October 31,2003
Financial Services Agency

Request for Improvement of Disclosure on Deferred Tax Assets

The Progress Report by the Working Group on Regulation of Capital Adequacy Ratio under the Second Subcommittee of the Financial System Council, released on July 28, 2003, urged to introduce effective measures to enhance the disclosure of information on the deferred tax assets, with a view to improving the credibility of deferred tax assets. Today, Financial Services Agency (FSA) requested major banks to enhance the disclosure of information on deferred tax assets with respect to the following items, when announcing the interim financial results for the period ended September 2003 and thereafter. This measure is aimed at improving the credibility of deferred tax assets. FSA also requested the banks to provide explanations in accordance with the calculation procedures, based on the disclosed figures and other data.

  1. Basis for inclusion of deferred tax assets (the example categories in the practical guidelines (*1) in cases where past business performance and other conditions are the main elements (including extraordinary causes in the case of Note 4)) and the estimation period of future taxable income (X years).
  2. Taxable income over the past 5 years (actual figure each year before using loss carried forward).
  3. Projected amount of actual net business profit assumed in estimation (sum over X years).
  4. Projected amount of net income before taxes assumed in estimation (sum over X years).
  5. Estimated amount of taxable income before adjustments (sum over X years).
  6. Items to be commonly disclosed regarding the principal causes of deferred tax assets and liabilities.
(1) Deferred tax assets: Allowance for credit losses, write-off of securities, unrealized losses on other securities, reserve for employee retirement benefits, net operating loss carried forwards, etc.
(2) Deferred tax liabilities: Gains on securities contributed to employee retirement benefits trust, unrealized gains on other securities, unrealized profits from lease transactions, etc.
(*1) Audit Guideline for considering Recoverability of Deferred Tax Assets (November 9, 1999, Japanese Institute of Certified Public Accountants)

(Reference)

PDFThe Progress Report by Working Group on Regulation of Capital Adequacy Ratio (Outline) (July 28,2003) (PDF:13K)

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