079 Early Adoption of IFRS9
Sumitomo Corporation disclosed the financial report for the year ended March 31 2011 in accordance with the IFRS. It is remarkable that they made an early adoption of IFRS9. According to the measurement by IFRS9, they have to use the amortized cost or FVTPL (Fair Value Through Profit or Loss), and FVTOCI (Fair Value Through Other Comprehensive Income) is also permitted to use.
They adopted this (FVTOCI) to so-called cross-holding of shares. The reason for which they used it is that “they do not regard the change in the fair value as an index for the evaluation of their business performance because this is meant to extend the profit-oriented structure by maintaining and strengthening relationships with investees”. In this way, they recognize the change in the fair value in the other comprehensive income, and they can’t recognize the unrealized profit in the profit or loss. After this disclosure, more and more companies will follow this way as many of Japanese companies cross-hold the shares in their business practices. However, we would like to pay attention to how many of foreign companies, especially US and European global companies, are going to adopt the FVTOCI.
