11

Developments of Accounting Standards and XBRL

Ikuo NishikawaIkuo NishikawaVice ChairmanVice Chairman

Accounting Standards Board of JapanAccounting Standards Board of JapanNovember 7, 2005November 7, 2005

22

１ . Introduction

1. Our organization

2. Recent developments of Accounting Standards in Japan

3. Joint project for convergence between ASBJ and IASB

4. Expectation for XBRL

33

１ - １ . Our organization - ASBJ and FASF

　＊ For each agenda project, a Technical Committee will be formed .

Secretariat<2>

Board ofDirectors

<14 >

　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 　 ＊Technical Committee

<13 board members, including 2 full-time members> 8 advisors, 26 research staffs

Accounting Standards Board of Japan

<11>

(Administration, Accounting, Disclosure, Public Relations)

Trustees<16>

Auditors

Theme Advisory Council<15>

《 FASF》

44

１ - ２ . ASBJ

BAC and Accounting Big Bang

Philosophy as a private sector

13 board members, including 2 full-time members

26 technical staff (second largest)

FASF’s activity

55

１ - ３ . Process of discussions

Meetings are open to public.

Approval by FSA

Due process - exposure draft and discussion paper

Approved for issuance on the Board when 60% or more favor

Standards and other final documents ： 25 Outstanding ED and Discussion paper : 19

66

Business combinations and Business DivestitureBusiness combinations and Business Divestiture

Share-based PaymentShare-based Payment

Presentation of Net Assets on the Balance SheetPresentation of Net Assets on the Balance Sheet

Statement of Changes in EquityStatement of Changes in Equity

Quarterly Financial ReportingQuarterly Financial Reporting

※※ 　　 except themes on joint project between the ASBJ and the except themes on joint project between the ASBJ and the

IASBIASB

２ - １ . Recent Developments of Accounting Standards

77

　　 Summary of Accounting Treatment under the Purchase Summary of Accounting Treatment under the Purchase MethodMethod

　 (2) Allocation of acquisition cost　 Scope ： Identifiable assets and liabilities　 Amount ： Fair value as of acquisition date 　　 　① Market price　　　 ② Amount reasonably calculated

Differences（ Goodwill （ or Negative goodwill ））

To be amortized over the period expected utility to the acquirer

but less than 20 years

　 (1) Measurement of acquisition cost

　 Acquisition costs※

　　＋ Direct expenses incurred for acquisition

　※ Public entity ： Fair value of shares issued upon acquisition

２‐２ . Business combination (1/2)

88

Distinction between acquisition and combining of interestsDistinction between acquisition and combining of interests　

Consideration criterion（ voting common stock ）

Voting rights ratio criterion（ within a range from 55 ％～ 45 ％）

Criteria other than voting rights ratio（ 4 criteria including occupying majority of board members ）

Combining of interests（ Applying the pooling of interests method ）

Combining of interests（ Applying the pooling of interests method ）

Applying　th

e　purchase　m

ethod

Applying　th

e　purchase　m

ethod

Yes

Yes

Yes

Ｎｏ

Ｎｏ

Ｎｏ

Acquirer is identified

simultaneously

２‐２ . Business combination (2/2)

99

Accounting for owners

(whether transfer gains or losses are recognized or not)Accounting for owners

(whether transfer gains or losses are recognized or not)

Owners of combining entityOwners of entity combined

consideration

Entity accepting business(combining entity)

Company B

Transferred business

Business a

Entity divesting business(entity combined)

Company A

Accounting for business divestitureContinuity or liquidation of investment

Whether transfer gains or losses are recognized or not

Accounting for business divestitureContinuity or liquidation of investment

Whether transfer gains or losses are recognized or not

Accounting for business combinationAcquisition or combining of interestsWhether goodwill is recognized or not

Accounting for business combinationAcquisition or combining of interestsWhether goodwill is recognized or not

Relationship between accounting for business combination and accounting for 　 business divestiture

Business

Transferred business

Business a

２‐３ . Business Divestiture

1010

２‐４ . Share-based Payment (1/2)

ScopeScope

1.1. Share-based compensation arrangements with Share-based compensation arrangements with employees or directorsemployees or directors

2.2. Share-based payment transactions with those Share-based payment transactions with those other than employees or directors when goods or other than employees or directors when goods or services are receivedservices are received

3.3. Arrangements in which a company’s own equity Arrangements in which a company’s own equity instruments are used as considerationinstruments are used as consideration

1111

Recognition and MeasurementRecognition and MeasurementRecognitionRecognition - Compensation cost should be recognized over the - Compensation cost should be recognized over the

period for services renderedperiod for services rendered - Credit entries are recorded in “net assets”- Credit entries are recorded in “net assets” - When exercised : reclassified into owner’s equity- When exercised : reclassified into owner’s equityMeasurementMeasurement - Fair value at the time of grant- Fair value at the time of grant - Not reviewed afterwards- Not reviewed afterwards

２‐４ . Share-based Payment (2/2)

