IFRS-JGAAP comparisonEnglish version 1.0

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Contents

Contents ................................................................ 2

Introduction ........................................................... 3

Presentation of Financial Statements, Assets Held for

Sale and Discontinued Operations ............................. 4

Consolidation, Equity Method & Joint Ventures ........... 7

Business Combinations ........................................... 11

Inventory .............................................................. 16

Intangible Assets and Research and Development Costs

............................................................................... 18

Fixed Assets ......................................................... 21

Investment Property .............................................. 23

Impairment of Assets ............................................. 25

Leases .................................................................. 26

Financial Instruments ............................................ 28

Foreign Currency ................................................... 35

Income Tax ........................................................... 38

Revenue Recognition, Construction Contracts ........... 43

Share-Based Payments ........................................... 46

Employee Benefits, excluding Share-Based Payments . 49

Appendix－The Development of IFRS ......................... 51

3

Introduction

Today, in a move towards improving the comparability of financial statements and to reducing the costs of raising capital in international markets, countries are converging their national accounting standards with International Financial Reporting Standards (“IFRS”) or are adopting IFRS itself.

In Japan too, The Accounting Standards Board of Japan (“ASBJ”) and the International

Accounting Standards Board (“IASB”) concluded the “Tokyo Agreement” in August 2007 and agreed to the acceleration of convergence. Specifically, it is planned that the significant differences between Japanese generally accepted accounting principles (“JGAAP”) and IFRS will be eliminated by the end of 2008 and that the remaining

differences will be eliminated by 30 June 2011.

Through the convergence project consistent with that agreement, the differences between IFRS and JGAAP have been eliminated to a considerable extent. However, a number of differences remain between JGAAP and IFRS because convergence based on the “Tokyo Agreement” is ongoing and as revisions continue to be made and new standards issued in IFRS.

In this booklet, we outline the differences between the two sets of standards by accounting topic. It is not possible to describe comprehensively every difference which could arise in accounting for all transactions, and we have focused as much as possible on those differences which are considered to be most common.

We have taken care in preparing this booklet. However as the information is summarised, this booklet is intended to be used as general guidance only and is not intended to be used as detailed advice or in place of professional judgment.

Ernst & Young ShinNihon LLC, Ernst & Young Global and any member firm thereof, will not be responsible should any damages or losses arise as a result of the use of this booklet. The information contained herein is based on accounting standards effective as at 1 January 2009.

4

Presentation of Financial Statements, Assets Held for Sale and Discontinued Operations

► Significant Differences

JGAAP IFRS Accounting periods required to be presented

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements: Presentation) The prior period and the current period consolidated financial statements must be presented comparatively.

（IAS1.38）

Comparative information, as a minimum for one previous period, shall be disclosed for all amounts reported in the financial statements.

Components of financial statements

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements: Presentation) The following statements must be prepared: ► Consolidated Balance Sheet ► Consolidated Profit and Loss

Statement ► Consolidated Statement of

Changes in Shareholders’ Equity

► Consolidated Cash Flow Statements

► Accounting Policies and Other Explanatory Information

► Consolidated Supplementary Information

（IAS1.10）

The following statements must be prepared: ► Statement of Financial Position ► Statement of Comprehensive

Income ► Statement of Changes in Equity ► Statement of Cash Flow ► Accounting Policies and Other

Explanatory Information Titles other than those listed above may be used for these statements.

Presentation of extraordinary gains and losses

(Regulation for Terminology, Forms and Preparation of Financial Statements 95-2,3） Items related to extraordinary gains and losses are presented by category in accordance with the nature of the items.

（IAS1.87） Extraordinary items shall not be presented in the statement of comprehensive income (profit and loss statement) or in the notes.

5

JGAAP IFRS Changes in accounting policies

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements 14) The amounts of prior periods are not restated, the effect of the change of accounting policy is disclosed in the notes only. This disclosure is of the impact of the change on the period in which the change takes place and is the amount that would have been recorded had the previous accounting policy been used in the current period.

（IAS8.22）

Changes in accounting policies are applied retrospectively by adjusting the opening balance of each component of equity for the earliest period presented as if the new policy had always been applied.

Changes in accounting estimates

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements 15) The effect of the change is adjusted in the profit and loss of the year in which the change in accounting estimate is made only. <Changes in method of depreciation> A change in the method of depreciation is considered to be a change of accounting policy and therefore, the above required disclosures are given.

（IAS8.35,36） Changes in accounting estimates are not adjustments to prior periods or corrections of errors. They shall be adjusted in the current period and future periods, as appropriate, only. <Changes in method of depreciation> Under IFRS, a change in the method of depreciation is considered to be a change of accounting estimate.

Corrections of errors

(Corporate Accounting Principles

2.12） There is no specific rule regarding the corrections of material errors, however corrections of errors to the prior periods financial statements are recorded as extraordinary items (adjustments in relation to prior period) in the profit and loss statement of the period in which they are found.

（IAS8.42） Except for when it is impracticable to determine the period-specific effect or the cumulative effect, a material error shall be corrected retrospectively by: ► restating the comparative

amounts in the prior period in which the error occurred; or

► if the error occurred before the earliest period presented, restating the opening balances of assets, liabilities and equity for the earliest period presented.

6

JGAAP IFRS Departure from a requirement in order to give fair presentation

No such rule exists. （IAS1.19,20）

There are cases, in the extremely rare circumstances in which compliance with a requirement in an IFRS would be so misleading that it would conflict with or be contrary to the Framework for the Preparation and Presentation of Financial Statements, where it is necessary to depart from that requirement (the „fair presentation override‟).

Non-current assets classified as held for sale (and disposal groups)

There is no specific rule. However, under the Standard for the Impairment of Fixed Assets, note 2, as examples of indicators of impairment, disposal of a business operation and restructurings, changes in purpose of use etc. are given.

（IFRS5.6,15,16） If the carrying value of assets will be recovered principally through a sale transaction rather than through continuing use, the asset (or disposal group) shall be classified as held for sale and shall be measured at the lower of carrying amount and fair value less costs to sell.

Depreciation of non-current assets classified as held for sale

There is no specific rule.

（IFRS5.25）

Non-current assets (or disposal groups) classified as held for sale are not depreciated.

Presentation of discontinued operations

There is no specific rule.

（IFRS5.30,33,38）

The following amounts must be separated from the amounts arising from continuing operations in the statement of comprehensive income (profit and loss statement): ► the post-tax profit or loss of

discontinued operations; ► the post-tax gain or loss

recognised on the measurement to fair value less costs to sell or on disposal.

First time adoption

There is no clear required treatment. However, where companies which have not previously prepared financial statements prepare these for the first time, with respect to the opening consolidated balance sheet, there are many cases in which the notes state that there are no comparatives to the financial statements in the first year of presentation.

（IFRS1） In principle, all effective accounting standards must be applied in the first IFRS financial statements. By way of exception however, there are certain retrospective applications of standards which may be exempted and there are others which are prohibited.

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Consolidation, Equity Method & Joint Ventures

► Significant differences

JGAAP IFRS Scope of consolidation

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements 5) The scope of consolidation is based on the concept of control. Control exists when one company has control over the decision making body of another company.

（IAS27.12,13,14）

The scope of consolidation is based on the concept of control. Control exists when the parent entity is able to govern the financial and operating policies of another entity so as to obtain benefits from that entity’s activities. When assessing whether an entity has control over another entity, potentially exercisable or convertible instruments with voting rights are considered.

Scope of consolidation (exception)

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements 5) The following entities are excluded from the scope of consolidation: ► subsidiaries where control is

temporary; ► subsidiaries which, if

consolidated, would give rise to the risk of substantially misleading the judgment of interested parties

All entities, which are in substance controlled must be consolidated, there are no exceptions similar to the JGAAP exception. However, investments which are classified as held for sale in accordance with IFRS 5 are accounted for in accordance with IFRS 5.

Special purpose entities (SPEs)

(Treatment of the revision of the scope of consolidation) (Treatment in practice regarding the control and the influence standards in relation to investment vehicles) Certain SPEs which meet certain conditions are presumed not to meet the definition of subsidiaries. The scope of consolidation of investment vehicles is in principle judged based on the existence of control over operations.

（SIC12.8）

SPEs shall be consolidated when the substance of the relationship between an entity and the SPE indicates that the SPE is controlled by the entity.

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JGAAP IFRS Presentation of profit or loss attributable to minority interests

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements 65) Profit (or loss) attributable to minority interests is presented as a deduction from net profit for the period after tax.

（IAS1.83）

Profit or loss and total comprehensive income for the period attributable to non-controlling interests (minority interests) and to the parent company are disclosed as allocations for the period in the statement of comprehensive income.

