Project Plan Concerning the Development of Japanese Accounting Standards— Initiatives towards the international convergence of accounting standards
in light of the equivalence assessment by the EU
October 12, 2006
Accounting Standards Board of Japan

I. Introduction
The Accounting Standards Board of Japan (ASBJ) believes that convergence towards compatible highquality accounting standards is beneficial for capital markets around the world. Based on this belief,
the ASBJ has been developing Japanese accounting standards and has contributed to the International
Accounting Standards Board (IASB) actively in working towards the development of International
Financial Reporting Standards (IFRSs) by exchanging comments and participating in the IASBprojects.

Based upon the foregoing basic policy, the ASBJ and the IASB launched a joint project in March 2005
with the final goal of accomplishing convergence between Japanese GAAP and IFRSs. During thecourse of this project, both boards have exchanged views and discussed actively and, as a consequence,
the ASBJ has been accelerating its revision of Japanese accounting standards to minimize thedifferences between the two standards. Since the ASBJ believes that a closer relationship should beestablished with other standard-setters around the world, the ASBJ and the Financial AccountingStandards Board of the United States (FASB) initiated periodical meetings between the representativesof both boards, commencing in May 2006.

In July 2006, the Planning and Coordination Committee of the Business Accounting Council issued anopinion paper entitled, “Towards the International Convergence of Accounting Standards” in which thecommittee pointed out the necessity of formulating a definite programme as soon as possible
concerning a time-framed approach to the EU equivalence assessment for the purpose ofaccomplishing convergence of accounting standards by early 2008 for such issues as convergence
whereof is considered as achievable reciprocally and also showing the progress of work for such issues
as convergence thereof may require a longer time to accomplish.
While the ASBJ has occasionally announced the progress and prospects of convergence between
Japanese GAAP and IFRSs, based on the foregoing opinion paper of the Business Accounting Council,
the ASBJ has recently decided to formulate and release “ASBJ Project Plan” (attached hereto) focusing
on such accounting standards development projects as those specifically related to convergence among
other projects currently being undertaken, or planned to be undertaken in the future, in an attempt to- 1 -express in a clearer manner the status of initiatives of the ASBJ to various constituencies in Japan andabroad. In releasing the ASBJ Project Plan, primary emphasis was placed on mapping out the work
planned to be achieved through the end of 2007, and also on clarifying the prospects of convergencestatus as of the beginning of 2008 concerning the initiatives to be undertaken with respect to the 26
issues for which the remedies were advised by the Committee of European Securities Regulators(CESR) in connection with the equivalence assessment.1)

II. Relationship between the ASBJ Project Plan and the joint project on-going with the IASB
In their third meeting held in March 2006 on the joint project with the goal of achieving convergenceof accounting standards, in order to accelerate the progress in convergence process the ASBJ and theIASB agreed to shift from the current "phased" approach, in which differences between the accounting
standards that are relatively easy to initiate discussion about are addressed first, to a “whole picture”
approach where all differences in accounting standards to be addressed in the future are extensively
expressed and projects will be initiated simultaneously in accordance with priority to be addressed.

Under this “whole picture” approach, major differences in accounting standards are classified into“short-term projects” that can be solved in a short time, and “longer-term projects” representing theremainder. Short-term project issues, at this stage, are scheduled to be solved either by 2008, or else,by then, at least, an overall course of actions for eliminating differences shall be determined. For
longer-term projects, among others, putting the priority on the five issues, namely: revenue recognition,performance reporting (financial statement presentation), intangibles (including R&D expenses), thescope of consolidation (including SPEs), and retrospective restatement, the ASBJ has decided toinitiate research projects in order to focus on setting up the course of actions for eliminating differences
and to convey opinions or comments, if any, to the IASB and the FASB.

