The International Accounting Standards Board and the Accounting Standards Board of Japan have agreed to launch a joint project to reduce differences between international financial reporting standards and Japanese accounting standards.

The two boards started talks about a joint project back in October 2004. Under the agreement, the boards said that they will identify and assess differences in their existing standards on the basis of their respective conceptual frameworks or basic philosophies, with the aim of reducing those differences where economic substance or market environments such as legal systems are equivalent. In addition, the boards said that they will address the differences in their respective conceptual frameworks later in the project, as a separate subproject, and will 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 Japanese accounting standards and IFRS, and will identify topics to be discussed.

The boards will adopt a phased approach to the comparative reviews of differences in individual standards. The scope of the first phase is standards in place as of March 31, 2004, except for: standards under review or intended to be reviewed in the joint projects between the IASB and the Financial Accounting Standards Board; standards that are divergent owing to differences in the respective conceptual frameworks or basic philosophies; standards recently developed; standards whose requirements are subject to legal restrictions; or those currently considered inapplicable in Japan.

The boards said that topics excluded from the first phase will be addressed in subsequent phases. The ASBJ will identify topics for the first phase of the project by early 2005. A meeting between representatives of the two boards is slated to take place in Tokyo in the first quarter of 2005.

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