Changes in parent’s ownership interest which do not result in loss of control

(Accounting Standard for

Consolidated Financial Statements 5） The difference between the additional investment and the additional ownership interest is goodwill. The difference between the decrease in the investment and the decrease in the ownership interest is reflected in the profit or loss on disposal of an interest in a subsidiary.

（Currently effective standard）

There is no clear rule. （Revised standard）

（IAS27.30）

Effective for accounting periods commencing on or after 1 July 2009, these are treated for as equity transactions.

Loss of control of a subsidiary

(Practical Guidance on Accounting Standards for Capital Consolidation Procedures in Preparing Consolidated Financial Statements 45,46) When the remaining investment represents an investment in an associate, the investment is valued using the equity method. When the remaining investment is not an associate, it is valued based on its carrying value in the separate financial statements of the parent.

（Currently effective standard）

（IAS27.32） The parent company recognises any remaining interest at cost in accordance with IAS39 on the date that the entity is no longer a subsidiary. (Revised standard) （IAS27.34） The parent company recognises any remaining interest at its fair value at the date that control is lost.

Equity method- scope

(Accounting Standard for

Consolidated Financial Statements 4,8） Non-consolidated subsidiaries and investments in associates are, in principle, accounted for using the equity method.

（IAS28.1,3,4,13)

In principle, all investments in associates are accounted for using the equity method. (In IFRS there are no non-consolidated subsidiary rules)

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JGAAP IFRS Equity method- scope (exception)

(Regulation for Terminology, Forms and Preparation of Consolidated Financial Statements 10) The following investments are excluded from the application of the equity method: ► associates where control is

temporary; ► associates, which, if the equity

method were to be applied, would give rise to the risk of substantially misleading the judgment of interested parties

（IAS28.13,14）

All entities over which an entity has significant influence are accounted for using the equity method. However, investments which are classified as held for sale in accordance with IFRS5 are accounted for in accordance with IFRS5.

Discontinuance of equity method

(Practical Guidance on Accounting Standards for Investments, Using the Equity Method 19) When an entity ceases to be an associate as the result of sale or another event, any remaining investment in shares is valued at the carrying value of the investment in the separate financial statements of the investor.

(Currently effective standard) （IAS28.19） The investment is accounted for in accordance with IAS39 as a financial asset and the book value of the investment at the time it ceases to be an associate, is its cost on initial recognition. (Revised standard) （IAS28.19）

For periods commencing on or after 1 July 2009, it is accounted for in accordance with IAS39 as a financial asset and the fair value of the investment at the date it ceases to be an associate is its fair value on initial recognition.

Joint ventures (Treatment of the revision of the scope of consolidation 2.2) As it is not considered to be appropriate to proportionately consolidate certain assets or liabilities etc. of joint ventures when such assets have substance, they should be fully consolidated by one of the JV partners. Such investments may be accounted for using the equity method by other related entities rather than by proportionate consolidation.

(IAS31.30,38) Of joint ventures, jointly controlled operations are accounted for by either of the following methods: ► proportionate consolidation; or ► equity method.

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JGAAP IFRS Separate financial statements: subsidiaries, associates and jointly controlled operations

(Accounting Standard for Financial Instruments 4 2.(3) 17) Investments in subsidiaries and associates are recorded at cost in the balance sheet of the separate (non-consolidated) financial statements.

（IAS27.38）

In the separate financial statements of the investing entity, investments in subsidiaries, associates and jointly controlled operations are accounted for either: ► at cost; or ► in accordance with IAS39. However, when investments are classified as held for sale in accordance with IFRS5, they are accounted for in accordance with IFRS5.

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Business Combinations

► Significant differences

JGAAP IFRS Definition of a business combination

(Accounting Standard for Business Combinations – current standard

2.1) A business combination is when an entity (company or similar entity) or a business operation, which forms an entity, combines with another entity or business operation, which forms an entity, to become one reporting unit.

(IFRS3 - Currently effective standard - Appendix A) A business combination is the bringing together of separate entities or businesses into one reporting entity. (IFRS3R - Revised standard - Appendix A) The revised standard is effective for accounting periods commencing on or after 1 July 2009. A business combination is a transaction or other event in which an acquirer obtains control of one or more businesses.

Accounting for business combinations

(Current standard 3,2,3) The purchase method and, in limited circumstances, the pooling of interests method are allowed.

（IFRS3.4, IFRS3R.4） The acquisition method (the purchase method in IFRS3)is the only method allowed.

Timing of the measurement of consideration (shares)

(Guidance on the application of Business Combination Accounting 38) Within 5 days preceding the agreement or the announcement of the major terms of the acquisition. Date of the acquisition is also permitted provided no material difference between stock prices on the announcement date and the acquisition date would arise.

(IFRS3.25, IFRS3R8) The acquisition date is the date on which the acquirer effectively obtains control of the acquiree.

Expenses directly related to the business combination

（Current standard 3,2,(2),④）

Included in the cost of the business combination (as a result a part of goodwill).

(Currently effective standard) (IFRS3.29) Included in the cost of the business combination (as a result a part of goodwill). (Revised standard) (IFRS3R.53) Expensed as a cost when the services are received.

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JGAAP IFRS Recognition of contingent liabilities

(Guidance on the application of Business Combination Accounting 62) If certain conditions are met, these can be recognised in a specified account relating to the business combination.

(Currently effective standard)（IFRS3.37,47） Contingent liabilities including potential liabilities are recognised regardless of likelihood of occurrence when fair value can be measured reliably. (Revised standard) (IFRS3R.22) Contingent liabilities which are obligations arising from past events are recognised regardless of likelihood of occurrence when fair value can be measured reliably.

Accounting for intangible assets

(Business Combinations Accounting Standard 3,2,(3)) Intangible assets which were not previously recognised by the acquiree may be recognised separately from goodwill.

(Currently effective standard) (IFRS3.37) Intangible assets must be recognised separately when they meet the definition in IAS38 and to the extent that fair value can be measured reliably. (Revised standard) （IFRS3R.13, IAS38.33)

Intangible assets must be recognised separately when they meet the definition in IAS38 and in a business combination, reliable measurement criteria is always considered to be satisfied.

Rights reacquired through a business combination (for example, trademarks previously sold by the acquirer)

There is no specific guidance. (Currently effective standard) (IFRS3) There is no specific guidance. (Revised standard) (IFRS3R.29) Where the rights meet the criteria for recognition, they are recognised as intangible assets separately from goodwill based on the remaining contractual term.

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JGAAP IFRS Initial recognition of goodwill and measurement of non-controlling interest (minority interests)

(Current standard 2,8) Goodwill is the amount by which the acquisition cost of the entity or the business acquired exceeds the net amount which is allocated to the assets acquired or the liabilities assumed (the so-called “purchased goodwill approach”).

(Consolidated Financial Statements Standard 4,2,1) One of two methods may be selected: 1) the assets and liabilities of subsidiaries are measured at their fair values on acquisition date and minority interest „s are recorded as the minority interest share of the fair value of net assets at acquisition date (the so-called “full market value method”). 2) the parent‟s share of the assets and liabilities of the subsidiary are measured at fair value on the date of each acquisition, and minority interest‟s are recorded at their share of the amount recorded in the balance sheet of the subsidiary (without fair value adjustment) (the so-called “partial valuation method ”).

(Currently effective standard) （IFRS3.51） Minority interests are measured as the proportionate share of the fair value of the acquiree‟s net assets, and goodwill is recognised only in respect of the acquirer‟s share (the so-called “purchased goodwill approach”). (Revised standard) （IFRS3R.19,32）

One of two methods may be selected: 1) the fair value of the entire

entity acquired is measured including the non-controlling interest‟s share, and goodwill is recognised including that relating to the non-controlling interest‟s share (the so-called “full goodwill approach”); or

2) non-controlling interests (NCI) are measured as the NCI‟s share of the fair value of the net assets of the acquiree, and goodwill is recognised only in respect of the acquirer‟s share (the so-called “purchased goodwill approach”) .

Amortisation of goodwill

(Consolidated Financial Statements Standard 4,3,2) In principle, goodwill must be amortised within 20 years using the straight line method or any other rationale method. When amount is insignificant, it is possible to expense goodwill in the period in which it arises.

(IFRS3.55, IFRS3R.54,B63) Goodwill is not amortised but is subject to an impairment review in each reporting period. Reversals of previous impairments of goodwill are prohibited.

Negative goodwill

(Current standard 3,2,(5)) Negative goodwill is amortised systematically over the period to which it relates within 20 years. When amount is insignificant, it is possible to recognise it as a gain in the period in which it arises.

(IFRS3.56, IFRS3R.34) After reassessing the identified assets, liabilities, contingent liabilities and the acquisition cost, negative goodwill is recognised as a gain in profit or loss.

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JGAAP IFRS Identifying the acquirer (for example, when combination is effected by exchanging equity interests)

(Current standard 3,2,(1)) The acquirer is determined after clarification of conditions of payment of the consideration, relative voting rights, and effective control.

