### 3. Changes in international contexts, and reactions to IFRS / IASB

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Historical significance of Japan’s accounting system: Elements embedded in Japan’s institutional design such as calculation of “taxable income based on financial statements approved by shareholders”, and “conservatism”.

→ Becoming dysfunctional through expanded use of fair value accounting.

• “Three Fundamental Concerns” arising from premature use of IFRS. Potentials of “decreased transparency and comparability”, “Dis-coordination within related socio-economic systems”, and “undesirable behaviour of unsophisticated investors”

• Significance for the “other” stakeholders than investors: Existence of various concerns among companies already using IFRS, manufacturing, non-listed companies, specific industries, related institutions, including taxation and company law is suggested.

• "Pro-IFRS group" vs. "Anti-IFRS group": Different degrees of awareness. While pro-IFRS group does not rate merits of IFRS-adoption highly, anti-IFRS group has serious concerns over mandatory adoption of IFRS.

• How Japan’s decision-makers have responded: Decision made in the FSA’s Interim Report (June 2011) is considered appropriate, reflecting new international contexts. Need for shared proactive co-operation with IASB.

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• IASB’s “Agenda Consultation” and proposed amendments to “Due Process Handbook”. Demands for “Period of Calm,” and appropriate evaluation of economic impact of standards.

• Relationship with US. Possibility of further delay in MoU projects.

• IASB’s “Use of IFRS” = “convergence” and “carve-outs.” → Less convergence efforts. Possible divergence at an appropriate level.

• Need to listen to voices from the practitioners to determine if accounting standards are practical and substantially useful (true empiricism).

• Involvement of emerging economies. Possibility of South-North Problems, and eventual dysfunction of IASB (The “United Nations” phenomenon – unable to make effective decisions).

### 4. Policy recommendations for Japan – Need for short to medium term (5-15 years) response, in order to prevent “Quiet Revolution”

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• Further cost-benefit analysis.

• More items on the agenda of Business Accounting Council, such as merits of IFRS for listed companies, appropriate input into proposed amendments to IASB Due Process Handbook. Cross-ministerial deliberations, close cooperation between relevant stakeholders, ensuring consistent response.

• Restricted application of IFRS to consolidated financial statements alone; i.e., no application of IFRS to non-consolidated financial statements, to prevent unnecessary international influence on domestic institutional and regulatory framework

• Need for analysis of related institutional and regulatory systems: e.g., Quarterly reporting and auditing.

• Importance of new market design of stock exchanges.

• Need to carefully examine the relationship with company law (regulation of profit distribution), tax law, other related institutions, and commercial and contractual practices.

• Priority to be given to enabling management of mature economy and sustainable economic activities.

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• Need for pro-active international response. Strict and uncompromising attitude against undemocratic rhetoric when lacking evidence.

• Increasing voluntary use of IFRS. Continuation of pro-active convergence, based on merit. Active intellectual contribution to IASB’s activities including contribution of human resources.

• Appropriate understanding of potential re-emergence of “Legend” problem.

• Co-operation with China, India, South Korea and other countries. Need to identify common agenda among Asian countries. Effective use of IASB's Asia-Oceania satellite office in Tokyo.

• Need for actions for increasing medium to long term corporate values involving all relevant stakeholders (e.g., through introduction of integrated reporting).

• Internationalisation of auditors. Truly international accounting personnel.