REGULATIONS
ASBJ and IASB Make Steady Progress Toward Convergence
June 13, 2008
Julie McClure

The Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) continue to accelerate convergence between their respective accounting standards. Achieving this goal would be a further step toward one single set of global accounting standards, thus enabling investors to make their decisions on investments irrespective of any potential, lingering differences in standards presentation and measurement.

Toward that end, the two boards gathered in Tokyo on April 8-9, 2008. This meeting marked the second time the groups have come together since initiating the Tokyo Agreement in August 2007. This agreement is aimed at accelerating a process that began in 2005 to converge the Japanese Generally Accepted Account Principles (GAAP) and International Financial Reporting Standards (IFRSs).

Of critical importance to the Tokyo Agreement is a year-end 2008 target date for eliminating major differences between Japanese GAAP and current IFRSs, based on the July 2005 CESR assessment of equivalence of Japanese GAAP and IFRSs. CESR, the Committee of European Securities Regulators, is an advisory group to the European Commission that works to improve coordination among securities regulators.

ASBJ Chairman Ikuo Nishikawa said of the April meeting, "we will address the issues to ensure credibility and transparency of international financial and capital markets in cooperation with the interested parties, including the IASB [International Accounting Standards Board]."

Items topping the boards' short-term work agendas are to identify which original differences have been resolved and those that remain. Some themes addressed during these discussions have included the reporting of share-based payments, business combinations, inventories, intangible assets, and property, plant and equipment. Working groups and technical committees have been established to address each of these issues specifically.

Future Work Efforts

The Tokyo Agreement also set a target date of June 30, 2011 for the remaining differences being removed. These medium- and long-term efforts will focus on consolidation, revenue recognition, insurance contracts, liability and equity, and financial statement presentation.

An additional work agenda item is to examine new differences that emerged since formalization of the Tokyo Agreement, as well as their impact on standard setting environments. Among those differences is the February 2006 agreement to converge U.S. Financial Accounting Standard Board (FASB) and IASB standards by 2008. The ASBJ, therefore, has refocused its priorities to adapt to the new targets resulting from the FASB-IASB agreement, and will seek convergence with the solutions that emerge from those efforts.

It is important to note that while the Tokyo Agreement's 2011 target date does not apply to any new standards that emerge following the 2008 work efforts, both boards plan to work closely to ensure acceptance of the international approach in Japan when new standards become effective.

Representing the second largest economy in the world, Japan is joining 109 other countries that have adopted IFRSs already. IASB Chairman Gerrit Zalm predicts this figure will soar to 150 by 2011. The next ASBJ/IASB meeting is scheduled for this September in London.

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