Rated ACCA in Japan
Framework of financial reporting in Japan
Development of accounting standards
Japanese accounting standards are developed by the Accounting Standards Board of Japan (ASBJ), which was established in 2001. As part of the Tokyo Agreement, which was concluded between the ASBJ and the International Accounting Standards Board (IASB) in August 2007, the ASBJ worked towards a convergence of the Japanese accounting standards with the International Financial Reporting Standards (IFRS). The results of the efforts were jointly announced in June 2011 by the ASBJ and the IASB.
Japanese accounting standards are inconsistent with IFRS. However, since 2008 they have been recognized in the European Union as equivalent accounting standards by third countries.
Voluntary application of IFRS by listed companies
Since 2010, certain Japanese listed companies have been allowed to prepare their consolidated financial statements in accordance with the Japanese Financial Services Agency (FSA) designated IFRS ('Designated IFRS') instead of Japanese accounting standards. Since the FSA has so far designated all IFRS issued by the IASB before the effective date, the designated IFRS are identical to the IFRS as issued by the IASB.
According to the recently revised regulations with regard to the possibility of voluntary IFRS application, listed companies or companies that aim to be listed on the stock exchange and want to report according to IFRS must set up internal processes that enable appropriate reporting according to designated IFRS and have employees who have the relevant knowledge. Filing requirements require that the fact that the designated IFRS have been applied and the basis of eligibility for them be disclosed.
In Japan, IFRS may not be used in individual financial statements.
Possible mandatory application of IFRS in Japan
Although Japan has been considering the possibility of mandatory application of IFRS by publicly listed companies for some time, no decision has yet been taken in this regard. Currently, Japan is promoting the wider application of IFRS on a voluntary basis as outlined above.
On June 20, 2013, the Japanese Business Accounting Council (BAC) issued its final report entitled "Current Policy Regarding the Application of International Financial Reporting Standards (IFRS)". The report recommends a number of measures aimed at increasing, but not mandatory, application of IFRS in Japan. The report contains the following three main strategic recommendations:
- Increase the number of companies that can apply the designated IFRS on a voluntary basis by removing certain existing criteria for voluntary IFRS application. This was already implemented in October 2013.
- Introduction of a takeover process and 'endorsed IFRS' in Japan. As part of the takeover process, there could be changes to the IFRS. The process would be carried out by the Japanese standard-setters, Accounting Standards Board of Japan (ASBJ), and would require the approval of the FSA in each case. Like the designated IFRS, the endorsed IFRS would be available for voluntary application by Japanese companies.
- Simplification of the disclosure requirements in the separate financial statements according to Japanese accounting standards.
As a result of the second proposed measure, the ASBJ published "Japan’s Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications" in June 2015. JMIS are standards and interpretations issued by the IASB, with certain 'deletions or changes' where deemed necessary. The current list of JMIS includes pronouncements issued by the IASB through December 31, 2012. During the acquisition process, it was decided that some standards should be changed with regard to the guidelines on accounting for goodwill and the guidelines on other comprehensive income. For this reason, the first two so-called ASBJ Modification Accounting Standards were issued, the application of which is mandatory in the context of JMIS application:
- ASBJ Modification Accounting Standard No. 1 Accounting for goodwill contains changes to IFRS 3 Business combinations and IAS 28 Shares in associated companies and joint venturess.
- ASBJ Modification Accounting Standard No. 2 Accounting for the other comprehensive income contains changes to IFRS 7 Financial instruments: disclosures, IFRS 9Financial instruments (2010), IAS 1 Presentation of the conclusion and IAS 19 Employee benefits.
Including the new JMIS, subject to certain criteria, Japanese companies can now select one of four sets of standards to prepare their consolidated financial statements:
- designated IFRS,
- Japanese accounting standards or
- US GAAP.
Unlisted companies follow Japanese accounting standards.
ASBJ newsletter in English
Every second month the Japanese Accounting Standards Board (ASBJ) publishes a newsletter in English, primarily with the aim of providing a brief overview of the activities of the ASBJ. You can reach the ASBJ website with the English-language newsletters here.
Japanese language IFRS website and resources
Deloitte Touche Tohmatsu's Japanese member firm has launched a website with a range of IFRS materials in Japanese. The site includes a page of Japanese-language IFRS publications, including a Japanese version from Deloitte's iGAAP, along with information on how to get the publications.
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