International Accounting Standards Board
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August 21, 2020
A

Japanese Bankers Association

Comments on the International Accounting Standards Board’s Exposure Draft
ED/2019/7 General Presentation and Disclosures
The Japanese Bankers Association (the “JBA”) 1 is pleased to provide comments on the Exposure
Draft ED/2019/7 General Presentation and Disclosures (the “ED”) issued by the International
Accounting Standards Board (the “IASB”).
The JBA appreciates the IASB’s efforts to consider improving how information is communicatedin the financial statements, responding to the strong demand from stakeholders. While we support
many of the proposals in the ED, we would like to provide some specific comments from theviewpoint that information included in financial statements should be presented or disclosed inconsideration of the characteristics of each industry in order to increase its information value.

Answers to specific questions
Question 1—operating profit or loss
Paragraph 60(a) of the Exposure Draft proposes that all entities present in the statement of profit
or loss a subtotal for operating profit or loss.
Paragraph BC53 of the Basis for Conclusions describes the Board’s reasons for this proposal.
Do you agree with the proposal? Why or why not? If not, what alternative approach would you
suggest and why?

Question 2—the operating category
Paragraph 46 of the Exposure Draft proposes that entities classify in the operating category all
income and expenses not classified in the other categories, such as the investing category or thefinancing category.

1

The Japanese Bankers Association is an organization that represents the banking industry in Japan.
Its members are banks and bank holding companies operating in Japan.

1Paragraphs BC54–BC57 of the Basis for Conclusions describe the Board’s reasons for this
proposal.
Do you agree with this proposal? Why or why not? If not, what alternative approach would you
suggest and why?

The JBA generally agrees with the proposal that all entities present the subtotal of operating profit
or loss in the statement of profit or loss.
We, however, disagree with the approach of identifying operating profit as a mere residual. This isbecause operating profit or loss is the most material information for estimating the future oroperating profitability of an entity and if it were to be identified as a residual, its information value
would significantly decline.
It is not appropriate to exclude income and expenses classified in the investing, financing andother categories from the operating category for all entities in the same way even though they belong
to different industries. We believe that a more useful approach would be for the IASB to elaborate on
the basic positioning of operating profits and losses and provide minimum guidance that requires
entities to disclose their calculation bases.

Question 5—the investing category
Paragraphs 47–48 of the Exposure Draft propose that an entity classifies in the investing category
income and expenses (including related incremental expenses) from assets that generate a returnindividually and largely independently of other resources held by the entity, unless they are
investments made in the course of the entity’s main business activities.
Paragraphs BC48–BC52 of the Basis for Conclusions describe the Board’s reasons for the
proposal.
Do you agree with the proposal? Why or why not? If not, what alternative approach would you
suggest and why?

The JBA respectfully requests the IASB to clarify that returns (e.g. dividend) from stocks held byentities as part of their business investments do not necessarily meet the conditions of the investing
category, and can be classified in the operating category.
Stocks which are held by an entity in line with its business strategy are expected to generate
returns in combination with other resources. For instance, they are expected to increase theircorporate value through maintaining and deepening business relationships, establishing capital andbusiness alliances, and supporting business revitalizations. We believe that returns from stocks
meeting these conditions do not necessarily meet the conditions of the investing category of “returns

2from investments that are generated individually and largely independent of other resources held byan entity” as set out in paragraph 47 of the ED. Rather, they should be considered as returns“generated in the course of its main business activities,” which, as the ED states in paragraph 48,
shall not be classified in the investing category and instead classified in the operating category.
Such returns should be classified in the operating category especially for financial institutions,taking into account that they integrally manage investments in securities and financing in terms ofcustomer transaction profitability.

Question 7—integral and non-integral associates and joint ventures(a) The proposed new paragraphs 20A–20D of IFRS 12 would define ‘integral associates and joint
ventures’ and ‘non-integral associates and joint ventures’; and require an entity to identify
them.
(b) Paragraph 60(b) of the Exposure Draft proposes to require that an entity present in thestatement of profit or loss a subtotal for operating profit or loss and income and expenses from
integral associates and joint ventures.
(c) Paragraphs 53, 75(a) and 82(g)–82(h) of the Exposure Draft, the proposed new paragraph 38Aof IAS 7 and the proposed new paragraph 20E of IFRS 12 would require an entity to provide
information about integral associates and joint ventures separately from non-integral
associates and joint ventures.
Paragraphs BC77–BC89 and BC205–BC213 of the Basis for Conclusions describe the Board’s
reasons for these proposals and discuss approaches that were considered but rejected by the
Board.
Do you agree with the proposals? Why or why not? If not, what alternative approach would you
suggest and why?

