1. 1 Developments of Accounting Standards and XBRL Ikuo Nishikawa Vice Chairman Accounting Standards Board of Japan November 7, 2005

2. 2 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

3. 3 １ - １. Our organization - ASBJ and FASF 《 FASF 》

4. 4 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

5. 5 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

6. 6 Business combinations and Business Divestiture Share-based Payment Presentation of Net Assets on the Balance Sheet Statement of Changes in Equity Quarterly Financial Reporting ※ except themes on joint project between the ASBJ and the IASB ２ - １. Recent Developments of Accounting Standards

7. 7 Summary of Accounting Treatment under the Purchase Method Summary of Accounting Treatment under the Purchase Method (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)

8. 8 Distinction 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 the purchase method Yes Ｎｏ Acquirer is identified simultaneously ２‐２. Business combination (2/2)

9. 9 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 divestiture Continuity or liquidation of investment Whether transfer gains or losses are recognized or not Accounting for business divestiture Continuity or liquidation of investment Whether transfer gains or losses are recognized or not Accounting for business combination Acquisition or combining of interests Whether goodwill is recognized or not Accounting for business combination Acquisition or combining of interests Whether 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

10. 10 ２‐４. Share-based Payment (1/2) Scope 1.Share-based compensation arrangements with employees or directors 2.Share-based payment transactions with those other than employees or directors when goods or services are received 3.Arrangements in which a company’s own equity instruments are used as consideration

11. 11 Recognition and Measurement  Recognition - Compensation cost should be recognized over the period for services rendered - Compensation cost should be recognized over the period 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 equity  Measurement - 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)

12. 12 ２‐５. Presentation of Net Assets on the Balance Sheet Background Trigger : Controversy over the credit entry of Stock option Harmonization with international accounting standards Overview Net Assets consists of  Owners’ equity ： attributable to shareholders of the parent company  Other components:OCI, Warrants issued, Minority interest

13. 13 ２‐６. Presentation of Net Assets on the Balance Sheet Net assets Ⅰ Owners ’ equity 1 Common stock ××× 1 Common stock ××× 2 Capital surplus ××× 2 Capital surplus ××× 3 Retained earnings ××× 3 Retained earnings ××× 4 Treasury stock △ ××× 4 Treasury stock △ ××× Total owners ’ equity ××× Total owners ’ equity ××× Ⅱ Accumulated 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 Warrants issued ××× Ⅳ Minority interest ××× Total net assets ××× Total net assets ×××

14. 14 ２‐７. Statement of Changes in Equity Background Newly required by the New Company Act Convergence with international accounting standards

15. 15 Background  The quarterly financial reporting system will be introduced to Japanese listed companies by Securities and Exchange Law ２‐８. Quarterly Financial Reporting

16. 16 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.

17. 17 ３ - ２. Launch of the project (1)Sir David Tweedie, chairman of the IASB, proposed the joint project for convergence. (July 2004) (2)The ASBJ replied that it agreed with the proposal to launch the joint project. (September 2004) (3)Sir David Tweedie visited Japan. The ASBJ and the IASB started talks about the joint project. (October 2004) (4)The ASBJ and the IASB agreed to the key elements on proceeding the joint project. (January 2005)

18. 18 ３ - ３. Key elements for joint project (1/2) － Key elements agreed Utilize their respective conceptual frameworks or basic philosophies to choose the better accounting standards. Address the differences in their respective conceptual frameworks later in the project as a separate subproject, at a time agreed by the boards. Consider their respective due process requirements in arriving at agreement. The ASBJ will undertake a study to get an overall picture of major differences between the respective standards and will identify topics to be discussed. Adopt a phased approach to the comparative reviews of differences in individual standards.

19. 19 － Key elements agreed (continued) The scope of the first phase is the standards in place as of 31 March 2004, with the following exceptions; ① Standards under review or intended to be reviewed in the joint projects between the IASB and the FASB. ② Standards that are divergent owing to differences in the respective conceptual frameworks or basic philosophies. ③ Standards recently developed. ④ Standards whose requirements are subject to legal restrictions or those currently considered inapplicable in Japan. ３ - ３. Key elements for joint project (2/2)

20. 20 The ASBJ and the IASB held initial meeting on March 9 and 10, 2005 in Tokyo. （ Contents ） （ Contents ） Basic philosophies underlying Japanese accounting standards (based on our discussion paper “Conceptual Framework of Financial Accounting”) Comparison between Japanese accounting standards and IFRSs Topics to be addressed in the first phase of the project ３ - ４. Initial meeting

21. 21 Topics addressed in the first phase of the project （ 1 ） Measurement of inventories （ IAS2 ） （ 2 ） Segment reporting （ IAS14 ） （ 3 ） Related party disclosures （ IAS24 ） （ 4 ） Unification of accounting policies applied to foreign subsidiaries （ IAS27 ） foreign subsidiaries （ IAS27 ） （ 5 ） Investment property （ IAS40 ） ＊ 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

22. 22 Second meeting was held in London on September 23. Agenda Details of progress concerning the five topics in the first phase Additional topics in the first phase and other Conceptual frameworks (Recognition and measurement) Hedge accounting, Asset removal obligation ３ - ６. Second meeting

23. 23 Our ultimate goal is international convergence to a set of high-quality accounting standards. Attention should be paid to the de facto rules prevailing in capital markets. Accord with the constituents of global markets should be more strengthened. ３ - ７. Our thought

24. 24 Accounting Standards ⇒ Decision-making usefulness of financial reporting (overall) (overall) XBRL ⇒ Enhancing the usefulness of financial reporting Enhancing the usefulness of financial reporting (user of XBRL) (user of XBRL) ４ - １. Objectives of Accounting Standards and XBRL

25. 25 Easy retrieval of necessary information Enhanced comparability of financial analysis Enhanced affirmation of consistency among data Availability of comparative reports ４ - ２. Contribution of XBRL

26. 26 Accounting Standards ⇒ Accounting Standards ⇒ Conceptual and theoretical approach XBRL ⇒ Series of interpretation Series of interpretation ４ - ３. Different Approach

27. 27 No change for the approach of developing Accounting Standards Accounting Standards Setters do not interfere with developments of taxonomy of XBRL Wait for developments of taxonomy to reach the comfortable level ４ - ４. Developments of XBRL Taxonomy

28. 28 Single Standards in the world is the ultimate goal XBRL may function as a bridge Future role of FASF? ４ - ５. Expectation