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Companies

Japan to ease trigger on factory and store write-downs

Financial Services Agency seeks flexibility on accounting during pandemic

TOKYO -- Japan's financial regulator and accounting board will allow greater leniency on asset write-downs to spare companies from slashing the value of factories and stores idled by the coronavirus outbreak, Nikkei has learned.

The Financial Services Agency will form a joint council as early as Friday with the Japanese Institute of Certified Public Accountants, the Tokyo Stock Exchange, the Japanese Bankers Association and the Japan Business Federation, the nation's top business lobby also known as Keidanren.

The initiative comes as automakers halt production, hotels face waves of canceled reservations and other businesses cope with a virus-induced plunge in demand.

Companies book the value of fixed assets on the assumption that they generate profits. If an auto plant does not produce vehicles, or if a hotel fails to attract guests, write-downs on those assets are normally required.

Though the accounting standards themselves will not change, all stakeholders intend to reach an understanding that the rules can be applied more flexibly.

Greater leniency also will apply to so-called going concern warnings, which are required to be issued when drastic changes in a company's fundamentals threaten its ability to stay in business. Companies will be able to avoid issuing the notice as long as the uncertainties from the coronavirus remain.

In addition, the FSA will ask lenders not to exercise covenant clauses that force companies under financial distress to immediately repay outstanding balances.

Plunging share prices also threaten corporate balance sheets as the pandemic roils global stock markets. Companies already are allowed to hold off writing down the value of stocks and bonds that have fallen 30% to 50% if these assets can reasonably be expected to recover. The FSA and other stakeholders will confirm that this practice remains in place.

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