JAPANESE CONSUMERS’ CO-OPERATIVE UNION
Co-op Plaza 3-29-8 Shibuya
Shibuya-ku, Tokyo 150-8913
JAPANPhone:Fax:

81-3-5778-8103 website: http://jccu.coop/81-3-5778-8104 E-mail: kokusai@jccu.coop

20th October 2006
Professor Sir David Tweedie
ChairmanInternational Accounting Standards Board
30 Cannon StreetLondon EC4M 6XH
United Kingdom
Dear Sir David,
Sub: Comments on the amendment to IAS 32 Financial Instruments Puttable at Fair Value
On behalf of the Japanese Consumers’ Co-operative Union, National Federation ofConsumer Co-operative Societies in Japan, which has 625 affiliated co-op societies totaling
23.4 million individual members nation-wide, we are pleased to comment on the Exposure
Draft of proposed amendments to IAS 32 and IFRIC 2
We have discussed and accepted many of the IAS standards, once they are established. The
Proposed Exposure Draft, however, added, “Financial instruments puttable at fair value”
into a category of equity classification, which is creating some confusion to ourunderstanding, mainly at the following points:
IAS32 paragraph 11 “Liability”, paragraph 16 (a) and paragraph 17A
IFRIC 2 paragraph 6 and paragraph 9
In these paragraphs, “financial instruments puttable at fair value” are set aside and do not
go through definition process. If such financial instruments are members’ shares ofco-operative entities and classified as equity, they should go through paragraphs 7 and 8 of
IFRIC 2, i.e. “whether or not the entity has an unconditional right to refuse redemption”
and “whether or not redemption is prohibited by local law or governing charter”, and/orexamples 1 through 7 of the same. If they do not satisfy these definitions and conditions,financial instruments puttable at fair value should not be classified as equity. Although theymay look similar to ordinary shares, they are not the same. IASB should keep stiff attitude
as a standard setter.

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Another issue is that the proposed amendment seems to have a tentative nature. TheExposure Draft says that this is a short-term solution and the Board will undertake in its
long-term project with the FASB. Thus we would have to expect that both IAS32 andIFRIC 2 are subject to possible changes in the relatively near future. Apparently IASB
acknowledges that proposed exposure draft is not consistent with the definition offramework. Your people set out the standard. Sorry to say, but, such approach is lessresponsible, if IASB is seriously trying to establish common accounting standards
applicable worldwide.
IFRIC 2 fine-tuned how to classify members’ shares for us (paragraphs 7 & 8). Also it has
introduced more practical approach applying a concept of “sole discretion” (Example 1).
After IFRIC 2 came into effect, we have started working on it. Our presentation practice ofthe members’ shares is against either existing or proposed standard. Japanese jurisdiction
does not allow us to immediately accept the standard. We are not comfortable with it.
Although we would try to match up with the standard, we have to do lots of things. Since
the exposure draft was proposed, we feel we have got lost. “Conflict with existing law”
seems to be a very common problem in the world. We would hope IASB to listen to as
many co-operatives as possible, in order to re-establish consistent standard for
co-operatives.
Sincerely submitted,Toshifumi Yamashita
Vice President
cc for Mr. Ivano Barberini, President, International Co-operative Alliance (ICA)2

JAPANESE CONSUMERS’ CO-OPERATIVE UNION
Co-op Plaza 3-29-8 Shibuya
Shibuya-ku, Tokyo 150-8913
JAPAN

Phone:
Fax:

81-3-5778-8103
81-3-5778-8104

website: http://jccu.coop/E-mail: kokusai@jccu.coop

20th October 2006
Professor Sir David Tweedie
ChairmanInternational Accounting Standards Board
30 Cannon Street
London EC4M 6XH
United Kingdom
Dear Sir David,Besides submitted comments on the proposed exposure draft, we would ask you to respondto the following questions and/or give good consideration in the final IAS text:(1) Amendments to Paragraphs 6 and 9 of the IFRIC 2
We have no English grammar to have a good grasp on the amended paragraphs. Do
they collectively mean:a. Member’s shares are liability if members have right to request redemption?
b. Members’ shares are equity, if they are financial instruments puttable at fair value?
(2) Financial instrument puttable at fair value is now classified as equity. Our members’shares are financial instrument puttable at book value, which is to be classified asliability. Is “Fair Value” or “Book Value” a key element to classify equity vs. liability?
(3) In our case, redemption happens only between the issuers and holders. Under suchsituation, IAS 39 does not help us to figure out the Fair Value (Paragraphs 48 & 49;
AG69 through 82). The only formula that we can think of, is as follows:(“Total Assets” minus “Total Liabilities”)
divides“Number of Shares Issued”.
Is it correct, or does the Board have intention to give additional guidelines on how todetermine fair value of financial instrument like our members’ share?
(4) If we give part of retained earnings of the entity to members as their shares and accountfor at book value, could we classify them as equity?
(5) Do you require additional information as to fair value, even for members’ shares thatare not redeemable?

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JAPANESE CONSUMERS’ CO-OPERATIVE UNION(6) We know some of the European co-operatives changed their governing charter already,so that they could reject redemption. In Singapore, one of the co-operatives alreadychanged classification of its members’ shares to liability instead of equity, because they
are redeemable upon request. Do you acknowledge those facts?
(7) Japanese Co-operative Law entitles residual interests of members only at liquidation.
Does it form a reason that we classify members’ shares in equity category? Under suchsituation, do we have to disclose the fair value at the end of each fiscal year as a
“Going Concern”, which will be applicable to possible redemption in the next year?
Awaiting your reply,

Toshifumi Yamashita
Vice President
cc for Mr. Ivano Barberini, President, International Co-operative Alliance (ICA)

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