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Friday, July 27, 2007

J-GAAP: Statement of Changes in Equity

On December 27, 2005, the Accounting Standards Board of Japan (BADC) issued ASBJ Standard No. 6, Statement of Changes in Net Assets.ASBJ Standard No. 5 defines net assets as the excess of assets over liabilities, and defines shareholders' equity separately. For example, stock options and minority interest is not included in shareholders' equity but included in net assets.
ASBJ Standard No. 6 requires entities to present statement of changes in net assets, which shows changes during the period in each components of net assets. Especially important for investors is that that statement displays distributions to shareholders regardless of dividends and treasury stock. (Previously, only changes in additional paid-in capital and retained earnings are disclosed in a "statement of surplus.")
It requires entities to show changes in remeasurement and translation adjustments (so-called "accumulated other comprehensive income," as defined by US GAAP), but allows them to show the "net" change during the period. Investors may obtain, by themselves, "comprehensive income," but are unable to see reclassification adjustment of accumulated other comprehensive income into the current net income.

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