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1Accounting Standards Board of JapanAccounting Standards Board of Japan
Japanese Accounting Standards-Current Status and Future Perspective-
October 12, 2006
Taiji Ishii, Board Member
Accounting Standards Board of Japan
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2Accounting Standards Board of JapanAccounting Standards Board of Japan
Current Status⇒ Comparable to international standards
Standard line-upForeign investment using Japanese GAAPAssessment of equivalence in the EU
Future Perspective⇒ Full convergence – Ultimate goal
ASBJ’s positive stance toward convergenceAccelerated convergence activitiesJapanese contribution to IASB
Introduction
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3Accounting Standards Board of JapanAccounting Standards Board of Japan
“Accounting Big Bang” in the late 1990’s –– Along with reform of the financial market in
Japan for globalization
– Japanese accounting standards has been developed or revised to harmonize international standards and improved in quality
Standard line-up
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4Accounting Standards Board of JapanAccounting Standards Board of Japan
Major Japanese AccountingStandards (issued or revised since 1997) (1)
Oct. 1999 RForeign Currency Transactions
Jan. 1999 IFinancial Instruments
Oct. 1998 IIncome Taxes
Jun. 1998 IRetirement Benefits
Mar. 1998 RInterim Financial Reporting
Mar. 1998 IResearch and Development Costs
Mar. 1998 ICash Flow Statement
Jun. 1997 RConsolidation
Issued/RevisedIssues
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5Accounting Standards Board of JapanAccounting Standards Board of Japan
Major Japanese Accounting Standards (issued or revised since 1997) (2)
July 2006 RMeasurement of Inventories
Dec. 2005 IShare Based Payments
Dec. 2005 IStatement of Changes in Net Assets
Dec. 2005 IPresentation of Net Assets in the Balance Sheet
Oct. 2003 IBusiness Combinations
Sep. 2002 REarnings Per Share
Apr. 2002 IImpairment of Fixed Assets
Issued/Revised Issues
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6Accounting Standards Board of JapanAccounting Standards Board of Japan
Foreign Investment using Japanese GAAP
Further globalization of capital markets in JapanOverseas investors’ share of equity trading: 35.4%
(Overseas: North America 28%, Europe47%, Asia24%)
Overseas investors’ share of ownership: 26.7%(2005 Survey of Tokyo Stock Exchange)
⇒ Overseas investors widely use Japanese GAAP.
⇒ Further convergence will be of benefit and of important to the Japanese capital markets
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7Accounting Standards Board of JapanAccounting Standards Board of Japan
Assessment of Equivalence in the EU
Technical advice on equivalence of the third country GAAP
(Japan, U.S. and Canada) was issued by CESR in July 2005.
Three countries GAAP are, taken as a whole, equivalentto IFRSs.
Remedies required (Japan:26, US:19, Canada:14)
18 remedies are common to Japan and US.
EC presents its draft proposal for postponement of the
equivalence decision for two years in April 2006.
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8Accounting Standards Board of JapanAccounting Standards Board of Japan
Current Status
Japanese Accounting Standards
⇒ Comparable to international standards
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9Accounting Standards Board of JapanAccounting Standards Board of Japan
Positive Stance toward International Convergence
“Medium-term operating policy ” in July 2004Objective is to achieve high-quality accounting standards. ⇒ beneficial to respective capital markets around the worldThe convergence be attained through the process of assessment and selection by market participants from international accounting standards which are mutually accepted in major capital markets.To promote international convergence , the ASBJ will establish closer relationship with other accounting standard setters around the world.
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10Accounting Standards Board of JapanAccounting Standards Board of Japan
High Quality Standards
⇒ Decision usefulness
⇒ Attained through the process of assessment and
selection by market participants (market driven)
Examples of concerns over IFRS:
⇒ Net income might be eliminated.
⇒ Fair value measurement might be overgrown in
full-scale.
