![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
Editor's letter
Recent moves by the Accounting Standards Board of Japan and the US Financial Accounting Standards Board towards convergence with International Financial Reporting Standards (IFRS) have wide implications for Asia’s derivatives market.
![pg1-wong-gif pg1-wong-gif](/sites/default/files/styles/landscape_750_463/public/import/IMG/505/74505/pg1-wong-gif2921-580x358.gif.webp?itok=eT8YQ-wO)
Following the issuance of a new derivatives accounting rule, FAS 155, in the US in February to replace the previous FAS 133 – a move that aims to simplify accounting for hybrid financial contracts – Japan’s accounting body in April issued revised rules for inflation-linked government bonds and synthetic collateralised debt obligations (CDOs). Under the new rules, such products could qualify for exemption from ‘bifurcation’ requirements – under which embedded derivatives are accounted for separately from the host contract – and instead be treated as single instruments in the accounting books.
It is even possible for synthetic CDOs to be exempt from mark-to-market requirements and classified as hold-to-maturity instruments – the same treatment as for cash bonds. There are signs that this accounting change is driving new demand for synthetic CDOs from Japanese investors, with a few private deals being done in recent weeks as a direct result of the change – see our cover story.
These are the latest steps in long-standing reforms of Japanese accounting standards since the late 1990s. At the time, weak accounting practices led to widespread corporate defaults, a surge in bad loans and financial scandals that shocked the markets. The market is still feeling the repercussions today, as seen in the recent suspension of Chuo Aoyama PwC – the local affiliate of accounting firm PricewaterhouseCoopers – for two months by the Financial Services Agency after three of the company’s auditors allegedly certified false accounts of a client.
Auditors in Japan are known to maintain very close relations with clients, to such an extent that it hinders their ability to disclose financial window-dressing by the client company’s management. The event also highlights the need to address risk management and corporate governance issues at accounting firms.
This month, we publish the results of our annual derivatives end-user survey, the most competitive since its launch in 2000. Global investment banks have traditionally topped the poll, and this year is no exception. However, some domestic regional banks scored impressively, with some ranking ahead of the multinationals in certain categories. Many thanks to all those who participated.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Regulation
The standoff over separate account margining
CFTC issues sixth extension of no-action relief as long-awaited final rule stalls
Banks fret over vendor contracts as Dora deadline looms
Thousands of vendor contracts will need repapering to comply with EU’s new digital resilience rules
EU banks lose relief on model test after FRTB delay
Deferment of new trading book regime to January 2025 eats into transition period for “erratic” P&L attribution test
Sunday night football and the Basel III endgame
Big banks, political advocates and housing organisations are unlikely allies in race to dropkick new capital regime
Futures exchanges seek clarity on China licensing regime
Hazy details on landmark Futures and Derivatives Law breeds legal uncertainty, unnerving operators
Some EU banks wanted option to start FRTB on time
Representatives of member states raised possibility with European Commission at July meeting discussing the delay
For US Treasury troubles, treat the cause not the symptom
Regulatory alarm about hidden risk in the Treasury futures market misses the point, fund association execs write
Iosco delays pre-hedging consultation to November
Review into controversial practice splits industry