be streamlined, strong oppositions to the proposal were no longer expressed.

On the third initiative of streamlining local disclosure requirements of separate financial statements in accordance with Japanese GAAP, the FSA official articulated the previously presented initiative 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. Further, a potential need for supplemental disclosure outside of a financial statement is proposed to facilitate usefulness. Compared to previous discussions, concerns by users appear to have been eased to some extent. Other members also commented on technical aspects 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 is scheduled for 19 June 2013.

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