Background

- Recognizing that enhancing transparency of corporate management is critical to the recovery of the economic crisis Financial Industry Accounting Standards will be introduced, paralleling efforts made to revise existing corporate accounting standards.
- Underlying Principle : Aiming to enhance transparency of financial institutions and credibility of financial information by increasing

o harmonization with international accounting standards

o comparability between financial sectors

o usefulness by taking into consideration individuality of financial sectors

o convenience to parties required to prepare accounting related information and the general public

Main Features

1. Mark-to-marketing of traded securities
o Investment made toward the stock market stabilization fund will be subject to mark-to-marketing (currently acquisition cost is used).

2. Loss provisioning for payment guarantees
o Banks, fidelity/surety companies and securities houses will be required to make provisions toward payment guarantees as a way to recognize expected losses as an expense item for the period (currently loss provisioning for payment guarantees is not required).

3. Accounting regulations for rescheduling of bonds

o Bonds subject to rescheduling such as reduction in borrowing rates, extension of maturity etc. during the course of court administration and composition proceedings will be discounted to present value, whereas the difference will be recognized as expected loss for the period.

4. Expansion of mandatory footnote disclosure items
o Mandate the inclusion of assets and liabilities statistics by maturity (for banks), investments in off-shore funds (for securities houses), change in liability reserves by policy type (for insurance companies) in accounting information.

5. Others
o Securities trading reserves are to be categorized as capital (surplus) (currently recognized as liabilities)
o Insurance companies will have to put aside reserves calculated using the net premium reserve method, whereas acquisition costs will be subject to deferral (currently an expense item for the period)

Expected Outcome

o With the enforcement of the Financial Industry Accounting Standards in fiscal year 1999, as traded securities and loss provisioning will be subject to mark-to-marketing, comparability between the financial and other industrial sectors will be made possible.
o In addition, by adopting loss provisioning of guarantee payments, promptly accounting for losses arising from bond rescheduling etc. accounting standards will be brought into line with international accounting practices.
o In sum, these measures will contribute to the improvement in credibility of accounting information of domestic financial institutions.
o One concern is that by adopting these new standards, banks, securities companies and life insurance companies alike are expected to suffer from considerable losses for the upcoming fiscal years.
Future Plans
o The exposure draft will be available for public opinion (Oct., 1998 - early Nov., 1998) and upon deliberation of the Financial Accounting Standards Board and final passage of the Securities and Futures Commission will be enacted in November, 1998.

* Please refer to the attached file for details.