The JBA suggests the IASB to clarify that a business conducted by an associate or joint venture inwhich an entity invested as part of its business strategy is “integral” to its main business activities.
We are concerned that considerable ambiguity remains in the examples of the classification
criteria currently proposed in the ED. For example, almost all associates or joint ventures would be
identified as “not-integral” if “significant interdependency” is assessed using the criteria such as“sharing a name or brand with the associate or joint venture” and “difficulty replacing without
significant business disruption,” which are exemplified as “[a] significant interdependency between
an entity and an associate or joint venture” (new paragraph 20 D of IFRS 12), namely, a criterion
that indicates an associate or joint venture accounted for using the equity method are “integral” tothe main business activities of the entity. On the other hand, depending on the interpretation of3

“having integrated lines of business with the associate or joint venture,” almost all of them can bequalified as “integral.”
When an entity invests in an associate or joint venture and exercises “significant influence” (i.e. acriterion for using the equity method), it is usually carried out in line with the business strategy ofthe entity in the first place. Therefore, an investment in an associate or joint venture as part of anentity’s business strategy should be qualified as “integral” to its main business activities.

Question 9—analysis of operating expenses
Paragraphs 68 and B45 of the Exposure Draft propose requirements and application guidance tohelp an entity to decide whether to present its operating expenses using the nature of expense
method or the function of expense method of analysis. Paragraph 72 of the Exposure Draft
proposes requiring an entity that provides an analysis of its operating expenses by function in thestatement of profit or loss to provide an analysis using the nature of expense method in the notes.
Paragraphs BC109–BC114 of the Basis for Conclusions describe the Board’s reasons for the
proposals.
Do you agree with the proposals? Why or why not? If not, what alternative approach would you
suggest and why?

Paragraph 72 of the ED requires an entity presenting an analysis of expenses classified in theoperating category using the function of expense method to also disclose in a single note an analysisof total operating expenses using the nature of the expense method. In light of the uniquecharacteristics of the revenue structure described below, financial institutions should be allowed todisclose expenses in accordance with their nature of each item, instead of disclosing the analysis of
total operating expenses in a single note.
Financial statements of financial institutions include items that are net of profits and losses such as“Net trading income” and “Net income from financial assets at fair value through profit or loss.”
Even if these items are aggregated by product, by investment or loan, or any other criteria, they may
not adequately present the actual status of business operations, and therefore have low information
value. Nonetheless, it is cumbersome and impractical to calculate gross profit or loss based on
profits and losses from changes in market value, and the value derived from such information does
not outweigh additional costs that would be incurred to the financial institution.
In addition, interest expense, which is a funding cost, is equivalent to cost of sales of non-financial
entities. Therefore, the usefulness of such information would not be relevant even if it is disclosed
together with other expenses.
Therefore, we request to allow the exceptional treatment above if information value obtained froman analysis of total operating expenses using the nature of the expense method does not outweigh its

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cost. As stated in BC 112 of the Basis for Conclusions in Exposure Draft, the IASB considered“[r]equiring this analysis would provide users of financial statements with information to help thembetter forecast an entity’s functional line items.” Hence, the JBA believes this would realize theapproach that the IASB considered to introduce at the initial stage.

Question 11—management performance measures(a) Paragraph 103 of the Exposure Draft proposes a definition of ‘management performancemeasures’.
(b) Paragraph 106 of the Exposure Draft proposes requiring an entity to disclose in a single note
information about its management performance measures.
(c) Paragraphs 106(a)–106(d) of the Exposure Draft propose what information an entity would be
required to disclose about its management performance measures.
Paragraphs BC145–BC180 of the Basis for Conclusions describe the Board’s reasons for the
proposals and discuss approaches that were considered but rejected by the Board.
Do you agree that information about management performance measures as defined by the Board
should be included in the financial statements? Why or why not?
Do you agree with the proposed disclosure requirements for management performance measures?
Why or why not? If not, what alternative disclosures would you suggest and why?