In their fourth meeting held in September 2006 on the joint project, both boards promoted mutual
understanding through discussions and confirmed to continue the joint project, as well as confirmed theprogress of each project plan

The ASBJ believes that differences between the two accounting standards could be decreasing byproceeding with the joint project between the ASBJ and the IASB. Also, the ASBJ is fully aware thatthe steady work should be continued to solve all the differences subject to the remedies for issues as1) In the ASBJ, other than the project items related to convergence in the ASBJ Project Plan, the project items

specific to the Japanese accounting standards are addressed through each technical committee such as businesscombinations, retirement benefits, modernization of corporate law, etc. Also, the ASBJ addresses thedevelopment of “Conceptual Framework” related to financial accounting as a main topic in conjunction withevery accounting standard.

- 2 -proposed by the CESR in light of their importance. Accordingly, the ASBJ envisions prioritizing theseissues from viewpoint of their substance2) and their progress and background in Japan and abroad3) andaggressively undertaking the necessary initiatives.

III. Future steps for responding to the equivalence assessment by the EU
In its “STATEMENT ON JAPAN’S PROGRESS TOWARD CONVERGENCE BETWEENJAPANESE GAAP AND IFRSs - In Reference to Technical Advice on Equivalence by the CESR”
issued in January 2006, the ASBJ described the then current progress toward remedies for the issues
advised by the CESR, and the prospects for convergence status as of 2008.

Thereafter, the ASBJ has carried out its work in accordance with this direction. Also, as agreed to shift
the approach for the joint project with the IASB to the “whole picture” approach as stated above, it wasdecided that future directions will be extensively indicated with remedies for issues other than thoseadvised by the CESR4).

The environment surrounding convergence of accounting standards is constantly changing; accordingly,initiatives undertaken to cope with the technical advice on equivalence issued by the EU need to beconstantly reviewed as well in light of such a continually evolving environment. In conjunction withthe release of the ASBJ Project Plan, the ASBJ has updated the current status of progress with respectto remedies for issues advised by the CESR, its policy for initiatives to be undertaken, and theprospects for convergence status as of the beginning of 2008, as follows.

2) When the application of remedies is assessed at the entity level, some of the differences identified by theCESR may be avoidable, depending on each entity’s rational choices of accounting policies.
The issues related to the convergence project between the IASB and FASB will be deliberated considering
the progress of their discussions. In addition, the issues related to recent developed standards in Japan should
be taken into consideration assessment of the market.
4)
The MOU (Memorandum Of Understanding) containing mutual agreements between the FASB and theIASB was released in February 2006, in which initiatives to be undertaken for minimizing the differences
between accounting standards by 2008 are stated in more concrete terms. In the joint project between theASBJ and the IASB, the agenda to be discussed are decided based on the issues to be addressed in the above
MOU. While the issues to be considered, such as revenue recognition and performance reporting (financialstatement presentation), under the “whole picture” approach are not necessarily indicated in the ASBJ
Project Plan, the ASBJ plans to make timely comments in accordance with the progress in discussions
between the IASB and the FASB.
3)

- 3 -

Issues advised by CESR concerning the equivalence assessment on Japanese Accounting Standards andthe ASBJ’s approach to those issues
Remedies

No.

IssuesCurrent status and policy

Prospects at the beginningof 2008

Supple-1Business

The ASBJ will ascertain the feedback

Deliberations will bementarycombinations

from markets on the accounting

made considering thestatement(pooling-of-standards put into effect from 2006.

results of market research,interest method)

To this end, a project team will be

feedback from markets

established by the end of 2006 in

after the implementation

order to conduct market research inof IFRS, and the progress2007.

in discussions between theThe application of theIASB and the FASB. A

pooling-of-interest method is very

discussion paper will belimited only to businessreleased as necessary.

combinations where it is impossible
to identify an acquiring party.
2Scope ofA technical committee was

As for deliberations of theconsolidation

established for this issue. The

disclosure, its guidance(qualified special

committee has picked up the issue ofwill be released by March

purpose entities)

the disclosure of SPE as the first

2007. As for deliberations

agenda to be discussed andof the scope ofdeliberations thereon have been

consolidation, a discussion

initiated. Further study will be done

paper will be released

considering the progress intaking into consideration

discussions between the IASB andthe progress in discussions

the FASB in 2007.

between the IASB and theFASB by the end of 2007.

