May 11, 2004 ABAC/ PECC Joint Conference The Role of Japan in the Process of Convergence with IFRS Accounting Standards Board of Japan (ASBJ) Vice Chairman Ikuo Nishikawa
Accounting Trends around the World European Union Over 7,000 EU companies will be required to use IFRS from 2005 United States US GAAP required (both US & non-US companies) Reform of Financial Reporting System • Sarbanes-Oxley Act of 2002 • Norwalk Agreement (2002) Asia Currency Crisis (late 1990 ’ s) Moving toward international standards 2
Accounting Trends in Japan “ Accounting Big Bang ” in the late 1990 ’ s – Moving toward international standards Along with reform of the financial market in Japan for globalization A set of Japanese accounting standards has been dramatically improved in quality and substantially converged with IAS/IFRS For example, Accounting Standards for: • Consolidation (based on IAS 27); Financial instruments (based on IAS 32 & 39); Employee benefits (based on IAS 19); Impairment of assets (based on IAS 36) 3
Accounting Standards Accepted in Japan GAAP accepted for listing in stock exchanges in Japan � Japanese GAAP Japanese Company � US GAAP (US SEC registrants) � (IFRS (under consideration)) Non-Japanese GAAP accepted by its own Company country (US, UK, French -----,IFRS) 4
Reform of Accounting Standards Setting Process in Japan ASBJ was established in 2001 Private Sector • Previously accounting standards developed by public sector • Similar structure to US FASB and IASB Counterpart to IASB as a Partner Standard Setter • IASB was established in 2001 (the successor of IASC) Supported by constituents 5
Organization of ASBJ Board 13 members (including 2 full-time) Bears ultimate responsibility on decisions Special Committees International Issues (for IASB agenda) Practical Solutions (for interpretations) Technical Committees (for ASBJ agenda) 6
Main Objectives of ASBJ Interaction Japanese IFRS GAAP Developing Japanese accounting standards Contributing to development of IFRS Interaction improves the quality of both standards. That is the process of “ Convergence ” . 7
IASB and Partner Standards Setters FASB AcSB (US) AASB/FRSB (Canada) (Australia/ NZ) ASB IASB ASBJ (UK) (Japan ) CNC DRSC (France (Germany) ) EFRAG (EU) 8
9 International Activities of ASBJ 2. With Japanese Constituents 1. With IASB
1. With IASB (1/2) ASBJ (Japanese IASB Constituents) Our views Mission of ASBJ Contributing to the development of IFRS IASB Board Member – Japanese “ liaison ” IISC of ASBJ held monthly to discuss IASB meeting agenda 10
1. With IASB (2/2) Conflicts have arisen Not solved, due to “ the Rule of Majority ” Our concern regarding current IASB activities Biased interpretation of IASB Framework Overweighing to European concerns Major concerns Performance Reporting • Elimination of Net income ? – Lack of concept Financial Instruments • Macro Hedging? Fair value option? ASBJ will continue to discuss with IASB to seek solution 11
2. With Japanese Constituents (1/2) International ASBJ Standards (Japanese (IFRS,US) Constituents) International views Reflect international views in the development of Japanese Accounting Standards 12
2. With Japanese Constituents (2/2) Conflicts have arisen from the context of: Accounting Environment in Japan Commercial Code • Both Consolidated and Non-consolidated reporting are made much of • Stability of Accounting Standards is needed Relevance Net income Interpretation Needs for practical rules 13
Convergence – Views of ASBJ Accounting Standards : one of infrastructures of capital markets Convergence is an important goal IFAD Report “ GAAP Convergence 2002 ” - misunderstanding Capital markets have globalized Accounting standards should be converged in response to the globalization of capital markets The Process of convergence is important ASBJ continues to contribute to the development of IFRS 14
Together with APEC economy (1/2) ASBJ is the only Partner Standards Setter with IASB in Asia Will establish close relationships with National Standard Setters (NSS) in the APEC economy 3-Countries ’ NSS meeting with China and Korea Held annually Share concerns on accounting issues Communicate with IASB Board member 15
Together with APEC economy (2/2) Importance of APEC economy One of large economy in the world Gather APEC ’ s views and reflect them in the IASB decision Promote IFRS toward MORE international standards 16
May 11, 2004 ABAC/ PECC Joint Conference The Role of Japan in the Process of Convergence with IFRS Accounting Standards Board of Japan (ASBJ) Vice Chairman Ikuo Nishikawa
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