(Currently effective standard) （IFRS3.20） The following are considered in the determination of the acquirer: ► which entity has a significantly

greater fair value; ► where cash etc. and shares are

exchanged in the business combination, which entity contributed the cash etc.; and

► which entity has the right to select management of the combined entity.

(Revised standard) (IFRS3R.7,B15) The following are considered in the determination of the acquirer: ► the relative voting rights in the

combined entity after the combination;

► the largest minority voting interest held in the combined entity, where there is no other party with a significant voting interest;

► the composition of the governing body of the combined entity;

► the composition of the senior management of combined entity;

► the terms of the exchange of equity interests (existence of a premium paid by one of the parties).

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JGAAP IFRS Business combinations achieved in stages

(Current standard 3,2,(2)②)

Purchase consideration at each transaction is simply totaled (no remeasurement) and compared to acquisition date fair value of net assets to calculate goodwill. Minority interests are measured as outlined above in “Initial recognition of goodwill and measurement of non-controlling interest (minority interests)”.

(Currently effective standard) (IFRS3.58,59) At each transaction date, the assets and liabilities acquired are measured at fair value at that date to calculate goodwill. At acquisition date, any gain or loss which arises on the previously held share of net assets from each transaction date to acquisition date is treated as a revaluation and, in principal, is recognised initially in a separate component of equity as such. (Revised standard) (IFRS3R.18,42, Appendix B) The previously held equity interest is remeasured at acquisition date fair value and the resulting gain or loss recorded in profit and loss, and the remeasured interest is considered in the measurement of goodwill at acquisition date. Non-controlling interests are measured as outlined above in “Initial recognition of goodwill and measurement of non-controlling interest (minority interests)”.

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Inventory

► Significant Differences

JGAAP IFRS Definition of inventories (treatment of office supplies and similar)

(Accounting Standard for

Measurement of Inventories 3） Inventories are assets for sale which are held to achieve the entity’s operating objectives, and also include office supplies and similar which, although not held for sale, are consumed in the short term in the entity’s sales or general administrative activities.

(IAS2.6) Inventories are assets: ► held for sale in the ordinary

course of business; ► in the process of production; or ► materials or supplies to be

consumed in the production process or in the rendering of services.

Cost methods (Current standard) (Corporate Accounting Principles note 21) (Methods for determining balance sheets values) Specific identification method, FIFO, LIFO, average cost method, retail method (Revised standard) (Accounting Standard for Measurement of Inventories 6-2, 34-4) For periods commencing after 1 April 2010, the LIFO method is prohibited. In certain situations, the latest purchase price method is allowed.

(IAS2.21-27) (Cost method) Specific identification method, FIFO, weighted average (Cost measurement techniques) The actual cost method is the principle, however the standard cost method and retail cost method are also given as examples in the standard. The standard cost method and retail cost method are acceptable for convenience when their results approximate cost.

Inclusion of borrowing costs in cost

(Guidance on auditing interest costs in relation to property development operations II) Interest costs, which meet certain criteria, may be included in cost in respect of property development operations.

(IAS23.7-8) For those inventories which meet the conditions in IAS23, in principle, borrowing costs must be included in cost.

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JGAAP IFRS Reversals of write-downs

(Accounting Standard for Measurement of Inventories 14, 17) It is possible to select a policy of reversal of previous write downs or a policy of non-reversal. However, in extraordinary circumstances even if a policy of reversal is selected, reversal is not allowed.

(IAS2.33) Where the circumstances that previously caused inventories to be written down no longer exist, or when there is clear evidence of an increase in net realisable value caused by changed economic circumstances, the amount of the previous write-down is reversed (i.e. limited to the amount of the original write-down).

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Intangible Assets and Research and Development Costs

► Significant differences

JGAAP IFRS Acounting standard

There is no one comprehensive accounting standard which deals with intangible fixed assets.

（IAS38）

The basis of recognition and measurement of intangible assets differs depending on whether they are purchased individually or acquired through a business combination, or whether they are internally generated.

Definition (Regulation for Terminology, Forms and Preparation of Financial Statements 28) There is no separate definition for intangible assets, however the following are given as examples: ► goodwill ► patents ► land lease rights (including

surface rights） ► trademarks ► utility model rights ► design rights ► mining rights ► fishing rights（including common

of piscary） ► software ► leased intangible assets

（IAS38.13,17,8） The definition of an intangible asset includes all the following: ► an asset controlled by the entity

as a result of past events; ► an asset from which future

economic benefits are expected to be received; and

► an identifiable non-monetary asset without physical substance.

Initial recognition and measurement (recognition rules)

There is no clear guidance in respect of the recognition of intangible assets.

（IAS38.18,21）

Intangible assets shall only be recognised if they meet the definition of an intangible and if, and only if: ► it is probable that the expected

future economic benefits from the asset will flow to the entity; and

► the cost of the asset can be measured reliably.

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JGAAP IFRS Internally generated intangible assets: research and development

(Accounting Standard for research and development costs 3 and Note 3) Expenditure on research and development shall be recognised as an expense when incurred. Software development costs which are related to research and development are also recognised as an expense when incurred.

（IAS38.52-64）

Expenditure on research shall be recognised as an expense when incurred. Development costs are recognised as intangible assets but only if the technical feasibility, the intention to use or sell the asset, and other conditions can all be demonstrated (if the conditions cannot be demonstrated, the costs must be expensed). There is no separate guidance relating to the development of computer software.

In-process research and development acquired in a business combination

(Accounting Standard for business combinations 3,2,(3)) When part of the acquisition cost is allocated to research and development costs (including software), the relevant cost is expensed at the time of allocation.

（IAS38.34,42,43）

An acquirer recognises as an asset separately from goodwill in-process research and development costs of the acquiree when the definition of an intangible asset is met. The definition of an intangible asset is met when: ► it meets the definition of an

asset; and ► it is separately identifable.

Measurement after recognition

Measured at cost less accumulated amortisation and impairment losses (the revaluation method is not permitted).

（IAS38.72,75）

An entity chooses either the cost model or the revaluation model for subsequent measurement. The revalued amount of an intangible asset is its fair value at the date of revaluation less any subsequent accumulated amortisation and any subsequent accumulated impairment losses. To apply the revaluation model, fair values can only be determined by reference to an active market.

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JGAAP IFRS

Amortisation (useful lives)

In practice, intangible assets are generally amortised on a straight line basis in accordance with the tax regulations (however, there is a specific rule for the amortisation of software in the standard relating to research and development costs 4,5).

（IAS38.88,89） The useful life of an intangible asset is determined as finite or indefinite. An intangible asset shall be regarded as having an indefinite life when, based on an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for the entity. An asset with a finite useful life is amortised over its useful life An asset with an indefinite useful life is not amortised but is subject to an impairment test each period.

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Fixed Assets

► Significant differences

JGAAP IFRS

Measurement of cost of asset acquired by exchange

(Guidance on auditing advanced depreciation by reduction of book value of assets) In exchanges of assets of a similar nature or for a similar purposes, the asset received is measured at the book value of the asset given up. In exchanges of dissimilar assets, in principle, either the asset received or the asset given up is measured at their fair market values.

（IAS16.24） Assets acquired in exchange for another asset (or in a combination of exchange for monetary and non-monetary assets) are measured at fair value unless: a) the exchange transaction lacks commercial substance; or b) the fair value of neither the asset received nor the asset given up is reliably measurable. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of the asset given up.

Capitalisation of borrowing costs

There is no related rule. However, interest paid that meets the conditions in the specific rules for interest on capital borrowings required for construction and for property development can be included in the acquisition cost of the asset.

（IAS23.4,7,8）

Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset shall be included in the acquisition cost of the asset.

Dismantling, disposal and restoration costs etc.

(Current standard) There is no specific rule. (Revised standard) (Accounting Standard for Asset Retirement Obligations 4) For periods commencing after 1 April 2010, the recording of liabilities relating to the disposal of assets is required. The liability is measured at present value.

(IAS16.16(ｃ),18, IAS37.19,45,47) The initial estimate of the costs of dismantling and removing the item and restoring the site are part of the cost of an asset, the corresponding liability is accounted for under IAS37. The amount of the liability is measured at present value. The discount rate used must reflect the market rate and the risks specific to that liability.

Subsequent expenditure

There is no specific rule. Normally, expenditure which extends the useful life of an asset or which improves its operating capacity is capitalised, and expenditure which maintains an asset’s current level of operation is treated as maintenance costs.

(IAS16.7,12,13) Subsequent costs are capitalised if it is probable that they will give rise to future economic benefits to the entity and they can be measured reliably. In all other cases they are expensed as incurred.

