2 October 2017

Hans Hoogervorst
ChairmanInternational Accounting Standards Board
30 Cannon Street
London EC4M 6XH
United Kingdom

Re: Comments on Discussion Paper“Disclosure Initiative—Principles of Disclosure”

Dear Mr. Hoogervorst:
The Corporate Accounting Committee (CAC) of the Securities Analysts Associationof Japan (SAAJ) is pleased to comment on Discussion Paper “Disclosure Initiative—
Principles of Disclosure” (hereinafter referred to as the DP) published on 30 March 2017.
The SAAJ is a not-for-profit organization providing investment education andexamination programs for securities analysts. Its certified members number 26,500. 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. The CAC writes comment letters to accounting
standard setters, including the International Accounting Standards Board (IASB) and
Accounting Standards Board of Japan (ASBJ), and exchanges opinions withorganizations including the ASBJ and Financial Services Agency.
Before drafting this comment letter, on 9 August 2017 the SAAJ sponsored a study
session on the DP, inviting an ASBJ member and a senior staff as lecturers. 35 of ourcertified members participated. A questionnaire was subsequently sent to each and 24
responded, making for a 69% response rate. This comment letter fully takes into accountthe views expressed in the questionnaire replies as well as discussion among CAC
members. The survey results are attached as an Appendix.

―1―

General Comments
1.

Disclosure in the notes as well as the presentation in the primary financial statements
are the main areas of interest for users of financial statements and we were looking
forward to the DP to be published by the IASB. It is our regret, however, to saythat the proposals of the DP appears to be far from satisfactory, besides the fact thatthe it came out greatly behind the schedule.

First, the most of the proposals are too

abstract and generic to assess their effectiveness when they are implemented.
result, many of associated questions are too difficult to answer.

As a

For example, theDP proposes the seven principles of communication in the Section Two, but we find
it difficult to understand the relationship between these principles and what the IASB
intends as the roles of the primary financial statements and the notes to be, which
are explained later. In addition, we also think that the structure of the DP is very
confusing and we find it difficult again to understand the relationship among eachsection.

We believe the DP should have mainly included the notes and related the

IASB staff proposals, while the Section Five of the DP actually includes the topics
which should be covered by the primary financial statements project, and the staff
paper by New Zealand Accounting Standards Board (NZASB) in the Section Eight
which we do not think appropriate to be included in the DP.
2.

We believe the objective of the DP set by the IASB should be to improve
communication in financial reporting.

Despite that goal, the DP is not easy enoughfor the readers to understand the messages, due to its confusing structure and orderof sections as well as sentences difficult to understand. It appears that the IASB
has failed to communicate the stake holders effectively, probably due to the lack ofconsideration to readability of the report. If the Board intends to develop a generaldisclosure standard by amending IAS 1 or as a new standard which would replace
IAS 1, we encourage the IASB to deliberate it carefully, by reviewing comments to
the DP and discussing actively with each stakeholders about effectiveness andunderstandability of disclosures.
3.

Particularly, users of financial statements consider comparability among entities
more important than the IASB and preparers expect. It is not enough for investors
to analyze a single company in order to make a good investment decision; they
always analyze two or more companies and compare them at the same time.

We

believe it should be discussed mainly in the context of the disclosure of non-financial
information how to enhance entity-specific information.

We encourage IASB toplace higher priority on the improvement of comparability of financial statements―2―among companies and faithful representation of entities’ economic substance, inorder to provide relevant information when it develops its disclosure standard.

We

believe the new disclosure standard should include the definition of operating
income and net income as the IFRS based performance measures, to name a few.
4.

We would like to express our opinion to some selected questions below.

Question 1
Paragraphs 1.5–1.8 describe the disclosure problem and provide an explanation of
its causes.
(a) (Omitted)(b) Do you agree that the development of disclosure principles in a general disclosure
standard (i.e. either in amendments to IAS 1 or in a new general disclosure
standard) would address the disclosure problem? Why or why not?
5.

We do not agree with the disclosure principles as proposed by the DP.

We areconcerned that the proposed principles of effective communication are too abstract
and generic for companies to prepare the financial statements and for users to refer
it when they look into disclosures. It may have some value as a comprehensive setof indicators, which would work as reference when the IASB develops individual
IFRSs, but we do not believe that it is not specific enough to address users' concernthat "sufficient

relevant information is not provided" in the financial statements.

To meet that goal, we encourage the IASB to consider making those principles
include more specific and effective descriptions.
6.