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11Accounting Standards Board of JapanAccounting Standards Board of Japan
Market Driven
Social cost
⇒World Market Capitalization
US 41% Japan 18% : EU25% Others 16%←←←←←←←←←←G A A P o v e r a l l e q u i v a l e n t→→→→→→
⇒World Share Traded Value
US 49% Japan 11% : EU27% Others 13%←←←←←←←←←←G A A P o v e r a l l e q u i v a l e n t→→→→→→
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12Accounting Standards Board of JapanAccounting Standards Board of Japan
Convergence
• High Quality Standards ←→ Market driven
• Social cost ←→ Market driven
↓
Convergence
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13Accounting Standards Board of JapanAccounting Standards Board of Japan
Whole picture approachEntire picture of convergence process
Classify “short-term project” and “longer-term project”
Review regularly differences and progress of deliberation (“on-going” process)
Convergence Project with the IASB (1)
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14Accounting Standards Board of JapanAccounting Standards Board of Japan
Whole picture approach (cont.) Short-term project
Eliminate or find a way to eliminate major differences by 2008
Longer-term projectDifferences primarily due to conceptual frameworks, legal restrictions or items being discussed between the IASB and the FASB
Authorization of conceptual framework
Convergence Project with the IASB (2)
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15Accounting Standards Board of JapanAccounting Standards Board of Japan
Short-term items
1. Inventories(valuation method)
2. Segment reporting
3. Related party disclosures
4. Uniformity of accounting policies in overseas subsidiaries
5. Investment properties
6. Cost of issuing new shares
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16Accounting Standards Board of JapanAccounting Standards Board of Japan
Short-term items
7. Asset retirement obligation
8. Disclosure of financial instruments at fair value (footnote)
9. Construction contracts
10. Leases
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17Accounting Standards Board of JapanAccounting Standards Board of Japan
Longer-term items
1. Revenue recognition
2. Performance reporting
3. Intangibles (including R&D expenses)
4. Scope of consolidation (including SPE)
5. Fixed assets (impairment, revaluation)
6. Provisions
7. Fair value measurements
8. Fair value option
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18Accounting Standards Board of JapanAccounting Standards Board of Japan
Longer-term items
9. Liabilities and equity10. Government grants11. Insurance contracts12. Financial instruments13. Retirement benefits14. Uniformity of accounting policies in
associated companies15. Inventories (LIFO)16. Income taxes
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19Accounting Standards Board of JapanAccounting Standards Board of Japan
Longer-term items
17. Retrospective restatement
18. Business combinations (pooling-of-interest
method, goodwill, etc)
19. Share-based payments
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20Accounting Standards Board of JapanAccounting Standards Board of Japan
Japan’s Contribution to IASB
⇒ 2 Trustees
⇒ 1 Board Member
⇒ 2 SAC Members
⇒ 1 IFRIC Member
⇒ 2 Staffs (1 full-time)
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21Accounting Standards Board of JapanAccounting Standards Board of Japan
Japan’s Contribution to IASB
• Amounts of contribution to IASB (Top five nations)
(Y2005 US$)
US 7,679,000 46.1%
Japan 2,000,000 12.0%
Germany 1,950,000 11.7%
Netherlands 869,265 5.2%
UK 820,000 4.9%
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22Accounting Standards Board of JapanAccounting Standards Board of Japan
IFRS Regional Forum
■ASBJ will host IFRS Regional Forum
on March 29, 2007 in Tokyo.
■Regulators and Standards Setters in the Asia
Oceania region get together to discuss issues
in the IFRS environment.
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23Accounting Standards Board of JapanAccounting Standards Board of Japan
Periodical Meetings with FASB
An initial meeting was held in May 2006 in Tokyo.Mr. Robert Herz, Chairman of the FASB joined the meeting.
Major long-term issues was discussed.Conceptual framework
Performance reporting
Business combination
Next meeting will be held in US this month.
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24Accounting Standards Board of JapanAccounting Standards Board of Japan
Future Perspective
⇒ Gear up convergence activities
↓
Full Convergence ⇒ Ultimate Goal