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The president of Japan’s leading accountancy body on Monday called for new rules to improve the disclosure of special purpose entities, legal vehicles created to hold off-balance-sheet items, in the wake of the Livedoor scandal.

Tsuguoki Fujinuma, chairman and president of the Japanese Institute of Certified Public Accountants, said: “We think more clear accounting rules should be established towards special purpose entities. The [Accounting Standards Board of Japan] is now discussing how to improve current accounting standards.”

Japan has no accounting standards for special purpose companies or entities, used by companies securitising loans, receivables, real estate and other assets.

In the US, the collapse of Enron, which used SPEs to hide complex off-balance-sheet transactions, prompted stricter SPE disclosure requirements introduced as part of the
Sarbanes-Oxley Act.

The debate in Japan about SPEs has resurfaced because of the Livedoor scandal, as the internet services group is alleged to have used off-balance-sheet vehicles to hide losses and illegally book capital gains.

SPEs “have been commonly used these days [but] the definition of [who controls them] is not exactly clear”, said Mr Fujinuma. “Sometimes these vehicles are used for manipulation.”

The Financial Services Agency (FSA), Japan’s financial watchdog, is considering ordering companies to step up their disclosure of SPEs.

The number of SPEs in Japan is unknown, because there are no disclosure requirements. But they have undergone explosive growth since they were legalised
as a financial tool in 1998.

Livedoor’s shares on Monday closed down Y23 or 16.55 per cent at Y116.

Copyright The Financial Times Limited 2019. All rights reserved.

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