In our survey, 50% of the respondents did not agree with the view, while 38% agreed(see Q1 in the Appendix).

Question 3
The Board’s preliminary view is that a set of principles of effective communicationthat entities should apply when preparing the financial statements as described inparagraph 2.6 should be developed. The Board has not reached a view on whether
the principles of effective communication should be prescribed in a generaldisclosure standard or described in non-mandatory guidance.
The Board is also of the preliminary view that it should develop non-mandatory
guidance on the use of formatting in the financial statements that builds on theguidance outlined in paragraphs 2.20–2.22.

―3―

(a) Do you agree that the Board should develop principles of effective
communication that entities should apply when preparing the financial
statements? Why or why not?
(b) Do you agree with the principles listed in paragraph 2.6? Why or why not? If not,what alternative(s) do you suggest, and why?
7.

We agree that the Board should develop principles of effective communication. In
our survey, 58% of the respondents agreed (see Q2 in the Appendix).

8.

That said, we think that the IASB should not ignore trade-off among some of sevenprinciples in paragraph 2.6 (a)-(g) of the DP, given the fact that 42% of the
respondents did not agree. In other words, we would raise a concern on the risk thatthe content or the method of disclosure chosen by entities to improve relevance of
information might reduce comparability for users against its intention, just making
communications between entities and investors get worse. We ask the IASB toreconsider the content of seven principles in order to allow entities to address thisrisk effectively.

Question 3(c) Do you think that principles of effective communication that entities should apply
when preparing the financial statements should be prescribed in a generaldisclosure standard or issued as non-mandatory guidance?
(d) (Omitted)
9.

In our survey, 42% of the respondents thought that principles of effective
communication should be prescribed in a general disclosure standard, while 29%
thought that they should be issued as non-mandatory guidance.

Neither answer

gathered a majority. We note that 21% thought that they should be described in theConceptual Framework, a choice which we set out independently in ourquestionnaires (see Q3 in the Appendix).
10. As mentioned in Question 1 and Question 2, “principles of effective communication”
appears very abstractive, but we think they may be effective as comprehensive
indicators which the IASB can refer, when the Board develops a specific standard.
This is exactly the role of the Conceptual Framework. The IASB should consider
the Conceptual Framework as one of the options for the vehicle to deliver "principles
of effective communication", in addition to a general disclosure standard and nonmandatory guidance.

―4―Question 4
The Board’s preliminary views are that a general disclosure standard should:specify that the ‘primary financial statements’ are the statements of financial
position, financial performance, changes in equity and cash flows;

describe the role of primary financial statements and the implications of thatrole as set out in paragraphs 3.22 and 3.24;(Omitted below)
11.

We agree with the preliminary views that a general disclosure standard should
specify that the ‘primary financial statements’ are the statements of financial position,
financial performance, changes in equity and cash flows.

In our survey, 79% of the

respondents supported it (see Q4 in the Appendix).
Question 5
The Board’s preliminary view is that a general disclosure standard should include a
principle that an entity can provide information that is necessary to comply withIFRS Standards outside financial statements if the information meets therequirements in paragraphs 4.9(a)–(c).
(a) Do you agree with the Board’s preliminary view? Why or why not? If you do notagree, what alternative(s) do you suggest, and why?
(b) (Omitted)
12.

We do not agree with the preliminary view in the DP. In our survey, 67% of the
respondents did not agree (see Q5 in the Appendix).

13.

We strongly encourage entities to provide information that is necessary to comply
with IFRS standards outside the financial statements as well, in such materials as theannual report, other reports and IR documents to achieve effective communication.
Given that, we think that cross-referencing from the financial statements to anotherstatement is obviously needed and would help users effectively to understand both
the documents and the financial statements.

In the meantime, as users of financial

statements, we are strongly concerned that the usefulness of financial statements
might be rather undermined if associated important information which should be
disclosed in the financial statements in the first place are moved to outside the FSs
along with the IFRS information.
14.

The DP does not define “cross-reference” or “IFRS information" clearly enough.
We, therefore, cannot think of what cases that IASB assumes in the preliminary view.

―5―In addition, we doubt if the IFRS should regulate the disclosure outside financial
statements and if the prepares can judge which information is material to users.
It is difficult for us to assess effectiveness only with the requirements in the paragraph
4.9 (a) through (c).

We ask the IASB to reconsider the proposed requirements, byassuming more specific cases when it develops a “general disclosure standard”.
Question 6
The Board’s preliminary view is that a general disclosure standard:should not prohibit an entity from including information in its financial
statements that it has identified as ‘non-IFRS information’, or by a similarlabelling, to distinguish it from information necessary to comply with IFRSStandards; butshould include requirements about how an entity provides such information as
described in paragraphs 4.38(a)–(c).