- 4 -Remedies

No.
3Issues

Current status and policy

Prospects at the beginningof 2008

Uniformity ofWith the release of Practical Issues

PITF will be applied fromaccounting

Task Force (PITF) (May 2006),

April 2008 (earlierpolicies

accounting policies applicable toapplication encouraged).

concerning

foreign subsidiaries will be unified

overseas

substantially with those applicable tosubsidiaries

parent companies. (Furthermore,consolidation of financial statements
using IFRS or U.S. GAAP is now
permitted here subject to certainadjustments.)

Disclosure

4B

Share-based

Accounting standards and guidance

Accounting standards andpayments

were released (December 2005).

guidance have been

(expense

Requisite disclosure is also defined

implemented since.

recognition)

therein. (See No.13, “Share-based
payments - explanatory notes”)

5

Business

Deliberations will be conducted(See No. 1, “Businesscombinations

considering the progress incombinations,(date ofdiscussions between the IASB andpooling-of-interestexchange)

the FASB also in conjunction withmethod”)

the deliberations of No. 1, “Businesscombinations (pooling-of-interestmethod).”
6

Business

Deliberations will be conducted by(See No. 11,combinations

the Intangible Assets Working Group.

“Capitalization of(capitalization of(See No. 11, “Capitalization ofdevelopment costs”)

acquired R&D indevelopment costs”)

process)
7

Business

Information required to be disclosed

Accounting standards andcombinations

as Disclosure B (amounts, causes ofguidance are currently(negativeoccurrence, methods of amortization

effective.

goodwill)and amortization periods) are alreadyrequired under the new accounting
standards put into effect from 2006.

- 5 -Remedies

No.
8Issues

Current status and policy

Prospects at the beginningof 2008

Inventories

A project team is to be established inA decision will be made(LIFO)

2007 to initiate deliberations.

on the course of action.

Only a few companies have adopted
the LIFO method. Also, this is an
issue for which the application ofremedies can be avoided by thechoice of accounting policies at each
entity level.
Inventories

Accounting standards were released

Accounting standards will

(lower of cost or(July 2006) stipulating book value

be applied from Aprilmarket method)should be adjusted downward where2008 (earlier application

any deterioration of earning power

encouraged).

thereof exists.
9Uniformity of

A project team will be established in

Based on the deliberations

accounting

2007 to initiate deliberations.

by the project team, an

policies of

Also to include such issues that may

exposure draft will be

associates

arise from the introduction of IFRS

released as necessary.

in fiscal 2005 in the project teamdeliberations, it is considered that
this issue may be brought up for
redeliberation in the course of
discussions with the IASB and/orwith the FASB.
(Under current Japanese accounting
standards, uniformity of accounting
policies applied to investing
companies and their affiliates areconsidered to be desirable as a
general rule, but such uniformity is
not forced from practicalconsiderations.)- 6 -Remedies

No.

IssuesCurrent status and policy

Prospects at the beginningof 2008

10Impairment tests

The ASBJ will assess feedback fromA decision will be mademarkets on the impairment standards

regarding the course ofeffective from 2005. To this end, aaction to be taken, based

project team will be established inon the results of market

2007 to conduct market research.

research and considering

Deliberations will be made reflecting

the progress in discussions

the progress in discussions between

between the IASB and thethe IASB and the FASB (short-termFASB.

convergence project).

If IFRS are converged toU.S. GAAP, differences
between Japanese
accounting standards and
IFRS will then beeliminated.

11

Capitalization ofA working group was established toDiscussion papers will bedevelopment

initiate deliberations.

released by the end ofcosts

Deliberations will be made taking

2007 based on the results

into consideration the progress inof market research anddiscussions with the IASB and thetaking into considerationFASB (short-term convergence

the progress in discussions

project).

between the IASB and theFASB.
If IFRS are converged toU.S. GAAP, differences
between Japanesestandards and IFRS willthen be eliminated.

12Agriculture

Very few numbers of publicly listed－companies are engaged inagricultural businesses.
DisclosureA

13

Share-based(See No. 4, “Share-based payments -(See No. 4, “Share-based

payments

expense recognition”)

payments, expense(explanatoryrecognition”)

notes)- 7 -Remedies

No.