1212

２‐５ . Presentation of Net Assets on the Balance Sheet

BackgroundBackgroundTrigger : Controversy over the credit entry of Stock optionTrigger : Controversy over the credit entry of Stock option

Harmonization with international accounting standardsHarmonization with international accounting standards

OverviewOverviewNet Assets consists of Net Assets consists of Owners’ equityOwners’ equity ： ： attributable to attributable to shareholders of the shareholders of the

parent companyparent companyOther components:OCI, Warrants issued, Minority Other components:OCI, Warrants issued, Minority

interestinterest

1313

２‐６ . Presentation of Net Assets on the Balance Sheet

Net　assetsNet　assetsⅠ　Ⅰ　Owners’　equityOwners’　equity　　 1　Common　stock1　Common　stock 　　　　　　　 　　　　　　　 ××××××　　 2　Capital　surplus2　Capital　surplus 　　　　　　　 　　　　　　　 ××××××　　 3　Retained　earnings3　Retained　earnings 　　　　　 　　　　　 ××××××　　 4　Treasury　stock　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　△　4　Treasury　stock　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　△　

×××××× 　　　　　　　　　　　　　　　　　　　　 Total　owners’　equityTotal　owners’　equity 　 　 ××××××Ⅱ　Ⅱ　Accumulated　other　comprehensive　incomeAccumulated　other　comprehensive　income　　 1　Net　unrealized　gains　or　losses　on　available-for-sale　securities　1　Net　unrealized　gains　or　losses　on　available-for-sale　securities　 　　 ××××××　　 2　Deferred　gains　or　losses　on　hedging　instruments　　　　　　　　2　Deferred　gains　or　losses　on　hedging　instruments　　　　　　　　 ××××××　　 3　Foreign　currency　translation　adjustments　　　　　　　　　　　　　　　　　　3　Foreign　currency　translation　adjustments　　　　　　　　　　　　　　　　　　 ××××××　　　　　　　　　　　　 Total　accumulated　other　comprehensive　income　Total　accumulated　other　comprehensive　income　 ××××××Ⅲ　Ⅲ　Warrants　issuedWarrants　issued 　　　　　　　　 　　　　　　　　　　 　　 ×××　×××　Ⅳ　Ⅳ　Minority　interestMinority　interest 　　　　　　　　 　 　　　　　　　　 　 ×××　×××　　　　　　　　　　　　　 Total　net　assets　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　Total　net　assets　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　 　　　　 ××××××

1414

２‐７ . Statement of Changes in Equity

BackgroundBackground

Newly required by the New Company ActNewly required by the New Company Act

Convergence with international accounting Convergence with international accounting standardsstandards

1515

BackgroundBackground

The quarterly financial reporting system will be The quarterly financial reporting system will be introduced to Japanese listed companies by introduced to Japanese listed companies by Securities and Exchange LawSecurities and Exchange Law

２‐８ . Quarterly Financial Reporting

1616

３ - １ . Basic position of ASBJ on international convergence

The ASBJ agrees with the objective of international convergence to high-quality accounting standards, since it is beneficial to respective capital markets around the world.

In order to promote international convergence to high-quality accounting standards, the ASBJ will establish closer relationships with other accounting standard setters around the world.

The ASBJ believes that the international convergence to high-quality accounting standards should be attained through the process of assessment and selection by market participants..

1717

３ - ２ . Launch of the project

(1)(1) Sir David Tweedie, chairman of the IASB, proposed the Sir David Tweedie, chairman of the IASB, proposed the joint project for convergence. (July 2004)joint project for convergence. (July 2004)

(2)(2) The ASBJ replied that it agreed with the proposal to The ASBJ replied that it agreed with the proposal to launch the joint project. (September 2004)launch the joint project. (September 2004)

(3)(3) Sir David Tweedie visited Japan. The ASBJ and the IASB Sir David Tweedie visited Japan. The ASBJ and the IASB started talks about the joint project. (October 2004)started talks about the joint project. (October 2004)

(4)(4) The ASBJThe ASBJ 　　 and the IASB agreed to the key elements on and the IASB agreed to the key elements on proceeding the joint project. (January 2005)proceeding the joint project. (January 2005)

1818

３ - ３ . Key elements for joint project

(1/2)

－ － Key elements agreedKey elements agreed

Utilize their respective conceptual frameworks or basic philosopUtilize their respective conceptual frameworks or basic philosophies to choose the better accounting standards.hies to choose the better accounting standards.Address the differences in their respective conceptual frameworAddress the differences in their respective conceptual frameworks later in the project as a separate subproject, at a time agreed bks later in the project as a separate subproject, at a time agreed by the boards.y the boards.Consider their respective due process requirements in arriving at Consider their respective due process requirements in arriving at agreement.agreement.The ASBJ will undertake a study to get an overall picture of majThe ASBJ will undertake a study to get an overall picture of major differences between the respective standards and will identify or differences between the respective standards and will identify topics to be discussed.topics to be discussed.Adopt a phased approach to the comparative reviews of differenAdopt a phased approach to the comparative reviews of differences in individual standards.ces in individual standards.

