Editorial: Academic Perspective in Japan

In Japan, academic community has been heavily involved in the process of standard-setting. Influences of academic community is relatively significant in Japan.

Major schools in academics generally states as follows:

• The asset and liability approach is not only one approach to determining elements of financial statements. The revenue and expense approach is still needed. Information about inflow and outflow is primarily useful for investors' decision making. Investors would form their own expectation on the entity's future cash flows based on such information. Matching, allocation, and realization are still important in accounting.
• Net income is more useful than comprehensive income. Changes in fair value of certain assets and liabilities would deteriorate usefulness of income. Investors generally favor a sustainable concept of income rather than volatile concept of income. Empirical evidences generally support this view. Net income also should be determined as such attributable to common shareholders.
• Fair value accounting should not be applied to non-financial assets and liabilities, and even to financial instruments whose fair value is not readily determinable. Internally generated goodwill should not be recognized because such goodwill is the management's own assertion and is not verifiable.