Japan on board with fair value

The Japanese Financial Services Agency will adopt the use of the fair value accounting rule for some of its companies on a voluntary basis from 10 March.

The decision by Japan to take up IFRS 9, Financial Instruments (replacement of IAS 39) offers some support to the global accounting standard setter, the International Accounting Standards Board, which has faced political confrontation during the economic crisis as to how the controversial accounting rule should be administered.

The US and Europe have been opposed in their views, with politicians in Europe blaming the accounting rule - which values assets at current market price - for causing the banks’ collapse. But regulators in the US believe the rule provides much needed transparency to investors at a time when confidence in the markets is at a low.

Chairman of the IASB, Sir David Tweedie, who is due to step down from the position in June next year, has been in a deadlock with his US counterpart, the Financial Accounting Standards Board over when the US is going to converge to a single set of international financial reporting standards.

The announcement by Japan goes a little way towards restoring confidence in the IASB’s position on IFRS being adopted worldwide.

The new rules will values loans and related instruments at amortized cost, and everything else, such as derivatives at fair value.