1919

－ － Key elements agreed (continued)Key elements agreed (continued)

The scope of the first phase is the standards in place as of 31 The scope of the first phase is the standards in place as of 31 March 2004, with the following exceptions;March 2004, with the following exceptions;

①① Standards under review or intended to be reviewed in the joiStandards under review or intended to be reviewed in the joint projects between the IASB and the FASB.nt projects between the IASB and the FASB.

②② Standards that are divergent owing to differences in the respStandards that are divergent owing to differences in the respective conceptual frameworks or basic philosophies.ective conceptual frameworks or basic philosophies.

③③ Standards recently developed.Standards recently developed.④④ Standards whose requirements are subject to legal restrictionStandards whose requirements are subject to legal restriction

s or those currently considered inapplicable in Japan.s or those currently considered inapplicable in Japan.

３ - ３ . Key elements for joint project(2/2)

2020

The ASBJ and the IASB held initial meeting on The ASBJ and the IASB held initial meeting on March 9 and 10, 2005 in Tokyo.March 9 and 10, 2005 in Tokyo.

　　　（　　　（ ContentsContents ））Basic philosophies underlying Japanese accounting Basic philosophies underlying Japanese accounting standards (based on our discussion paper standards (based on our discussion paper “Conceptual Framework of Financial Accounting”)“Conceptual Framework of Financial Accounting”)Comparison between Japanese accounting Comparison between Japanese accounting standards and IFRSsstandards and IFRSsTopics to be addressed in the first phase of the Topics to be addressed in the first phase of the projectproject

３ - ４ . Initial meeting

2121

Topics addressed in the first phase of the projectTopics addressed in the first phase of the project

（（ 11 ） ） Measurement of inventoriesMeasurement of inventories （（ IAS2IAS2 ））（（ 22 ） ） Segment reportingSegment reporting （（ IAS14IAS14 ））（（ 33 ） ） Related party disclosures Related party disclosures （（ IAS24IAS24 ））（（ 44 ） ） Unification of accounting policies applied to Unification of accounting policies applied to

foreign subsidiariesforeign subsidiaries （（ IAS27IAS27 ））（（ 55 ） ） Investment propertyInvestment property （（ IAS40IAS40 ））

　　＊　　＊ Each topic will be deliberated within a year or two.Each topic will be deliberated within a year or two.

　　＊　　＊ There may be additional topics in the first phase.There may be additional topics in the first phase.

３ - ５ . First phase agenda

2222

Second meeting was held in London on September 23.Second meeting was held in London on September 23.

AgendaAgendaDetails of progress concerning the five topics in the Details of progress concerning the five topics in the first phasefirst phaseAdditional topics in the first phase and otherAdditional topics in the first phase and otherConceptual frameworks (Recognition and Conceptual frameworks (Recognition and measurement)measurement)Hedge accounting, Asset removal obligationHedge accounting, Asset removal obligation

３ - ６ . Second meeting

2323

Our ultimate goal is international convergence to a Our ultimate goal is international convergence to a

set of high-quality accounting standards.set of high-quality accounting standards.

Attention should be paid to the Attention should be paid to the de factode facto rules rules

prevailing in capital markets. prevailing in capital markets.

Accord with the constituents of global markets Accord with the constituents of global markets

should be more strengthened.should be more strengthened.

３ - ７ . Our thought

2424

Accounting StandardsAccounting Standards 　⇒　⇒Decision-making usefulness of financial reporting Decision-making usefulness of financial reporting

(overall)(overall)

XBRLXBRL 　 ⇒　 ⇒ Enhancing the usefulness of financial reportingEnhancing the usefulness of financial reporting (user of XBRL)(user of XBRL)

４ - １ . Objectives of Accounting Standards and XBRL

2525

Easy retrieval of necessary information Easy retrieval of necessary information

Enhanced comparability of financial analysis Enhanced comparability of financial analysis

Enhanced affirmation of consistency among data Enhanced affirmation of consistency among data

Availability of comparative reportsAvailability of comparative reports

４ - ２ . Contribution of XBRL

2626

Accounting StandardsAccounting Standards 　⇒　　⇒　Conceptual and theoretical approachConceptual and theoretical approach

XBRLXBRL 　⇒　⇒ Series of interpretationSeries of interpretation

４ - ３ . Different Approach

2727

No change for the approach of developing Accounting StandardsNo change for the approach of developing Accounting Standards

Accounting Standards Setters do not interfere with Accounting Standards Setters do not interfere with

developments of taxonomy of XBRLdevelopments of taxonomy of XBRL

Wait for developments of taxonomy to reach the comfortable Wait for developments of taxonomy to reach the comfortable

levellevel

４ - ４ . Developments of XBRL Taxonomy

2828

Single Standards in the world is the ultimate Single Standards in the world is the ultimate goalgoal

XBRL may function as a bridgeXBRL may function as a bridge

Future role of FASF?Future role of FASF?

４ - ５ . Expectation