22

JGAAP IFRS

Government grants related to assets

(Corporate Accounting Principles Note 24) Government subsidies, construction related proceeds from users etc can be deducted from cost of the related assets. (Guidance on auditing advanced depreciation by reduction of book value of assets) When the company records advanced depreciation as an appropriation of profit in a transfer to reserves, this accounting method can be considered to be appropriate by the auditors.

(IAS20.24) Government grants related to assets are presented either as deferred income or are deducted from the book value of the related asset.

Subsequent measurement

Carried at cost less any accumulated depreciation and any accumulated impairment losses (Revaluation model is not permitted).

（IAS16.29,31） Either the cost model or the revaluation model must be selected as accounting policy and that policy must be applied to an entire class of assets. Revaluations shall be made regularly to ensure that the carrying amount does not differ materially from the fair value at the end of each reporting period.

Unit of depreciation (components approach)

There is no specific rule. （IAS16.43） Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately.

Revision of residual values, useful lives and depreciation methods

(Audit and assurance committee report No. 81 2) In accordance with the rule that depreciation is determined on a rationale basis, depreciation must be carried out each period in a planned and systematic way.

（IAS16.56,61） The residual values, useful lives and depreciation methods shall be reviewed at least each financial year-end.

Changes of depreciation method

(Regulation for Terminology, Forms and Preparation of Financial Statements 8.2) Changes in the method of depreciation are changes in accounting policy and when a change is made, they are treated as such.

（IAS16.61） Changes in the method of depreciation are treated as changes in accounting estimates.

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Investment Property

► Significant differences

JGAAP IFRS Definition of investment property (rental property)

(Accounting Standard for Disclosures about Fair Value of Investment and Rental Property 4,(2)) Investment properties are properties, other than those classified as inventory, which are held for rental income or capital gains purposes (excluding properties under finance lease held by the lessor).

(IAS40.5) Investment property is property held to earn rentals or for capital appreciation.

Properties under development

(Accounting Standard for Disclosures about Fair Value of Investment and Rental Property 6) Rental property (investment property) includes property under development which is intended to be used as rental property in the future and property under redevelopment which is intended to continue to be used as rental property.

(IAS40.7,9) Property which is being constructed or developed does not meet the definition of investment property and is accounted for as a fixed asset. When the construction or development is complete, it is accounted for as investment property.

Ancillary services associated with a property

(Accounting Standard for Disclosures about Fair Value of Investment and Rental Property 28) When the services offered are immaterial to the overall arrangement, the property is treated as an investment property. When the services are material, the property is treated not as an investment property but as an owner-occupied property. Under JGAAP this judgment is allowed on the basis of form rather than substance.

(IAS40.11,12) When the services are insignificant to the arrangement as a whole, the related property is treated as an investment property. When the services are significant, the property is treated as an owner-occupied property. When the above determination is difficult, disclosure must be made of the criteria used in making the judgment .

Measurement on initial recognition

The cost model is the only method applicable(there is no specific standard as fair values are disclosure items only).

(IAS40.30) The cost or the fair value method may be selected.

24

JGAAP IFRS Fair value measurement

There is no specific rule. (IAS40.33,35) If the fair value method is chosen, all investment properties must be fair valued, except in one specific situation. The changes in the fair values are recorded in the profit and loss for the period in which they arise.

Determination of fair value

(Guidance on Accounting Standard for Disclosures about Fair Value of Investment and Rental Property 11) Market value of rental properties at year-end is usually measured by observable market prices and if the market prices are not observable, reasonably calculated prices are used. Reasonably calculated prices related to rental properties are calculated by the method described in Real Estate Appraisal Standards (Ministry of Land, Infrastructure, Transport and Tourism) or similar method.

(IAS40.36) The fair value of an investment property is the price at which the property could be exchanged between knowledgeable, willing parties in an arm’s length transaction. It is recommended but not required that the valuation of an independent valuer with a certain level of experience is used.

25

Impairment of assets

► Significant differences

JGAAP IFRS Indicators of impairment –

long lived assets

(Guidance for the application of the standard on the impairment of fixed assets 11-17) Certain precise numerical indicators are used (for example: if market value falls below 50% of book value)

（IAS36.12） As the indicators are of a broad nature, there is tendency for an indication of impairment to be judged to exist earlier than would be the case under JGAAP

Impairment review process

(Accounting Standard for the impairment of fixed assets 2 2,3) 2 step approach：

1. Recoverability test (the carrying value of the asset is compared to the undiscounted cash flows through the use of the asset and on its final disposal). 2. As a result of this test, if the carrying value is judged not to be recoverable, the amount of the impairment loss is measured.

（IAS36.59）

1 step approach： When there is an indicator of impairment, an impairment loss is determined as the amount by which the carrying value of an asset exceeds its recoverable amount. Recoverable amount is the higher of (i) the fair value less costs to sell and (ii) the value in use (the present value of future cash flows derived from using the asset, including its residual value).

Reversal of impairment losses

(Accounting Standard for the impairment of fixed assets 3 2) Reversal of impairment losses are prohibited for all fixed assets.

（IAS36.110，111） Reversals relating to goodwill are prohibited however, for other long-lived assets, at the end of each period assessment must be made as to whether there is any indication that the impairment no longer exists. When appropriate, the impairment loss is reversed to the extent that it does not exceed the carrying amount that would have been determined (net of amortisation of depreciation) had no previous impairment been reversed.

26

Leases

► Significant differences

JGAAP IFRS Definition of a finance lease

(Accounting Standard for Lease Transactions 5, Implementation Guidance on Accounting Standard for Lease Transactions 9) Finance leases are non-cancelable and require full payout, which means meeting the following conditions: ► the present value of the total

lease payments over the term of the non-cancelable lease is 90% or more of the estimated cash purchase price of the asset; or

► the lease term is approximately 75% or more of the economic useful life of the related asset.

(IAS17.4,10) Finance leases are leases which transfer substantially all the risks and rewards of ownership of an asset regardless of whether or not title is transferred. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract.

Lessee accounting for finance leases –

convenient method (kanben hou)

(Implementation Guidance on Accounting Standard for Lease Transactions 34, 35) If any of the conditions below are met, the convenient method, which allows accounting for the lease as an operating lease may be used: ► leases of depreciable assets,

which are insignificant, the cost of the lease is expensed when the assets are acquired, and the total lease payments is below a set amount;

► leases with a lease term of less than 1 year; or

► leases where the total lease payments are less than JPY 3 million and it is clear from the operations that they are not significant (aside from the transfer of ownership).

（IAS17.20） At the commencement of the lease term, the assets and liabilities are recorded at the lower of the fair value of the leased assets and the present value of the minimum lease payments. There is no “convenient method” as in the Japanese standards.

Lessor accounting for finance leases –

– insignificant transactions

(Implementation Guidance on Accounting Standard for Lease Transactions 59,60) Where a lease does not transfer ownership and is insignificant to the lessor, it is possible to allocate the interest receivable on a straight line basis over the lease term.

（IAS17.36）

Lessors recognise lease assets as receivables at the amount equal to the net investment in the lease. There is no “convenient method” as in the Japanese standards.

27

JGAAP IFRS Depreciation of finance leases

(Accounting Standard for Lease Transactions 39) It is possible to select a different depreciation policy than for owned fixed assets depending on the actual circumstances.

(IAS17.27) The leased asset is depreciated by the lessee over the lease term on a basis consistent with the depreciation policy adopted for its own depreciable assets.

28

Financial Instruments

► Significant differences

JGAAP IFRS

Inclusion of transaction costs in acquisition cost

(Practical Guidance on Accounting Standard for Financial Instruments 29,56) The related costs of the acquisition of a financial asset are, in principle, included in its cost. However, costs, which arise regularly and which are not clearly related to the asset, may be excluded.

（IAS39.43） For financial assets and liabilities which are not measured at fair value through profit or loss, transaction costs which are directly attributable are included in acquisition cost. Transaction costs are not included for financial assets and liabilities which are measured at fair value through profit or loss.

Low or non- interest bearing loans or receivables

There is no specific rule. In practice, normally these are recognised at the loan value (amortised cost).

（IAS39.AG64,AG65） Loans with no interest or with off market interest are measured at fair value, which may be based on a discounted cash flow calculation using the prevailing market interest rate of a similar instrument. Any difference between the loan amount and its fair value is accreted to the statement of comprehensive income (profit or loss) using the effective interest rate method, unless the difference qualifies for asset recognition.

Derecognition of financial assets

(Accounting Standard for Financial Instruments 9.12.57.58) Financial assets are derecognised based on the financial component approach.

（IAS39.20）

Financial assets are derecognised based on the risk and rewards approach. If an entity neither transfers nor retains substantially all the risks and rewards of ownership, it must determine whether it has retained control. If control is retained, then the entity continues to recognise the asset to the extent of its continuing involvement.

29

JGAAP IFRS

Accounting for loan participations

(Accounting Standard for Financial Instruments 42) Only when certain conditions are met, such as almost all the risks and economic rewards of a receivable are transferred, derecognition of the related receivable is allowed.

