9 March 2011

Sir David Tweedie
The International Accounting Standards Board
30 Cannon StreetLondon EC4M 6XH
United Kingdom
Dear Sir David:
re: Comments on Exposure Draft“Hedge Accounting”
The Corporate Accounting Committee (CAC) of the Securities Analysts Association ofJapan (SAAJ) is pleased to comment on Exposure Draft “Hedge Accounting” put out by
the International Accounting Standards Board (IASB). The SAAJ is a not-for-profit
organization providing investment education and examination programs for securities
analysts. Its certified members number 24,000. The CAC is a standing committee of theSAAJ composed of 14 members, most of whom are users including equity and credit
analysts, and portfolio managers, while a few others are academicians and public
accountants. The CAC writes comment letters to global standard setters including theInternational Accounting Standards Board (IASB) and Accounting Standards Board ofJapan (ASBJ), and exchanges opinions with organizations including the ASBJ and theFinancial Services Agency.
General Comments
Accounting standards should be designed to reflect the risk management ofcorporations that utilize hedging in such a way that investors can make appropriate
investment decisions. In this regard, the CAC welcomes the exposure draft as animprovement over IFRS39. The introduction of the ‘rebalancing’ concept and changes infair value hedges will make it easier to understand corporate risk management activities.
However, the CAC thinks the scope of the exposure draft is limited and some technicalimprovements are needed. Following are our answers to specific questions.
Question 1 Objective
The CAC opposes limiting the objective to ‘risks that could affect profit or loss’(paragraph 1). Hedging owner’s equity is a rational corporate behavior which should be1

accommodated in accounting standards. For Japanese companies to hedge FVOCI equities
is an issue. The CAC recommends valuing the hedge instruments in OCI and to account for
ineffectiveness in profit or loss (over hedge) or OCI (under hedge). An alternative is topermit the recycling of FVOCI equities upon sale, which the CAC has been asserting forquite for a while.
One member opined that as FVOCI equities are often held for the cross-holding ofshares, which is not an effective use of corporate assets, he is against the aboverecommendation which may encourage such cross-holding.
Question 13 Disclosures
The CAC proposes adding the following to paragraph 44 as arbitrary changes in
hedging strategies will make corporate analysis difficult:(d) rationale and details of hedging strategy changes, when applicable.
Question 15 Credit Derivatives
Credit risk is a significant risk, especially for financial institutions, therefore hedging
utilizing credit derivatives should be developed further. As IFRS9 recognizes credit riskseven in financial liabilities, it is inconsistent if hedge accounting does not permit the use ofcredit derivatives. Some members, however, think credit derivatives’ unique pricing
mechanism would not make them appropriate hedging instruments.
Open Portfolio Hedges
As open portfolio hedges are widely used, new standards to accommodate the practice
should be drafted as soon as possible. In this regard, one member opined that the bottom
layer approach should be permitted for hedged items with prepayment options in thecurrent exposure draft in order to allow flexible hedging for open portfolios.
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