Do you agree with the Board’s preliminary view? Why or why not? If you do notagree, what alternative(s) do you suggest, and why?
15.

We agree with the preliminary view that a general disclosure standard should notprohibit an entity from including information in its financial statements that it has
identified as ‘non-IFRS information.’ In our survey, 58% of the respondents agreed
with the view (see the Q6 in Appendix).

16.

Among non-IFRS information, there are financial performance measures thatinvestors broadly use as de facto standards in some jurisdictions and industries,
including net business profits of Japanese banks and basic profit in general trading
companies in Japan. We believe non-IFRS information used widely as the de facto
performance measure in practice, if included in financial statements, would
contribute to improving understandability of them17.

On the other hand, some respondents are strongly concerned about a risk ofmisleading users by presenting too subjective non-IFRS information in the financial
statements We ask the IASB to consider further whether the requirements in theparagraph 4.38 (a) through (c) are enough to choose non-IFRS information to
improve effectiveness of communication, or whether users are not misled bydescriptions and explanations of non-IFRS information in accordance with theserequirements when developing a general disclosure standard.

Question 8―6―

The Board’s preliminary views are that it should:clarify that the following subtotals in the statement(s) of financial performancecomply with IFRS Standards if such subtotals are presented in accordance withparagraphs 85–85B of IAS 1:


the presentation of an EBITDA subtotal if an entity uses the nature of
expense method; andthe presentation of an EBIT subtotal under both a nature of expense method
and a function of expense method.



develop definitions of, and requirements for, the presentation of unusual or
infrequently occurring items in the statement(s) of financial performance, as
described in paragraphs 5.26–5.28.

(a) Do you agree with the Board’s preliminary views? Why or why not? If you do
not agree, what alternative action do you suggest, and why?
(Omitted below)
18.

In our survey, 50% in total did not agree, while 33% agreed (see Q7 in the
Appendix). The breakdown of "Nay" is; 21% of respondents “did not agree withthe preliminary views and did not agree that the IASB should define EBITDA or
EBIT” and 29% “did not agree the preliminary views and thought that the IASB
should give priority to defining operating profit.”

19.

We believe this question should be discussed in the financial statements project andis inappropriate to be included in the DP.

20.

We find it difficult to define EBITDA without specifying a definition of operating
income because EBITDA is generally defined as “operating income + depreciation
expense (including amortization expense of intangible assets)”.

Furthermore,

EBITDA and EBIT are so differently calculated depending on industries and entities.
We therefore ask the IASB to introduce requirements in a general disclosure standard,
when Board decide to develop it, that an entity should disclose how it calculate those
performance measures to improve comparability and understandability.
Question 9
The Board’s preliminary view is that a general disclosure standard should describe
how performance measures can be fairly presented in financial statements, as
described in paragraph 5.34.
Do you agree with the Board’s preliminary view? Why or why not? If you do not―7―

agree, what alternative action do you suggest, and why?
21.

We agree with the preliminary view in the DP. In our survey, 58% of respondents
agreed (see Q8 in the Appendix).

22.

We think requirements such the paragraph 5.34 is necessary to prescribe. However,
it is necessary to further assess the specific contents.

For example, some concern

the requirements in (i) – (iii) of (c) might lead to disclosure of too much information
for users, while others are strongly concerned with a risk that they would discourage
an entity's proactive efforts to provide more relevant information, in order to improve
communication with users.

In respect of (g), others are concerned with a risk that

too much unaudited information would be provided in the financial statements. We
ask the IASB to consider further the content of requirements when developing ageneral disclosure standard.
Question 10
The Board’s preliminary views are that:

a general disclosure standard should include requirements on determining
which accounting policies to disclose as described in paragraph 6.16; andthe following guidance on the location of accounting policy disclosures should
be included either in a general disclosure standard or in non-mandatory
guidance (or in a combination of both):the alternatives for locating accounting policy disclosures, as described inparagraphs 6.22–6.24; andthe presumption that entities disclose information about significant
judgements and assumptions adjacent to disclosures about related
accounting policies, unless another organization is more appropriate.

(a) Do you agree with the Board’s preliminary view that a general disclosure
standard should include requirements on determining which accounting policies todisclose as described in paragraph 6.16? Why or why not? If you do not agree, what
alternative proposal(s) do you suggest, and why?
23.