（IAS39.16,19,21） Derecognition of part of a financial asset is allowed if, and only if, one of the following conditions is met: ► the part comprises specifically

identified cash flows from the financial asset;

► the part comprises a fully proportionate share of the cash flows from the financial asset; or

► the part comprises a fully proportionate share of specified cash flows from the financial asset.

Accounting for debt assumption (in-substance defeasance)

(Accounting Standard for Financial Instruments 42) The related bonds may be derecognised only when the likelihood of a retrospective claim to the issuer is extremely low.

（IAS39.AG59） Transfer though a contract alone does not relieve the debtor of its primary obligation in the absence of legal release, and does not meet the criteria for derecognition.

Classification of financial assets

(Accounting Standard for Financial Instruments 14-18) Marketable securities are classified as follows: ► securities held for trading; ► debt securities held to

maturity; ► shares in subsidiaries and

associates; and ► other marketable securities.

（IAS39.2（a）,9,45） Financial assets are classified into 4 categories: ► financial assets at fair value

through the profit or loss; ► held-to-maturity investments; ► loans and receivables; and ► available for sale financial

assets. In principle, investments in subsidiaries, associates and joint ventures are outside the scope of IAS39.

Fair value option

There is no related rule. (IAS39.9,11A-13,48A) With the exception of trading assets, where certain requirements are fulfilled, financial assets and liabilities can be measured at fair value (the fair value option). These financial assets and liabilities must then be fair valued every period and the valuation gain or loss recognised.

30

JGAAP IFRS

Valuation of other marketable securities: available for sale financial assets

(Accounting Standard for Financial Instruments 18) Carrying values are determined using market values, and the differences are recognised after considering deferred tax by one of the following methods: ► the total amount is directly

recorded as part of net assets (not through P&L);

► valuation gains where market value exceeds acquisition cost are recognised as a part of net assets, while valuation losses where market value is below acquisition cost are recognised as a loss in the current period.

(IAS39.55(b),AG83) Except for amortisation of interest using the effective interest method, impairments and foreign exchange differences, fair value adjustments after considering deferred tax, are taken to other comprehensive income until derecognition. For non-monetary securities (such as equities) foreign exchange differences are recognised recognised in other comprehensive income.

Effective interest method

(Practical Guidance on Accounting Standard for Financial Instruments 70) Amortisation is based on the effective interest rate method in principle, however the straight line method is also allowed as a convenient method providing it is applied consistently

(IAS39.9,46,47) The effective interest method is used to calculate the amortised cost of certain financial assets and of all liabilities, other than those liabilities that are held for trading or for which the fair value option is applied.

Investments in unlisted equities (shares with no market value)

(Current Standard 19) Balance sheets value is based on the acquisition cost. (Revised Standard 19) For financial statements for years ending after March 31 2010, unlisted shares which do not have a market value are regarded as extremely difficult to measure at fair value and are measured at acquisition cost.

(IAS39.AG80,AG81) Except in cases where appropriate models are not available, investments in unlisted equity instruments are measured at fair value.

31

JGAAP IFRS

Impairment (Standard 27, 28) The doubtful debt amount is estimated depending on the category of financial asset as follows: ► General receivables: Calculated

based on the historical rates of doubtful debts and reasonable assumptions.

► Receivables with risk of default: Depending on the situation of the receivable, either of the following methods are applied consistently: ► calculation of the doubtful

debt amount based on the amounts remaining after reduction of the amount expected to be collected from collateral and similar.

► estimation of the amount of doubtful debts as the difference between the present value of future cash flows and book value.

► Bankrupt, delinquent, and doubtful receivables: The estimated doubtful debt amount is the amount remaining after deduction of amounts expected to be collected through realisation of collateral.

(IAS39.58,59,63,66,67) Where there is objective evidence of impairment, the carrying value of financial assets is reduced to the estimated present value of future cashflows and the related loss is recognised in profit or loss. For available-for-sale financial assets, the reduction in fair value recognised in other comprehensive income is reclassified to profit or loss when the asset is impaired.

Impairment reversal

There is no specific rule. Marketable Securities held for trading continue to be measured at market value after impairment, however impairments of debt securities held to maturity and other marketable securities may not be reversed.

(IAS39.65,66,69,70) If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss shall be reversed. However, for equity instruments, for which fair value cannot be reliably measured, for derivative assets linked to such equity instruments, and for financial assets classified as available for sale, impairment losses shall not be reversed.

32

JGAAP IFRS

Valuation of financial liabilities

(Accounting Standard for Financial Instruments 26) Balance sheet amounts are based on the amount of the liability at maturity. However, the amortised cost method should be used where the proceeds and the amount of the liability due on maturity differ.

(IAS39.47) With the exception of those valued at fair value through profit or loss, an entity shall measure all financial liabilities at amortised cost using the effective interest method.

Convertible bonds – accounting by the issuer

(Implementation Guidance on Corporate Accounting Standards No. 17,18) Either of two methods may be used: record the bond as a single amount without separation, or separate the bond and share rights portion.

(IAS32.15,28) After evaluating the terms of the contract, the financial instrument is classified as debt or equity according to the substance of the contract.

Embedded derivatives

(Accounting Standards for Other Compound Instruments) It is necessary to separate the embedded derivative if all of the following conditions are met: ► it is possible that the

underlying asset or liability could be affected by the risks arising from the embedded derivative;

► a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

► the impact of changes in fair value are not reflected in profit and loss.

However, where embedded derivatives are separated for management purposes and certain conditions are met, they may be separated regardless of whether or not the risks could affect the underlying asset or liability.

(IAS39.11) An embedded derivative shall be separated from the host contract if all of the below are met: ► the economic characteristics

and risks of the embedded derivative are not closely related to those of the host contract;

► a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and

► the hybrid (combined) instrument is not measured at fair value with changes in fair value recognised in profit or loss.

33

JGAAP IFRS

Hedge accounting

（Accounting Standard for Financial

Instruments 32） As a general rule, profits, losses or valuation differences related to the hedging instrument are deferred as a part of net assets. However, where other marketable securities are the hedged item, fair value hedges are permitted where the market fluctuations of the hedged item are recorded in profit or loss.

(IAS39.86,89,95) There are three types of hedge accounting as follows: ► Fair value hedges: changes in

fair value arising from exposures relating to the hedged item and changes in the fair value of the hedging item, are both recognised in the profit and loss.

► Cash flow hedges: the effective portion of the changes in fair value of the hedging instrument is recognised in other comprehensive income.

► Hedges of a net investment in a foreign operation.

Ineffective portions of hedges

(Implementation Guidance on Financial Instruments 172）

The ineffective portion of the gain or loss is also able to be deferred where the hedging instrument as a whole is judged to be effective and the requirements for hedge accounting are fulfilled. Where the ineffective portion of the hedge can be separately identified rationally, it may be recognised in profit or loss in the current year.

(IAS39.95(b)) The ineffective portion of the gain or loss on the hedging instrument shall be recognisedrecognised in profit or loss – cash flow hedges.

Accounting for forecast transactions

(Implementation Guidance on Financial Instruments 172） Deferred profits or losses from such cash flow hedges are recognised as an adjustment to the book value of the asset acquired.

(IAS39.97,98) When a asset or liability is subsequently acquired and the gain or loss on the cash flow hedge of the forecast transaction has been recognised in OCI: ► for non-monetary items, that

gain or loss is reclassified to profit or loss as the non-monetary item affects profit and loss, or is reclassified to adjust the carrying amount of the non-monetary item;

► for monetary items, that gain or loss is reclassified to profit or loss as the monetary item affects profit and loss.

34

JGAAP IFRS

Using the foreign currency contract rate

(Accounting Standard for Financial Instruments 43) When the requirements of hedge accounting are met, foreign currency denominated receivables and payables may be translated using the rate in the forward currency contract.

There is no such rule and this method is not allowed.

Interest rate swap special method

(Accounting Standard for Financial Instruments 107） Where certain conditions are met, the interest swap contract is not recognised at market value, but rather the swap interest is directly adjusted to increase or decrease the interest on the relevant financial assets or liabilities.

There is no such rule and this method is not allowed.

35

Foreign Currency

► Significant differences

JGAAP IFRS Determination of functional currency

Functional currency is not clearly defined.

（IAS21.8－12） Management must determine the functional currency considering the primary economic environment in which the entity operates.

Foreign currency transaction

(Accounting Standard for Foreign Currency Transactions Note 1) A transaction whose trading price or other transaction price is denominated in a foreign currency (transactions denominated in the currency other than Japanese yen).

（IAS21.8,20）

A transaction that is denominated or requires settlement in a currency other than functional currency

Classification of foreign operation

(Accounting Standard for Foreign Currency Transactions 2,3) Foreign operations are classified into foreign branch or foreign subsidiary.

