Accounting Standards

The process of setting accounting standards, previously driven by the Ministry of Finance, and the Financial Services Agency after the reorganization of government ministries and agencies, has been gradually changing.

The Financial Accounting Standards Foundation ("FASF") was established in 2001, and the Accounting Standards Board of Japan ("ASBJ") was organized under the auspices of the FASF as an independent, private-sector entity to develop accounting standards in Japan. Since its inception, the ASBJ has issued many accounting standards, guidance and other documents that address practical issues. In addition, in January 2005, it announced the launch of a joint project with the International Accounting Standards Board ("IASB") aimed at achieving convergence between Japanese GAAP and International Financial Reporting Standards ("IFRSs").

In October 2006, the ASBJ has decided to formulate and release "ASBJ Project Plan" focusing on accounting standards development projects, related to convergence, in an attempt to indicate the status of initiatives of the ASBJ to various constituencies in Japan and abroad.

In this report, based on the proposal concerning a time-framed approach in light of the European Union ("EU") equivalence assessment, titled "Towards the International Convergence of Accounting Standards" issued by the Planning and Coordination Committee of the BAC in July 2006, primary emphasis was placed on mapping out the work planned to be achieved through the end of 2007, and also on clarifying the prospects of convergence status as of the beginning of 2008 concerning the initiatives to be undertaken with respect to the 26 issues for which the remedies were advised by the Committee of European Securities Regulators ("CESR").

In August 2007, the ASBJ and the IASB jointly announced an agreement (known as the Tokyo Agreement) to accelerate convergence between Japanese GAAP and IFRSs, a process that was started in March 2005. As part of the agreement, the two boards will seek to eliminate by 2008 major differences between Japanese GAAP and IFRSs (as defined by the July 2005 CESR assessment of equivalence), with the remaining differences being removed on or before 30 June 2011. Whilst the target date of 2011 does not apply to any major new IFRSs now being developed, that will become effective after 2011, both boards will work closely to ensure the acceptance of the international approach in Japan when new standards become effective.

The new project plan was issued in December 2007, in accordance with the content of the Tokyo Agreement. It classifies the project items into three categories (short-term, medium-term and medium and long-term) and indicates the schedule for each item. Items exhibited in "2. Items relating to the remaining differences (medium-term)" and "3. Items relating to MOU between IASB and FASB" are only the items that have already been launched or clearly planned.