Update on IFRS Application in Japan

Ikuo NishikawaChairman

Accounting Standards Board of Japan

February 23, 2011

2011 IFRS Conference in Taiwan

Agenda

Current environment

Convergence with IFRSs

Activities for Application of IFRSs

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Current Environment (1/2)

“Opinion on the Application of IFRS in Japan (Interim Report)” (June 2009)• Issued by the Business Accounting Council (BAC), an advisory body to

the Commissioner of the FSA• So-called as the “Roadmap”

Voluntary application of IFRSs is allowed from the fiscal year ended March 2010• Allowed for consolidated F/S of Japanese listed companies who

operate financial or business activities internationally• Only 1 listed company used the voluntary application for the fiscal

year ended March 2010• 2 or more are expected to move to IFRS compliant for the fiscal year

ended March 2011 　

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Current Environment (2/2)

Decision for mandatory application of IFRSs will be made around 2012• The mandatory application may start from 2015 or 2016, if the

decision is made in 2012

Well converged Japan GAAP is essential to the adoption of IFRS• The Interim Report recommend the ASBJ to continue and accelerate

the international convergence of accounting standards

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Convergence (1/3)

Continue and accelerate the international convergence of accounting standards based on the “Tokyo agreement” with IASB in 2007

Items related to existing differences

Aim to finalize by June 2011

Items related to the MoU between IASB and FASB

To achieve convergence with IFRS, work closely to ensure the acceptance of the international approach in Japan when new standards become effective.

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Convergence (2/3)

ASBJ current projects Items related to existing

differences•Intangibles •Business combinations (Step 2)

Items related to the MoU between IASB and FASB

•Financial instruments •Fair value measurement and disclosure•Revenue recognition•Leases•Scope of consolidations •Derecognition•Financial statement presentation (Phase B)•Liabilities and equity distinctions•Post-employment benefits (Step 1, Step2)

Items related to IASB’s projects other than those addressed in the MoU

•Insurance contracts•Provisions•Emission trading schemes

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Convergence (3/3)

Applicability of IFRS to non-consolidated financial statements for listed companies • Accounting treatment of non-consolidated F/S has been

historically identical to those for consolidated F/S• The policy may have a significant effect on tax

consequences or in light of Company Act– Historically, three laws (Financial Instrument and Exchange Act ,

Company Act , Corporate Income Tax Law) prescribes financial accounting and reporting in Japan

– Those three laws influences on each other in various ways although each has its own requirements to address its particular objectives

• By each project, ASBJ will decide upon whether to differentiate them for limited period, weighting its advantage and disadvantage

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Interests of Japanese constituents

Japanese constituents have strong interests in series of quarterly progress reports issued by the IASB and the FASB 　

• How the IASB and the FASB can reach a converged solution for each project

• When each project is expected to be finalized

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In 2009, ASBJ set up the IFRS Practice Group, to identify implementation issues of IFRSs• The Group consists of preparers and auditors in addition to ASBJ

members and staffs

The Group has been in touch with IASB members and its staffs in some critical respects• Post retirement benefit trust• Depreciation of tangible fixed asset • Application of IFRS 1 etc.

• Cooperate with the IFRS Implementation Task Force, which administered jointly by the Japan Business Federation and the Japanese Institute of Certified Public Accountants

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Activities for Application of IFRSs

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Council of Accounting on Unlisted Companies

Established in March 2010, in response to the concern from unlisted companies

Try to mitigate the concern that IFRS may be applied to unlisted companies or unlisted companies may be disadvantaged from the increasing complexity of accounting standards

In August 2010, based on the deliberation, the Council set out suggestions to develop another set of accounting guidance to be applied to smaller (or micro) companies

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