（IAS21.8） A foreign operation is an entity that is a subsidiary, associate, join venture or branch of a reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity. A foreign operation is not classified into foreign branch or foreign subsidiary as in JGAAP.

36

JGAAP IFRS Translation of foreign operation

(Accounting Standard for Foreign currency transactions 2,3) Branches Foreign currency transactions of foreign branches are accounted for in the same way as the transactions in the head office, in principle. Except for the following: ► Income and expenses are

translated at average rates for the period.

► Under certain conditions, the closing rate at the date of the balance sheet can be used for balance sheet items. In this case, income and expenses can also be translated at the same rate.

► The exchange differences arising from the use of a translation method other than that used by head office are recognised as exchange gains or losses in the income statement.

Subsidiaries Assets and liabilities in foreign subsidiaries and similar are translated into yen at exchange rates at the date of the balance sheet. Equity related items acquired by the parent are translated at the exchange rate at the time of the acquisition and subsequently acquired items are translated at the date of each transaction. Revenue and expenses are translated at average rates in the period in principle, however the closing rate at the date of the balance sheet can also be used. Transactions with the parent are translated using the parent‟s exchange rate, any differences which arise are recognised as exchange gains or losses in the income statement. Exchange differences are recognised as a separate component of equity.

（IAS21.39,40,44）

The results and financial position of a foreign operation shall be translated into a presentation currency after recognition in functional currency as follows. If the functional currency is not the currency of a hyperinflationary economy, they shall be translated into a different presentation currency using following procedures. ► Assets and liabilities for each

balance sheet presented shall be translated at the closing rate at the date of that balance sheet.

► Income and expenses for each statement of comprehensive income (income statement) shall be translated at exchange rates at the dates of the transactions. Average rates for the period are often used if the rates do not fluctuate significantly.

► All resulting exchange differences arising from above translation shall be recognised as a separate component of equity.

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JGAAP IFRS Net investment in a foreign operation

There is no specific rule relating to the exchange differences arising from net investment in a foreign operation. Accordingly, foreign exchange differences arising on such monetary items are recognised in profit or loss in the separate and the consolidated financial statements of the reporting entity.

（IAS21.32）

Exchange differences arising on a monetary item that forms part of a reporting entity‟s net investment in a foreign operation are recognised in profit or loss in the separate financial statements of the reporting entity. However, in the consolidated financial statements, such exchange differences are recognised initially in a separate component of equity and recognised in profit or loss on disposal of the net investment.

Exchange contract

(Accounting Standard for Foreign currency transactions Notes 6 and ,7) The method for of translating foreign currency receivables and payables fixed on the basis of cash flows in the related by forward contract is permitted for the meantime.

（IAS39） The method for of translating foreign currency receivables and payables fixed on the basis of cash flows in the related by forward contracts is not permitted as a hedge accounting.

Translation of goodwill of a foreign operation

(Practical Guidance on Accounting Standard for Foreign currency transactions 40) When the parent consolidates its foreign subsidiaries, consolidation reconciliation account goodwill and itsthe amortization amortisation of goodwill are not affected by fluctuation of foreign currencies as they are recorded in the currency of the parent.

（IAS21.47）

Any goodwill arising on the acquisition of a foreign operation shall be treated as the assets of the foreign operation. Thus they shall beit is expressed in the functional currency of the foreign operation and shall be translated at the closing rate.

Financial reporting in hyperinflationary economies

There is no standard relating to financial reporting in hyperinflationary economies.

（IAS21.42）

The results and financial position of an entity whose functional currency is the currency of a hyperinflationary economy shall be translated into a different presentation currency using the as followsing procedures: Aall amounts (ie assets, liabilities, equity items, revenue and expenses, including comparatives) shall be translated at the closing rate at the date of the most recent balance sheet.

38

Income Tax

► Significant differences

JGAAP IFRS Tax effect from the elimination of unrealised profit

(Practical Guidance on Accounting Standard for Tax effect accounting for consolidated financial statements 13) The amount of deferred tax asset is measured by multiplying the unrealised profit by the effective tax rate which is calculated by the seller to be applied on the taxable income for the year.

（IAS12.51） The measurement of deferred tax liabilities and deferred tax assets shall reflect the tax consequences that would follow from the manner in which the entity expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities (measured by the rate which is calculated by the company which is holding the assets, etc).

Presentation on the face of the statement of comprehensive income (income statement)

(Regulation for Terminology, Forms and Preparation of Financial Statements 95-5） Corporate tax (including inhabitant tax and enterprise tax) and deferred tax expense (deferred tax income) are presented on the face of the income statement separately.

（IAS12.6,77） Tax expense (tax income) comprises current tax expense (current tax income) and deferred tax expense (deferred tax income).

39

JGAAP IFRS Recognition of deferred tax assets

(Practical Guidance on Accounting Standard for Tax effect accounting for separate financial statements 21, Audit committee report No66,3) The recoverability of deferred tax assets relating to deductable temporary differences and any necessary valuation allowance should be thoroughly and prudently determined considering the following: ► sufficiency of taxable income

based on the earning power; ► existence of tax planning; ► sufficiency of taxable

temporary difference (Practical Guidance on Accounting Standard for Tax effect accounting for consolidated financial statements 16) Criteria in Practical Guidance on Accounting Standard for tax effect accounting for separate financial statements 21 is not applied when considering the recoverability of deferred tax assets arising from the elimination of unrealised profits on consolidation.

（IAS12.24） A deferred tax asset shall be recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised.

Classification of deferred tax assets (liabilities) on the face of the statement of the balance sheet

(Accounting Standard for tax effect accounting 3,1) Deferred tax assets and liabilities are classified into current or non-current items.

（IAS１.56） When an entity presents current and non-current assets, as separate classification on the face of its balance sheet, it shall not classify deferred tax assets (liabilities) as current assets (liabilities). Deferred tax assets (liabilities) are classified as non-current assets (liabilities).

40

Provisions, Contingent Liabilities and Contingent Assets

► Significant differences

JGAAP IFRS Criteria for recognition of a provision

(Corporate Accounting Principles 18）

A provision shall be recognised when all of the below conditions are met: ► it relates to a specific future

expense or loss; ► it arises from an event which

occurred prior to or in the current period;

► it has a high probability of occurrence; and

► it is possible to estimate the amount reasonably.

(IAS37.14) A provision shall be recognised when all of the following conditions are met: ► an entity has a present

obligation (legal or constructive) as a result of a past event;

► it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and

► a reliable estimate can be made of the amount of the obligation .

Constructive obligations

There is no specific rule. (IAS37.10) A constructive obligation is an obligation that derives from an entity‟s actions where, by an established pattern of past practice, published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certain responsibilities; and as a result, the entity has created a valid expectation on the part of those other parties that it will discharge those responsibilities.

Present obligation of provisions

Provisions shall be recognised for obligations which are not present obligations as long as the requirements for provisions are fulfilled.

It is not acceptable to recognise provisions unless they are present obligations.

Major inspections and repair costs

(Corporate Accounting Principles note 18) Special repair provisions are given as an example of non-current liabilities. The amount of the provision which relates to the current period is recognised as a current period expense or loss.

(IAS16.14) It is not acceptable to recognize provisions for major inspections of physical fixed assets. When the recognition criteria are fulfilled, such costs are recognised in the carrying amount of the item of property, plant and equipment.

41

JGAAP IFRS Discounting the provision

There is no specific rule. (IAS37.45-47) Where the effect of the time value of money is material, the amount of a provision shall be the present value of the expenditures expected to be required to settle the obligation. The discount rate shall be a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Environmental clean-up and decommissioning costs

(Current standard) There is no specific rule. (Revised standard) (Accounting Standard for Asset Retirement Obligations 4) Recognition of asset retirement obligations is required for legal or equivalent obligations for fiscal years beginning on and after April 1, 2010.

(IAS37.19,21) The general principles of IAS37 are applied to provisions for environmental clean-up and decommissioning costs etc. That is, a provision is recognised when an entity has a legal or a constructive obligation to bear the cost.

Onerous contracts

There is no general rule for onerous contracts.

(IAS37.10,66-69) An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.

Restructuring costs

There are no specific rules. Accrual is required in accordance with the general criteria.

(IAS37.70-83) Where an entity has a detailed formal plan for restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or by announcing its main features to those affected by it, a provision for restructuring costs is recognised under the general framework of IAS37.

42

JGAAP IFRS Contingent assets: definition and disclosure

There is no specific rule. (IAS37.10,89) A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity. Where an inflow of economic benefits is probable, an entity shall disclose a brief description of the nature of the contingent assets at the balance sheet date, and, where practicable, an estimate of their financial effect.