IssuesCurrent status and policy

Prospects at the beginningof 2008

14

Business

Deliberations will be made taking(See No. 1, “Businesscombination

into consideration the progress incombinations,(minoritydiscussions between the IASB andpooling-of-interest

interests at

the FASB in conjunction with No. 1,method”)

historical cost)“Business combinations(pooling-of-interest method).”

15

Business

Deliberations will be made(See No. 1, “Businesscombinations

considering the progress in

combinations,(stepdiscussions between the IASB andpooling-of-interestacquisitions)

the FASB in conjunction with No. 1,method”)“Business combinations(pooling-of-interest method).”
1617－

Insurance

The industry targeted for application

contracts

is limited to the insurance industry(catastrophicand in the IASB currently the phaseprovisions)

II discussion has been conducted.

Construction

This issue was chosen as the agenda

Accounting Standards andcontracts

for a short-term joint project with theguidance will be released(percentage-of-IASB, and a working group wasby the end of the year

completion

established to initiate deliberations.

2007.

Non-performing

The development of specific－loans

measures against this issue is notmethod)
18

considered to be necessary because
the group of financial institutions
already have certain establisheddisclosure rules.
19

Scrapping costs(Deliberations will be conducted in(See No. 24, “Assetconjunction with No. 24, “Assetretirement obligations”)

retirement obligations”)- 8 -Remedies

No.

IssuesCurrent status and policy

Prospects at the beginningof 2008

20

Pensions, Post

This issue was chosen as the agenda

A decision will be madeRetirement

for the longer-term joint project withon the course of action toBenefits

the IASB, and a working group will

be taken, based on(including thebe established in 2007 to initiate

considering the progress

discount rate todeliberations and to convey opinions

in discussions between thebe used forand comments to the IASB and theIASB and the FASB.

calculating

FASB.

retirement
benefits
obligations)
21

22

23

Business

Deliberations are to be conducted in(See No. 1, “Businesscombinations

conjunction with No. 1, “Businesscombinations,(translation ofcombinations (pooling-of-interest

pooling-of-interest

goodwill)

method)”.

method”)

Disclosure ofThis issue was chosen as the agenda

Accounting standards andfinancial

for a short-term joint project with theguidance will be issued byinstruments atIASB, and a working group was

the end of the year 2007.

fair value

established to initiate deliberations.

Reversal ofDeliberations will be conducted in(See No. 10, “Impairment

impairment loss

conjunction with No. 10,tests”)“Impairment tests ”.
24Asset retirement

Working Group was established on

Accounting standards andobligations

this issue which was added to topics

guidance will be issued byfor the convergence project with thethe end of 2007.

IASB.

- 9 -Remedies

No.

IssuesCurrent status and policy

Prospects at the beginningof 2008

25

Investment

This is the agenda for the short-term

A decision will be reachedproperty

joint project with the IASB. The

on the course of action

ASBJ will continue to provide its

taking into consideration

own comments to the IASB.

the progress in discussions

Deliberations will be made taking

between the IASB and theinto consideration the progress inFASB.

discussions between the IASB andIf IFRS are converged tothe FASB (short-term convergence

U.S. GAAP, differences

project).

between Japanesestandards and IFRS willthen be eliminated.

Futureagenda

26

Financial

Because of the complexity ofinstruments

pertinent Japanese standards, the－position of the CESR is to continue
reviewing its technical assessments.
Therefore no particular actions arescheduled at this stage.
Deliberations will be made taking
into consideration the progress indiscussions between the IASB andthe FASB.
(Note 1) The ASBJ puts the above “No.” for convenience.
(Note 2) Headings in the column “Remedies” means as follows.
Supplementary statement : Pro-forma statements including a limited restatement for taking account ofone identified aspects of IFRS requirement that is not present of not fully applied
under Japanese GAAP
Disclosure B : Quantitative indication of the impact of an event or transaction under IAS/IFRS
provisions (The gross and net of tax effect of the difference on the profit and loss oron the shareholders’ equity)
Disclosure A : Additional narrative and/or quantitative disclosures augmenting the disclosures alreadyprovided pursuant to Japanese GAAP
Future Agenda : To be reconsidered later- 10 -