Balance Sheet and Discussion Paper

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The Series of Discussion Papers

“Conceptual Framework of Financial Accounting”

Working Group on Fundamental Concepts

September 2004

(Tentative translation: 28 Feb. 2005)


Issuance of the Series of Discussion Papers “Conceptual Framework of Financial Accounting”・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・ 1 Discussion Paper “Objectives of Financial Reporting” ・・・・・・・・・・・・・・・4 Discussion Paper “Qualitative Characteristics of Accounting Information” ・・・・・12 Discussion Paper “Elements of Financial Statements” ・・・・・・・・・・・・・・22 Discussion Paper “Recognition and Measurement in Financial Statements” ・・・・32

Issuance of the Series of Discussion Papers “Conceptual Framework of Financial Accounting” Background Information on the Issuance of the Series of Discussion Papers “Conceptual Framework of Financial Accounting” Based on remarks received from various constituencies regarding the necessity for developing a written conceptual framework as a basis for developing accounting standards in Japan, the Accounting Standards Board of Japan (hereinafter called “the Board”) organized a Working Group under its supervision, which mainly consists of external academics, and delegated the study of this issue to the Working Group. Some full-time Board members and some staff also participated in the Working Group, and the Working Group held as many as 46 meetings under the guidance of the Chairman. This series of Discussion Papers “Conceptual Framework of Financial Accounting” (hereinafter called “these Discussion Papers”) summarizes the conclusions reached by the Working Group. Consequently, the views provided in these Discussion Papers are not necessarily those of the Board but are those of the Working Group that were reported to the Board. These Discussion Papers may eventually become accepted as de facto standards if their usefulness is confirmed in the process of developing standards in the future and if improvements are made to reflect the opinions of constituencies. The Working Group expects the Board to continue discussing these Discussion Papers with constituencies as necessary while observing how these Discussion Papers are accepted. Although there are various possible alternatives regarding the structure of the conceptual framework, the structure of these Discussion Papers is basically in line with precedent conceptual frameworks issued overseas. Since conceptual frameworks issued by major accounting standard setters overseas are well known in Japan, using the same structure would facilitate the constituencies’ understanding of these Discussion Papers and enable these Discussion Papers to function more efficiently. In addition, adopting the same structure would also facilitate communication with standard setters overseas regarding international convergence (or international harmonization) of accounting standards. Role of the Discussion Papers These Discussion Papers summarize and organize the basic premises and concepts


underlying existing business accounting (financial accounting in particular) and their contents are expected to provide guidance for developing accounting standards in the future. If the guidance provides systematic stability to accounting standards, predictability regarding changes in accounting standards would be enhanced. Assisting constituencies in preparing for the uncertain future and avoiding unnecessary costs through enhanced predictability is another important role expected from these Discussion Papers. Summarizing and organizing basic premises and concepts facilitates communications with standard setters overseas. When international convergence (or international harmonization) of accounting standards is pursued, explanations of the causes of the differences are often required. These Discussion Papers are also expected to provide an effective basis for these explanations. These Discussion Papers are not only expected to organize existing accounting standards systematically as...
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