August 16, 2005
Financial Services Agency, Japan

Further Enhancing Market Functions and Improving Confidence in Japanese Markets

1. Two reports of the Financial System Council (FSC) and two sets of exposure drafts of the Business Accounting Council (BAC) were published in June and July 2005; they intended to further enhance market functions and improve confidence in Japanese markets under the ''Program for Further Financial Reform-: Japan's Challenge to Move Toward a Financial Services Nation,'' which was announced by the FSA in December 2004.

2. On July 7, 2005, the Interim Report of the First Subcommittee of the FSC proposed the basic concept of the ''Investment Service Law (tentative name).'' (See attachment 1, fig.1.)

3. On June 28, 2005, the Report of the Disclosure Working Group of the First Subcommittee of the FSC proposed the introduction of a statutory quarterly reporting requirement for listed issuers. The report requested that the Accounting Standards Board of Japan develop standards for quarterly reporting of financial information, and also requested that the BAC develop standards on review engagement. (See attachment 2.)

4. On July 13, 2005, the Exposure Draft of the BAC proposed standards for internal control over financial reporting. The standards consist of those for management assessments and reporting on the effectiveness of internal control over financial reporting and those for independent auditors' audit of management assessments. (See attachment 3, fig.2.)

5. On July 20, 2005, the Exposure Draft of the BAC proposed an introduction of Standards on Quality Control for Audit as separate standards and some revisions of the Auditing Standards to further emphasize the importance of auditors' attention to business risks, both of which are consistent with the international developments of auditing standards. (See attachment 4, fig3.)

6. It should be noted that the Diet (Japanese legislature) passed the bills in June 2005 to revise the Securities and Exchange Law. The revisions include the application of the tender offer regulations for off-business-hour trading, the introduction of requirement by the non-public parent company of a public company to disclose its own information, the introduction of disclosure in English by foreign issuers for certain securities, and the introduction of the administrative civil money penalty system against breaches of the continuous disclosure requirements.