November 25, 2015
To the International Accounting Standards Board

Japanese Bankers Association
Comments on the International Accounting Standards Board’s Exposure Draft“Conceptual Framework for Financial Reporting”
We, the Japanese Bankers Association (“JBA”), are an organization that
represents the banking industry in Japan; and our members comprise banks andbank holding companies operating in Japan.
We would like to express our gratitude for this opportunity to comment on theExposure Draft (ED) “Conceptual Framework for Financial Reporting”, publishedby the International Accounting Standards Board (“IASB”).
We respectfully expect that the following comments will contribute to yourfurther discussion on this issue.
1. Overall comment
We support the ED in that it removed the two approaches related to othercomprehensive income (“OCI”) proposed in the discussion paper (“DP”) published in2013 and regarded income and expenses included in the statement of profit or loss
as the primary source of information about an entity’s financial performance for theperiod.
The ED, however, does not still provide a specific definition of profit or loss andOCI. This makes it difficult to distinguish the two and thus to depict the actual
financial performance for the period. It should be noted that this may prevent theachievement of the purpose desired to make appropriate financial reporting.
Further, the ED sets out that “all income and all expenses will be included in thestatement of profit or loss” which appears to be suggesting that all income and all
expenses will be included in profit or loss without using any OCI items. This gives
rise to a concern that profit or loss will be substantially equated withcomprehensive income; and therefore, this description should be deleted.
It is considered as a positive move to propose a presumption that items of income
or expenses included in OCI will be reclassified into the statement of profit or loss1

(recycled). Nevertheless, there are different views across jurisdictions regarding
which items should be recycled and included in profit or loss to enhance therelevance and it is unlikely that consensus will be reached in the near future. Given
this circumstance, items of income or expenses included in OCI will be reclassified
into the statement of profit or loss at appropriate timing, and this presumption
should not be made rebuttable.
See our comments in detail in the next section.
2. Comments on specific questions provided in the ED
Question 12—Description of the statement of profit or loss
Do you support the proposed description of the statement of profit or loss? Why or
why not?
If you think that the Conceptual Framework should provide a definition of profit orloss, please explain why it is necessary and provide your suggestion for thatdefinition.
(Summary)
・The Conceptual Framework should provide an explicit definition of profit or loss
and OCI in order to ensure the relevance.

・We agree that the statement of profit or loss is the primary source of information
about an entity’s financial performance for the period. However, the presumptionthat all income and all expenses will be included in the statement of profit orloss should be replaced with the description that all income and all expenses
that relate to an entity’s financial performance for the period will be included in
the statement of profit or loss.

(Basis, etc.)<Definition of profit or loss>
・

While the ED regards the relevance as one of qualitative characteristics offinancial information, it would be difficult to achieve the relevance if a definitionof each item described in the Conceptual Framework is unclear. Therefore, theIASB should first clearly define profit or loss and then to develop a frameworkthat ensures the relevance.

・Market participants or other stakeholders in Japan view profit or loss to be ameasure that reflects the outcome of business management; namely, return on
various forms of investments made by management in the period. In line withthis common view, income and expenses associated with the outcome of businessactivities which are not yet recognised as return should not be included in profit

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or loss until they are recognised as return. Given this, for example, a definitionof profit or loss proposed by the Accounting Standards Board of Japan in its
comment letter could be applied: “profit or loss is a measure which depicts thereturn for the period that the entity has made on its economic resources from its
business activities conducted”.
・Further, OCI should include those income and expenses that are excluded fromprofit or loss.

・If the Conceptual Framework cannot provide a definition of profit or loss andOCI, the IASB should just describe in the Conceptual Framework that “allincome and all expenses that relate to an entity’s financial performance for theperiod are included in the statement of profit or loss”, leave further discussions
on profit or loss and OCI to other projects (e.g. Primary Financial Statements)
instead of reaching a conclusion on the discussion about profit or loss and OCI in
the Conceptual Framework, and make an effort to obtain understanding ofstakeholders.

<Description of the statement of profit or loss>
・The ED describes that “all income and all expenses will be included in thestatement of profit or loss”, which appears to be indicating that all income andall expenses will be recognized as profit or loss without using OCI items. This
gives rise to a concern that there will be little difference in substance todistinguish profit or loss from comprehensive income. This description therefore
should be deleted.

・Para.BC7.56 stipulates that the use of an arbitrary basis for the reclassificationof OCI to profit or loss should be avoided. This demonstrates most clearly thatprofit or loss is an item which investors focus on to capture an entity’s financial
performance for the period. It should therefore be clarified that profit or loss isthe sole indicator of financial performance for the period by including thedescription that all income and all expenses that relate to an entity’s financial
performance for the period will be included in the statement of profit or loss.

・Further, para.BC7.40 describes that an in-depth understanding of performancerequires an analysis of income and expenses included in OCI. In so far as weknow, however, there is no investor analysing and raising questions about OCI.
The IASB should indicate the volume of stakeholders who are considering thatsuch an analysis is necessary.