We agree with the preliminary view that “a general disclosure standard should
include requirements on determining which accounting policies to disclose.” In
our survey, 78% of respondents agreed (see Q9 in the Appendix).

24.

We believe that the IASB must develop the requirements for entities to determine
which accounting policies to be included. However, we doubt whether three―8―

categories in the paragraphs 6.12 through 6.17 can be clearly identified. We areconcerned about a risk that an entity may not disclose its negative but material
information to users because of differences between an entity’s judgements onmateriality and that of users. We ask the IASB to consider further the content of
requirements to reduce such doubt and concern when developing a generaldisclosure standard.
Question 10(b) Do you agree with the Board’s preliminary view on developing guidance on thelocation of accounting policy disclosures? Why or why not? Do you think thisguidance should be included in a general disclosure standard or non-mandatory
guidance (or in a combination of both)? Why?
(Omitted below)
25.

We agree with the preliminary view on “developing guidance on the location of
accounting policy disclosures.” In our survey, 79% of respondents agreed (see Q10
in the Appendix).

26.

We believe that guidance on the location of accounting policy disclosures isnecessary. However, we are concerned about a risk that the choices for the locationof category 1 and category 2, if available, would significantly reduce comparabilityof financial statements among companies. We ask the IASB to consider further thecontent of requirements to reduce such concern when developing a “generaldisclosure standard”.

Question 11
The Board’s preliminary view is that it should develop a central set of disclosure
objectives (centralized disclosure objectives) that consider the objective of financial
statements and the role of the notes.
Centralized disclosure objectives could be used by the Board as a basis fordeveloping disclosure objectives and requirements in Standards that are more
unified and better linked to the overall objective of financial statements.
Do you agree that the Board should develop centralized disclosure objectives? Whyor why not? If you do not agree, what alternative do you suggest, and why?
27.

We do not strongly disagree with developing a central set of disclosure objectives.
In our survey, 46 of the respondents agreed with developing it, while 21% did notagree. Neither answer gathered a majority (see Q11 in the Appendix).

―9―

28.

While we think that a central set of disclosure objectives would reduce irrelevant
information disclosed in financial statements, we are afraid that there is a risk thatnecessary information might not be disclosed if the scope of the objectives is too
narrow.

We ask the IASB to develop a central set of disclosure objectives, notforgetting to pay attention to this risk, when developing a general disclosure standard.
29.

We could not decide which of two methods, Method A or Method B, was better. In
our survey about question 12(a), 25% of respondents supported Method A, 21%
supported Method B, and 54% could not judge at this moment (see Q12 in the
Appendix).

Additional remarks
29.

Besides our comments above to the questions set out in the DP, we suggest that the
IASB should consider to develop the following disclosure requirements whendeveloping a general disclosure standard:An

entityshall

provideinformation

beyondspecific

disclosure

requirements in certain IFRS standards, if there is no necessary
information disclosed for users of financial statements to understand thefollowing items,


Items that auditors determine as KAM (Key Audit Matters) set out in
ISA (International Audit Standards) 701 to be included in the auditor’sreport.



Items that require accounting estimates and appear to have a high riskof misstatement because of such factors as complexity, need ofmanagement judgements and estimation uncertainty.

Sincerely yours,

Satoshi Komiyama
Chair
Corporate Accounting Committee―10―

APPENDIX
Results of SAAJ Survey on“Disclosure Initiative—Principles of Disclosure”
Background and methodology
The Securities Analysts Association of Japan (SAAJ) sponsored a study session on
IASB’s Discussion Paper (DP) “Disclosure Initiative—Principles of Disclosure”, inviting
lecturers from the Accounting Standards Board of Japan (ASBJ). Some 35 of our certified
members participated in the session held on 9 August. A questionnaire was subsequently
sent to each participant and 24 responded, making for a 69% response rate. The
respondents were also invited to make comments. The survey, although small in size,
focused on a cohort with the same background (certified members of the SAAJ) and sameknowledge level (participation in the study session). This focus and very high response
rate gives credibility to the reliability of the survey.
Survey questions and answers
Q1：The IASB suggests that the view in Section 1 of the DP that disclosure principles
developed as described in the DP in a general disclosure standard (i.e. Either in
amendments to IAS 1 or in a new general disclosure standard) would address thedisclosure problem (mainly on the note). Do you agree with the view? …Question
1 (b) in the DP(a) Yes937.5%(b) No1250.0%(c) Cannot judge at this moment

3

12.5%

24

100.0%

Total

Q2：Section 2 of the DP suggests that 7 principles (including 6 transferred from theConceptual Framework) as a set of principles of effective communication that
entities should apply when preparing the financial statements should be developed.
Do you agree with the content of the principles? …Question 3 (a)-(b) in the DP(a) Yes14

58.3%(b) Disagree with developing them. Principles ofeffective communication is unnecessary.

