The organization that sets the nation’s accounting standards said Tuesday it will officially declare later this week that it is against a proposal to allow companies to hide latent losses on their shareholdings.

According to a draft report by the Accounting Standards Board of Japan, it will state: “Changing corporate accounting rules, which are supposed to mirror actual business conditions, in consideration of the state of economy and stock prices could deal a severe blow to investors’ trust in Japan’s companies, capital markets and financial system.”

Calls to freeze the globally accepted mark-to-market accounting rules, which valuate stocks held by corporations based on current market conditions, initially came from a group of ruling coalition politicians.

Some politicians said sharp declines in the stock market are hurting companies’ earnings, particularly banks and insurers, which have massive shareholdings.

The board has been discussing the issue since April 17. During the past eight meetings, the board heard statements from market watchers, economists, accounting specialists and corporate officials who deal with financial statements.

In its pending report, the board is also expected to oppose a separate proposal by the ruling coalition to postpone the introduction in fiscal 2005 of an accounting rule under which firms must book valuation losses on fixed assets.

The rule’s introduction was scheduled after considerable discussions and any change in the plan would damage the credibility of the decision-making process, the board said.

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