The definition of management performance measures (“MPMs”) in ED Paragraph 103 is not clear,and there is a concern that various indicators such as management accounting indicators that are notdirectly linked to financial accounting and profit indicators based on GAAP other than IFRS fallunder MPMs and could be subject to disclosure depending on the interpretation. Therefore, wesuggest clarifying the indicators included in MPMs are profit indicators calculated from IFRS-based
figures.
We understand that the purpose of defining MPMs in the ED is to avoid confusion among
investors between IFRS-based figures and profit indicators calculated from IFRS-based figures thatare used by entities adopting IFRS outside their financial statements with a view to ensuring investor
confidence and transparency. However, including profit indicators that are not calculated from
IFRS-based figures in the scope of MPMs does not solve the inherent issues of lack of transparency
in how the management-defined performance measures are calculated (BC 147 (a)) and leaves
difficulties for users trying to reconcile the measures to the related measures specified by IFRSStandards (BC Section 147 (c)). Rather, it may promote misunderstanding.
In addition, requiring notes to financial statements and compliance with the IFRS standards evenin cases where they are used for communications outside financial statements independent of IFRS,

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would go beyond the scope of accounting standards to be defined as rules, and there are also
concerns in terms of auditability, as described in paragraph BC 148 (c) of the Basis for Conclusions.
Therefore, we request that the IASB clarify that the scope of MPMs is limited to profit indicators
calculated from IFRS-based figures. The IASB should allow other indicators (such as figures for
management accounting and non-IFRS based indicators) to be excluded from the scope of MPMs or
stipulate the disclosure of such figures as voluntary.

Question 14—other comments
Do you have any other comments on the proposals in the Exposure Draft, including the analysisof the effects (paragraphs BC232–BC312 of the Basis for Conclusions, including Appendix) and
Illustrative Examples accompanying the Exposure Draft?

First of all, in light of the unique nature of the financial industry, the ED for the first time defines
the industry in IFRS Standards. For example, the ED grants an entity that provides financing tocustomers as a main business activity an option to classify income and expenses from financing
activities and from cash and cash equivalents in the operation category. In addition, it provides anexample of disclosure in the statement of profit or loss. We welcome such development as the firststep to reflect the characteristics of the industry into IFRS standards and to promote more
appropriate disclosures.
We request the IASB, from the same perspective of the uniqueness of the industry, to further
promote this development and to consider allowing an entity that provides financing to customers asa main business activity to exclude the statement of cash flows from the scope of their primaryfinancial statements.
Regarding banks and other entities that provide financing to their customers as a main businessactivity, information about cash equivalents and the statement of cash flows have different meanings
from that of non-financial entities. Therefore, there are questions about its usefulness, including 2:(i) Information disclosed in the statements of cash flows does not reflect the actual practice offinancial institutions’ cash management and liquidity management. In addition, with regard to
financial institutions’ cash management and liquidity management, we believe that disclosuresof risks under IFRS 7 and disclosures under global regulations such as the Basel frameworksatisfy investors’ needs.
(ii) Because financial statements of financial institutions do not have a classification of current
2

For a more detailed discussion, see the following academic paper: Ásgeir Brynjar Torfason (2014),
Cash flow accounting in banks – a study of practice, Gothenburg University Sweden. See inparticular Chapter 6 (Review of past public comment letters on banks’ preparation of statements ofcash flows) and Chapter 8 (interviews with bankers) of the paper for reasons why banks’ cash flow
statements are not used.

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assets [liabilities]/ non-current assets [liabilities] (or fixed assets) and the IFRS does not set out
a basic concept to supplement the lack of this classification, under current practice of preparing
the statement of cash flows, for example, the following classifications depend on the judgmentsof an entity:

Cash flows related to securities can be classified as an operating activity for tradingtransactions and as an investing activity for FVPL and FVOCI.

Cash flows related to funding can be classified as a financing activity only if thefunding is subordinated borrowings, etc.

Given the current practice above, comparability is limited not only between banks andnon-financial entities but also between banks, and hence the usefulness of the information isquestionable.

In this regard, the statement of cash flows of financial institutions does not necessarily satisfy thefollowing objectives, qualitative characteristics, and cost constraints set out in the Conceptual
Framework of IFRS (“CF”): respectively, to provide financial information about the reporting entitythat is useful to existing and potential investors, lenders and other creditors in making decisions
relating to providing resources to the entity (CF 1.2), relevance (CF 2.6), comparability (CF 2.23),
and that the benefit of providing the information needs to justify the cost of providing and using theinformation (CF 2.39). Accordingly, we respectfully request that an entity that provides financing tocustomers as a main business activity be allowed to exclude the statement of cash flows from theirprimary financial statements.
If the above proposal is accepted, it will pave the way for expanding the adoption of IFRS byfinancial institutions in jurisdictions where the voluntary application of IFRS Standards is permitted
in place of local accounting standards because preparing the statement of cash flows is particularly
burdensome for financial institutions.

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