3Question 13—Reporting items of income or expenses in other comprehensive income
Do you agree with the proposals on the use of other comprehensive income? Do you
think that they provide useful guidance to the IASB for future decisions about theuse of other comprehensive income? Why or why not?
If you disagree, what alternative do you suggest and why?
(Summary)
・We agree with the proposals.

(Basis, etc.)
・As commented in our response to question 12, OCI should include those income
and expenses excluded from profit or loss. Specifically, unlike profit or loss
deemed as return in the period, OCI should be used as a category to classify
income and expenses related to the outcome of business activities which are notyet recognised as return.

Question 14—Recycling
Do you agree that the Conceptual Framework should include the rebuttablepresumption described above? Why or why not?
If you disagree, what do you propose instead and why?
(Summary)
・We agree that the Conceptual Framework should include the presumption thatitems of income or expenses included in OCI in one period will be reclassified
into the statement of profit or loss in some future period, except for the pointthat it is deemed as rebuttable. The description that the presumption could berebutted should be deleted, and instead items of income or expenses included in
OCI should principally be reclassified into the statement of profit or income
subsequently.

(Basis, etc.)
・There are various opinions across countries regarding which items should berecycled and included in profit or loss in order to enhance the relevance of theinformation and it is unlikely that a consensus will be formed in the near futurein this respect. Given the circumstances, the Conceptual Framework should
require income and expenses included in OCI to be reclassified into profit or loss,
in an appropriate future period, and reclassified items to be disclosed. It would
be appropriate to allow investors to exclude such reclassified items from thestatement of profit or loss if it is deemed as necessary to do so in making
decisions, or if not, utilize figures on the statement of profit or loss without
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modification.
・For example, assuming that the definition of profit or loss proposed in ourresponse to question 12 is applied, income and expenses related to the outcomeof business activities need to be reclassified from OCI to profit or loss without
exception once they are recognised as return for the period. Even in such cases, if
reclassified items are disclosed, investors will be able to make investment
decisions.

Question 6—Recognition criteria
Do you agree with the proposed approach to recognition? Why or why not? If you do
not agree, what changes do you suggest and why?
(Summary)
・We do not agree with the proposed approach to recognition because it may
recognise unnecessary amount of assets and liabilities that do not provide useful
information relative to current financial information, thereby resulting ininappropriate disclosure of financial statements.

(Basis, etc.)
・Para. 5.13(b) describes that assets or liabilities need not be recognised if theprobability is low, but does not give specific guidance as to the level of theprobability that would require the recognition of assets/liabilities.

・

Under the current Conceptual Framework, there is a practice in place whereassets/liabilities satisfying specific probability thresholds (e.g. ‘probable’ and‘reasonably possible’) are being recognised. Therefore, if, as proposed in the ED,assets/liabilities are not recognised on the basis that the probability is low, thismay give rise to confusion in practice and also may lead to recognising
unnecessary amount of assets and liabilities. This would undermine theusefulness of financial statements.

・If the reference to the level of probability is removed from the recognition
criteria, the estimation of liabilities will be affected most significantly. The IASB
is requested to carefully consider this point based on many negative feedbacks tothe proposed revision to IAS 37 (2005) which proposed the removal of probability
requirements.

・If the IASB considers that the probability thresholds have an issue inrecognising some assets/liabilities, such as derivatives, it would be preferable todefinitely specify the products that are not suitable for the probability thresholds
within the Conceptual Framework or specify products that should not comply5

with the Conceptual Framework in each standard.
Question 2—Description and boundary of a reporting entity
Do you agree with:(a) the proposed description of a reporting entity in paragraphs 3.11–3.12; and(b) the discussion of the boundary of a reporting entity in paragraphs 3.13–3.25?
Why or why not?
(Summary)
・We agree with the IASB’s view that “consolidated financial statements are more
likely to provide useful information to users of financial statements thanunconsolidated financial statements”, but consider that the description inparagraph 3.25, i.e. “it is necessary to disclose in the unconsolidated financial
statements how users may obtain the consolidated financial statements”, should
be deleted.

(Basis, etc.)
・The description regarding the usefulness of the consolidated financial
statements relative to the unconsolidated financial statements is consistent withthe description in paragraph 3.9 that “financial statements are prepared fromthe perspective of the entity as a whole” and thus is logical.

・On the other hand, the other description: “it is necessary to disclose in theunconsolidated financial statements how users may obtain the consolidated
financial statements”; would be an opposite approach from the IASB’s efforts todate to enhance the usefulness of the consolidated financial statements. Further,as long as the IASB’s standards are set from the perspective of the entity as awhole, it is not preferable to provide a more-than-necessary description
regarding the content of the unconsolidated financial statements which are notprepared from the perspective of the entity as a whole.

・Even if the IASB considers that this description is indispensable, it should bediscussed as a matter to be described in the note and therefore should not be
discussed in the wide-ranging concept of the Conceptual Framework but insteadshould be discussed under other ongoing projects (e.g. Primary FinancialStatements).

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