4

16.7%

―11―

(c) Disagree with the content of 7 principles

2

8.3%

(d) Cannot judge at this moment

4

16.7%

24

100.0%

Total

Q3：If a set of principles of effective communication is developed, which one do you

think the most appropriate output format is? …Question 3 (c)-(d) in the DP(a) (Requirements in) a general disclosure standard

10

41.7%

(b) Non-mandatory guidance

7

29.2%

(c) The Conceptual Framework

5

20.8%

(d) Cannot judge at this moment

2

8.3%

24

100.0%

Total

Q4：There are different opinions on which statements should be the primary financial

statements. Section 3 of the DP suggests that a general disclosure standard should
specify that the ‘primary financial statements’ are the statements of financial position,
financial performance, changes in equity and cash flows (in order to clarify the roleof the primary financial statements and the note). Do you agree with the IASB’s
preliminary view? …Question 4 in the DP(a) Yes

1979.2%(b) No416.7%(c) Cannot judge at this moment

1

4.2%

24

100.0%

Total

Q5：Section 4 of the DP suggests that a general disclosure standard should include a

principle that an entity can provide information that is necessary to comply with IFRSStandards (Category A and Category B) outside financial statements, if theinformation meets the following requirements: (a) it is provided within the entity’sannual report; (b) the financial statements remain understandable, and (c) it is clearly
identified and incorporated in the financial statements by means of a cross-reference
that is made in the financial statements. Do you agree with the IASB’s preliminary
view? …Question 5 (a) in the DP―12―(a) Yes520.8%(b) No1666.7%(c) Cannot judge at this moment

3

12.5%

24

100.0%

Total

Q6：Section 4 of the DP suggests that general disclosure standard should not prohibit anentity from including information in its financial statements that it has identified as‘non-IFRS information’ (Category C), and should require the entity (a) to identify
clearly such information as not being prepared in accordance with IFRS Standards
and, if applicable, as unaudited; (b) to provide a list of such information, and (c) to
explain why the information has been included in the financial statements. Do you
agree with the IASB’s preliminary view? …Question 6 in the DP(a) Yes

1458.3%(b) No729.2%(c) Cannot judge at this moment

3

12.5%

24

100.0%Total

Q7： Section 5 of the DP suggests that in respect of APM, it should clarify that thepresentation of an EBITDA subtotal (if an entity uses the nature of expense method)
and the presentation of an EBIT subtotal (under both a nature of expense method anda function of expense method) in the statement(s) of financial performance comply
with IFRS Standards if such subtotals are presented in accordance with paragraphs
85–85B of IAS 1. Do you agree with the IASB’s preliminary views?
In the meantime, the IASB decided not to define operating profit because oftechnical difficulties, although the IASB received comments to the DP of theConceptual Framework published in May 2015 that the Board should define it. …
Question 8 in the DP(a) Yes(b) No. The IASB need not define EBITDA or
EBIT.
(c) No. The IASB should give priority to defining
operating profit.
(d) Cannot judge at this moment

―13―

8

33.3%

5

20.8%

7

29.2%

4

16.7%

Total24100.0%

Q8：Section 5 of the DP suggests that a general disclosure standard should describe how

performance measures can be fairly presented in financial statements, as describedin paragraph 5.34. Do you agree with the IASB’s preliminary view? …Question 9in the DP(a) Yes

1458.3%(b) No520.8%(c) Cannot judge at this moment

5

20.8%

24

100.0%Total

Q9： Section 6 of the DP suggests that a general disclosure standard should include

requirements on identifying three categories of accounting policies and determining
which accounting policies to disclose as described in paragraph 6.16. Do you agreewith the IASB’s preliminary view? …Question 10 (a) in the DP(a) Yes1875.0%(b) No14.2%(c) Cannot judge at this moment

5

20.8%

24

100.0%

Total

Q10：Section 6 of the DP suggests that the guidance on the location of accounting policy

disclosures depending on 3 categories should be included either in a generaldisclosure standard or in non-mandatory guidance. Do you agree with the IASB’s
preliminary view? …Question 10 (b) in the DP(a) Yes

1979.2%(b) No28.3%(c) Cannot judge at this moment

3

12.5%

24

100.0%

Total―14―