16 July 2010
Sir David Tweedie
International Accounting Standards Board
30 Cannon StreetLondon EC4M 6XH
United Kingdom
Dear Sir David:

re: Comments on Exposure Draft“Fair Value Option for Financial Liabilities”
The Corporate Accounting Committee (CAC) of the Securities Analysts Association ofJapan (SAAJ) is pleased to comment on the exposure draft, “Fair Value Option forFinancial Liabilities” put out by the International Accounting Standards Board (theBoard). The SAAJ is a not-for-profit organization providing investment education andexamination programs for securities analysts. Its certified members exceed 23,000. The
CAC is a standing committee of the SAAJ composed of 14 members, most of whom areusers including equity and credit analysts, and portfolio managers, while a few others
are academicians and public accountants.

Question 7
Do you agree that gains or losses resulting from changes in a liability’s credit risk
included in other comprehensive income (or included in equity if you responded ‘yes’ toQuestion 6) should not be reclassified to profit or loss? If not, why and in whatcircumstances should they be reclassified?
The CAC basically supports the proposals in the exposure draft, but opposes Question
7. The CAC thinks that when an entity repays an amount other than the contractual
amount of the liability and gains or losses are recognized, then the amount should bereclassified.
The exposure draft puts forward the following two reasons as rationale to prohibit
reclassification.
(1) If the entity repays the contractual amount, there would be no amounts to recycle
because the cumulative effect over the life of the instrument of any changes in theliability’s credit will net to zero because its fair value will equal the contractual amount.

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Therefore, for many liabilities, the issue of recycling is irrelevant. (BC39, emphasis bythe CAC.)(2) Gains or losses should be recognized only once. (BC37)
In regard to the first point, the CAC thinks that whether to recycle or not is an issue
related to a fundamental principle of accounting and therefore the number ofoccurrences is irrelevant. It is inappropriate to create a non-recycling precedent based
solely on probabilities, dispensing with a thorough conceptual debate on the matter as
Jan Engström has pointed out (see below).
In regard to the second point, the CAC thinks there is a significant difference in termsof hardness of information between the amount that is recognized in OCI but continues
to fluctuate, and the amount that is realized and settled. The profit or loss realized bysale will never change in value and it is a hard number backed by cash.
Both in Japanese GAPP and US GAPP, recognized gains or losses in the OCI arerecycled when realized. The Board’s philosophy of “Gains or losses should be recognized
only once.” is against this practice. In this regard, the CAC fully supports Jan
Engström’s alternative view in the exposure draft “Presentation of Items of Other
Comprehensive Income” as quoted below:

A thorough conceptual debate should take place to determine what should bepresented as other comprehensive income and when and which items presented as othercomprehensive income should be reclassified to profit or loss. (AV3)
The IASB should pursue a thorough consideration of the definition of income or profit
in the conceptual framework project as soon as is practical. Unless and until aconclusion is drawn, it should refrain from changing the nature of net income based on
the rationale “Gains or losses should be recognized only once.” which is not supported byits stakeholders.
If you have any questions or need further elaboration, please do not hesitate to contact
Sei-Ichi Kaneko, Executive Vice President, SAAJ (s-kaneko@saa.or.jp).
Sincerely yours,Keiko Kitamura
Chair
Corporate Accounting Committee2