43

Revenue Recognition, Construction Contracts

► Significant differences

JGAAP IFRS Basic concept （Corporate Accounting Principles 2

3B） Revenue related to the sale of goods or rendering of services should be recognised in accordance with the realisation principle.

(IAS18.7) Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. The standard specifies requirements for recognising revenue from the sale of goods, the rendering of services, and from interest, royalties and dividends. In addition, there are practical examples applying the general principles of IAS 18 in the Appendix.

Sale of goods (Corporate Accounting Principles 2,3B,Note 6) There is no specific definition of realisation nor standard requirements for revenue recognition. In general, realisation refers to economic transactions conducted with outsiders, in other words when the goods or services are converted to a form of monetary asset. The realization principle is applied on a sales basis. However, in practice, delivery basis and shipping basis are applied, and the timing of revenue recognition depends on established commercial practice.

（IAS18.14） Revenue from the sale of goods shall be recognised only if: ► the entity has transferred to the

buyer the significant risks and rewards of ownership of the goods;

► the buyer of the goods controls the goods;

► the amount of revenue can be measured reliably;

► it is probable that there will be an inflow of economic benefits to the entity; and

► the costs incurred can be measured reliably.

44

JGAAP IFRS Rendering of services

There is no specific rule. （IAS18.20） When the amount of revenue and costs can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity, and the stage of completion of the transaction can be measured reliably, revenue associated with the transaction shall be recognised by reference to the stage of completion of the transaction.

Rendering of services: where outcome cannot be measured reliably

There is no specific rule. （IAS18.26） Revenue shall be recognised only to the extent of the expenses recognised that are recoverable.

Deferred payment agreements (installment sales)

(Corporate Accounting Principles note 6) In addition to the sales bases, settlement date basis and cash receipt basis are permitted.

（IAS18.11） The measurement of revenue follows the fair value of the corresponding consideration. In the case of financing transactions such as installment sales, consideration is recognised and discounted through the use of an imputed rate of interest, and the interest element is accounted for separately.

Construction contract revenue and cost recognition

(Current Standard) (Corporate Accounting Principles Note 7) Both the percentage of completion method and the contract completion method are permitted. (Revised Standard) (Accounting Standard for Construction Contracts 9) If the construction work starts from the fiscal year beginning on or after April 1st 2009, and the outcome of the construction contract is certain, the percentage of completion method is applied. For construction contracts under a certain value with a short construction period, application of the completed contract basis is also acceptable.

（IAS11.22） When the outcome of a construction contract can be estimated reliably, contract revenues and costs shall be recognised by reference to the stage of completion of the contract activity. The contract completion method is not permitted.

45

JGAAP IFRS Where the outcome of a construction contract cannot be estimated reliably

(Accounting Standard for Construction Contracts 9) The contract completion method is applied.

（IAS11.32） A method based on recoverability of construction costs is applied (revenue shall be recognised only to the extent of contract costs incurred that it is probable will be recoverable).

Resolution of the uncertainty of the outcome

(Current standard) There is no specific rule. （Revised standard） (Implementation Guidance on Accounting Standard for Construction Contracts 3） A change to the percentage of completion method should not be made merely because of certainty derived from subsequent events. However, this does not apply to subsequent determinations which should have been made at the commencement of the contract.

（IAS11.35） From the point on which the uncertainties over the outcome of the construction work are resolved, the percentage of completion method is applied.

Recognition of expected losses

(Current Standard) (Corporate Accounting Principles Note 18) Expected losses are recognised if the requirements for provision are fulfilled. (Revised Standard) (Accounting Standard for Construction Contracts 19) Expected losses are recognised as a provision for construction contract losses.

（IAS11.36,37） Recognise the expected loss immediately as an expense

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Share-Based Payments

► Significant differences

JGAAP IFRS In scope transactions and effective date

(Accounting Standard for Share-based Payment 17 – implemented 1st May 2006) To be applied to stock options, options such as rights relating to the company‟s stock and payments made through stock transfers from the implementation of the Companies Act (1 May 2006).

(IFRS2.53) An entity shall apply IFRS2 to grants of shares, share options or other equity instruments that were granted after 7 November 2002 and had not yet vested at the effective date of IFRS2.

Classes of share-based payment transactions

(Accounting Standard for Share-based Payment 28) Applies to equity-settled share-based payment transactions.

(IFRS2.2) IFRS2 is applied to equity-settled and cash-settled share-based payment transactions, and transactions which provide a choice of cash or equity settlement.

Equity-settled share based payments – recognition date

(Accounting Standard for Share-based Payment 6,14,15) ► Transactions with employees:

grant date ► Transactions with parties other

than employees: Either of the following: ► Stock options granted as

consideration for goods or services: grant date

► Stock delivered as consideration for goods or services: contract date

(IFRS2.11-13) ► Transactions with employees:

grant date ► Transactions with parties other

than employees: date goods are obtained or services rendered

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JGAAP IFRS Equity settled share based payments – measurement

(Accounting Standard for Share-based Payment 6,14,15) ► Transactions with employees:

measure using a widely accepted measurement technique that gives a reasonable estimated value.

► Transactions with parties other than employees: calculate using whichever of the below two methods gives the most reliable valuation: ► A fair valuation of the stock

option (or stock) used as consideration

► A fair valuation of the goods or services received

(IFRS2.10-13) ► Transactions with employees:

measure at fair value of the equity instruments granted

► Transactions with parties other than employees: measure at the fair value of the goods or services received. Where the fair value cannot be estimated reliably, measure at the fair value of the equity instruments granted.

If the fair value of the equity instruments granted cannot be estimated reliably

(Accounting Standard for Share-based Payment 13) No corresponding regulation. However, for unlisted companies, it is possible to account for stock options based on the estimated intrinsic value per option as a substitute for fair value. In this case, the intrinsic value per option at the grant date is estimated, and is not revised later.

(IFRS2.24) In rare cases, if the fair value of the equity instruments cannot be estimated reliably at the measurement date, measure the equity instruments at their intrinsic value. This is measured initially at the date the entity obtains the goods or the counterparty renders service, and subsequently at each reporting date and at the date of final settlement, with any change in intrinsic value recognised in profit or loss.

Equity instruments with reload feature

No corresponding regulation (IFRS2.22) For options with a reload feature, the reload feature shall not be taken into account when estimating the fair value of options granted at the measurement date. Instead, a reload option shall be accounted for as a new option grant, if and when a reload option is subsequently granted.

Treatment after vesting date

(Accounting Standard for Share-based Payment 8) If the option is exercised and new stock is issued, that part of the amount recorded in warranty rights, which relates to the exercise of the option, is transferred to paid in capital.

(IFRS2.23) The entity shall make no subsequent adjustment to total equity after vesting date. However, this requirement does not preclude the entity from recognising a transfer within equity, i.e. a transfer from one component of equity to another.

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JGAAP IFRS Cancellation or settlement of grant

No corresponding regulation (IFRS2.28) ► Account for the cancellation or

settlement as an acceleration of vesting

► Any payment made on the cancellation or settlement shall be accounted for as the repurchase of an equity interest. However, any excess of the payment over the fair value of the equity instruments measured at the repurchase date, shall be recognised as an expense.

Lapse due to non exercise of options

(Accounting Standard for Share-based Payment 9) When options lapse because they are not exercised, that part of the amount recorded as share warrants (or options) that relates to those options is transferred to gain.

(IFRS2.23) No adjustment is made to the existing equity balance

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Employee Benefits, excluding Share-Based Payments

► Significant differences

JGAAP IFRS Defined Benefit Pension Plans – Benefit Obligations

(Accounting Standard for Retirement Benefits 2, 2) The accrued benefit valuation method is used.

(IAS19.64) An entity shall use the Projected Unit Credit Method (accrued benefit valuation method).

Discount rate (Current, Accounting Standard for Retirement Benefits notes 6, Practical Guidance 11) Discount rate may be determined by considering the change in debt yields over a certain period of time (approximately within 5 years) (Revised standards 2) Above-mentioned exemption is no longer acceptable, and discount rate should be determined at year end

(IAS19.78) The discount rate for post-employment benefit obligations shall be determined by reference to market yields on high quality corporate bonds with a similar currency and term as these obligations at year end.

Defined Benefit Pension Plans – Plan Assets

(Accounting Standard for Retirement Benefits Note 1) When pension asset exceed retirement benefit obligations, the difference is recognised as prepaid pension expense.

（IAS19.58） Where there is a surplus of pension plan assets over obligations, an asset is recognised up to the limit of the total of: a) any unrecognised net actuarial losses and past service costs; and b) the present value of any economic benefits available as refunds from the plan or reductions in future contributions to the plan. (the asset ceiling).

