THE growing influence of China and Japan on global accounting has been underlined by standard-setters' decision to reconsider a rule disliked by both countries. The International Accounting Standards Board (IASB) announced it would review its standard on related-party disclosures, known as IAS 24, which aims to illuminate companies' links with other businesses. The decision came after China and Japan, which are both moving toward International Financial Reporting Standards (IFRS), complained that the detailed provisions of IAS 24 were either unworkable or unclear.
The IASB's willingness to respond highlights how its constituencies have broadened as almost 100 countries now require or permit the use of IFRS.
In recent years the board has spent much of its time dealing with the European Commission, which brought IFRS into force in the EU last year, and the US Securities and Exchange Commission (SEC), which is backing convergence with the US. The participation of China and Japan, however, is seen as vital to creating truly global standards that can bolster investor confidence by improving the quality of accounts.
From January 1 2007 China has said that 1,200-odd companies listed on mainland exchanges must apply new accounting standards that are based on -- but not identical to -- IFRS. Japan launched a project to bring its own accounting standards closer to IFRS at the start of 2005.
IAS 24 presents different problems to both countries. China's problems arise from the pervasive presence of state-owned entities in the country's economy. The current provisions of IAS 24 would require a vast amount of disclosure in China, because state-owned companies would have to track and report all their transactions with all other government-related entities. China's Ministry of Finance chose to exempt state-owned entities in its version of IFRS. Japan's concerns are related to the thicket of cross-shareholdings that once bound the country's companies, banks and insurers. The so-called keiretsu system has gradually broken down in recent years, but a study by Nippon Life Insurance found that stable holdings still represent roughly one-fifth of total share ownership. Any revisions to IAS 24 are not likely to be completed until 2010 or 2011, the IASB said.
Under syndication arrangement with FE