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JGAAP IFRS Defined Benefit Pension Plans – Past Service Cost

(Accounting Standard for Retirement Benefits 3,2) In principle, past service cost and actuarial gains and losses are recognised as expenses amortised over a fixed period within the period of the remaining average service lives. The amortisation period for past service cost and for actuarial gains and losses may be determined separately. (Accounting Standard for Retirement Benefits Note 11) Past service cost relating to retired employees can be distinguished from other past service cost and can be expensed in full at the time it arises.

（IAS19.96）

In cases where vesting is certain, an entity shall recognise past service cost profits or losses immediately. In cases where vesting is not immediate, an entity shall recognise past service cost as an expense on a straight-line basis over the average period until the benefits become vested.

Defined Benefit Pension Plans – Actuarial Gains and Losses

(Accounting Standard for Retirement Benefits 3, 2) In principle, past service cost and actuarial gains and losses are recognised as expenses amortised over a fixed period within the period of the remaining average service lives.

(IAS19.92,93A,93B,93D) Under the corridor method, actuarial differences within a certain corridor are not recognised. An entity may recognise these differences in profit and loss faster than over the expected average remaining working lives, provided it uses a systematic method consistently. If an entity selects an accounting policy of recognising the actuarial differences in the period in which they occur, it may recognise them outside the profit and loss account in equity.

Retirement benefits other than pensions

No corresponding regulation (IAS19.1,3) With the exception of those covered by IFRS2 (Share Based Payment), all employee retirement benefits other than pensions are also within the scope of IAS19.

Paid vacation accrual

No corresponding regulation (IAS19.11) Provisions for accumulating compensated absences are required to be recognised.

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Appendix－The Development of IFRS This appendix summarises the major events in the development of International Financial Reporting Standards.

Phase I－Prior to 2001

► 1973: International Accounting Standard Committee (IASC) was established. The IASC was established to improve financial reporting, and to formulate and publish globally acceptable international accounting standards (IAS). The role of the IASC was to prohibit undesirable accounting practices, and so the initial IASs allowed several alternative accounting treatments.

► 1994: The International Organisation of Securities Commissions (IOSCO） completed reviewing the then current version of IASC standards and reported its view to the IASC. With this review, IOSCO listed necessary areas of improvement for the IASC prior to considering the recommendation for using IAS for cross-border listings and transactions.

► 1994: The establishment of the IASC advisory committee to supervise and financially manage the IASC was agreed.

► 1995: IASC decided on the “Core Standards Work Programme”. Upon completion of this programme four years later, the IOSCO expert committee agreed the a core set of IAS standards. The European Commission (EC) supported the agreement between IASC and IOSCO and their plan for developing wide-ranging globally acceptable accounting standards in cooperation with the European Union (EU).

► 1997: The Standing Interpretations Committee (SIC) was established in order to provide interpretations of IAS.

► 1999: IASC’s board agreed to combine with the current International Accounting Standards Board (IASB). The newly established IASB organisational structure was composed of: (1) IASC foundation, an independent organisation of 22 trustees for nominating and supervising IASB members, as well as raising funds; (2)IASB including 12 independent full-time members and 2 part-time members, having independent responsibility for establishing accounting standards; (3) Standards Advisory Council (SAC); (4) International Financial Reporting Interpretations Committee (IFRIC) (SIC‟s successor organisation, which interprets existing IAS and IFRS standards, and provides timely guidelines which are not dealt with currently).

► 2000: IOSCO recommended the use of IAS for companies issuing securities in cross-border offerings and listings.

► April 2001: The IASB inherited the responsibility for standard-setting from the IASC. The IASB met with representatives from the standard-setting organisations of eight countries in order to modify the agenda, discuss convergence, and adopt the existing IAS standards and related SIC interpretation guidance.

► February 2002: IFRIC inherited the responsibility for the interpretation of IFRSs from SIC.

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Phase II－2002 to 2005

► July 2002: In principle, the EC required EU listed companies to prepare consolidated financial statements in accordance with IFRS as approved by the EC from 2005 onwards. This was a very important event and a significant factor in the spread of IFRS adoption.

► September 2002: The Norwalk agreement was concluded between the FASB and the IASB. Convergence of the standards through their „best efforts‟ was documented in a Memorandum of Understanding (MOU). Both boards agreed to make best efforts to ensure compatibility of the then current financial reporting basis as soon as practically possible and to align future projects to achieve this.

► December 2004: The EC announced the “Transparency Directive”. This Directive required companies from non-EU countries listed on stock exchanges within the EU to use IFRS, except for those from countries for which the Committee of European Securities Regulators (CESR) had accepted the GAAP of that country to be equivalent to IFRS.

► April 2005: SEC IFRS “Roadmap” announced. At the same time, the SEC„s chief accountant introduced the possibility of abolishing the U.S. GAAP reconciliation which was required for Foreign Private Issuers (FPI) reporting under IFRS. Once the milestones within “Roadmap” were achieved, the consideration of abolishing the reconciliation to U.S. GAAP by 2009 at the latest was noted.

Phase III－2006 to today

► February 2006: The FASB and the IASB announced a MOU. This MOU, which was used in capital markets all over the world, reconfirmed both councils‟ common goals of designing high quality and common accounting standards from the time of the Norwalk Agreement. Both Boards continued to pursue convergence through two means: (1) a short-term convergence project for the purpose of resolving key differences in particular areas, and (2) the drafting of new joint standards based on best practices from both sets of GAAP.

► August 2006: CESR/SEC announced a joint work project. Following certain procedures, CESR and the SEC shared specific issues relating to offerings, and, through a survey of listing documents, agreed on the identification of IFRS and U.S. GAAP matters which presented problems from the point of view of high quality and consistent application. This project also agreed the exchange of technical information in order to accelerate the modernization of financial reporting and disclosures. Finally, staff in both regulating authorities agreed to meet about risk management practice.

► November 2007: The reconciliation to IFRS for FPI’s using IFRS. In June 2007, the SEC requested comments on the proposed rule on the contents of financial statements filed by FPIs using IFRS as issued by the IASB submitted to them (in other words without reconciliation). Market participants who submitted comments to SEC mostly approved the proposed rule. In November 2007, the SEC analysed these comments and decided to apply it to financial statements for fiscal years ending after November 15th 2007.

► November 2008: The SEC announced its proposed Roadmap on the application of International Financial Reporting Standards (IFRS) by listed companies in the United States. In the proposed roadmap for domestic listed companies, seven milestones were outlined as conditions for the use of IFRS. Whilst these milestones included improvements to IFRS and other things, the decision on the mandatory application of IFRS by domestic enterprises in the United States was set for 2011, to allow time to monitor the state of progress on these milestones. Also, the Roadmap allowed voluntary adoption of IFRS for certain domestic companies in the United States for fiscal years ending after December 15th 2009.

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MEMO

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MEMO

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IFRS Resources Please use our knowledge fully.

Ernst & Young Shinnihon LLC website We offer a variety of online resources that provide more detail about IFRS as well as things to consider as you research the potential impact of IFRS on your company.

http://www.shinnihon.or.jp/ifrs

A variety of Japanese language tools and

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► IFRS Outlook and Supplements to IFRS

Outlook - access the online version and

archived issues of our monthly client

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► Jouhou sensor – our magazine combining

accounting and tax information. In this

magazine the IFRS section „IFRS jitsumu

kouza‟ includes articles by EYSN‟s IFRS

professionals on the interpretation of IFRS

for specific topics and in a practical way.

International GAAP® - Japanese language A translation of International GAAP. This includes not

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definitive practical IFRS guide.

International GAAP® This comprehensive book from Ernst & Young is

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consistent basis.

Ernst & Young Online Ernst & Young‟s information site for clients that gathers the latest news from around the world, provides web-based learning, model financial statements a variety of other knowledge.

http://www.ey.com/IFRS

IFRS Web-based learning – includes a number of web-based modules that address the basic accounting concepts and knowledge of IFRS. Global Accounting & Auditing Information Tool (GAAIT) English only. Subscription fee based. A multinational GAAP research tool that allows

continuous access to important International GAAP®

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► Example option

International GAAP® online- includes Ernst &

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of the official IASB standards, exposure drafts

and discussion papers, and full sets of IFRS

reporting entities‟ annual reports and accounts.

Please send enquiries about our IFRS services to:

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Email: IFRS@shinnihon.or.jp

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About Ernst & Young ShinNihon LLC Ernst & Young ShinNihon LLC is a member firm of Ernst & Young. We are the leading audit firm in Japan, with the largest number of people, and with offices throughout the country. We are committed to providing the highest quality audit and assurance services, and to offering a range of other financial advisory services. Together with the Ernst & Young global network, we strive to ensure trust in our capital markets and improve their functioning to achieve the potential of the global economy and our wider communities, which surround Japan. For more information, please visit www.shinnihon.or.jp

About Ernst & Young’s International Financial Reporting Standards Group The move to International Financial Reporting Standards (IFRS) is the single most important initiative in the financial reporting world, the impact of which stretches far beyond accounting to affect every key decision

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