• Japan is included in the IFAD GAAP Convergence Studies
• National Professional Organisation Website: Japanese Institute of Certified Public Accountants
• Standard-Setter Website: Accounting Standards Board of Japan
• Response to IFAC Member Body Survey on Standard Setting and Regulation
• Participant in the Asian-Oceanian Standard-Setters Group (AOSSG)

Updates

Tokyo:

Listed Companies On 11 December 2009, the Financial Services Authority of Japan (FSA) published final Cabinet Office Ordinances that allow some Japanese public companies voluntarily to start using IFRSs designated by the Commissioner of the FSA ('Designated IFRSs') in their consolidated financial statements starting from the fiscal year ending 31 March 2010. To be eligible to voluntarily start using IFRSs in 2010, domestic Japanese companies must meet both of (1) and (2) below:

• 1. All of the following requirements shall be met:
  • Shares issued by the company are listed on a Securities Exchange in Japan.
  • The company discloses in its Annual Securities Reports information regarding specific efforts to ensure appropriateness of its consolidated financial statements.
  • The company allocates executives or employees with ample knowledge about Designated IFRSs and has in place a structure that enables it to properly prepare consolidated financial statements in accordance with Designated IFRSs.
• 2. The company, its parent, a related company, or the parent of the related company shall either:
  • disclose under laws and regulations of a foreign jurisdiction periodically as required thereby, documents on its business conditions prepared in accordance with IFRSs;
  • disclose under rules set by a foreign security exchange markets periodically as required thereby, documents on its business conditions prepared in accordance with IFRSs; or
  • own a foreign subsidiary whose capital is equal to or exceeds the equivalent of two billion Japanese yen.

In 2010, the scope of the permitted use of IFRS in consolidated financial statements has further been expanded to include subsidiaries of domestic Japanese companies meeting above criteria.

A company that chooses to apply Designated IFRSs will be required to disclose in the initial fiscal year of such application:

• unaudited condensed consolidated financial statements reported in accordance with Japanese GAAP (for the current and previous fiscal years) and
• an unaudited description of differences between main items prepared in accordance with Designated IFRSs and Japanese GAAP.

In subsequent fiscal years, the company will be required to disclose only the information set out in (2) above.

Japan in the process of considering and deciding mandatory adoption of IFRS by public companies. In June 2011, the minister for financial services mentioned that 1) mandatory adoption would not be required for the fiscal year ending March 31, 2015, and 2) if mandatory adoption is decided, a prearation period of five to seven years will be provided.

Companies that do not voluntarily choose to use Designated IFRSs must use standards issued by the Accounting Standards Board of Japan (Japanese GAAP), with the following exception. Currently, the law allows some Japanese listed companies domestically to submit their consolidated financial statements using US GAAP. About 35 Japanese companies take advantage of this provision. The Cabinet Ordinances adopted in December 2009 that prohibited the use of US GAAP starting in fiscal years ending after 31 March 2016 were revoked in August 2011.

Unlisted Companies

Unlisted companies follow Japanese GAAP.

In June 2004, a study group appointed by the Japanese Ministry of Economy, Trade and Industry, and comprising predominantly representatives of Japanese industrial companies, published a report that compares Japanese accounting standards and International Financial Reporting Standards. The report recommends that the European Commission accept Japanese GAAP as equivalent to IFRSs. European law requires all European companies listed on European exchanges (about 9,000 companies in all) to start using IFRSs in 2005. For non-European companies listed in Europe, IFRSs are deferred to 2007 pending a study of which national GAAPs should be deemed equivalent to IFRSs and therefore permitted in lieu of IFRSs. The report expresses support for the position of the Japanese government and the Accounting Standards Board of Japan that Japanese GAAP is equivalent to IFRSs and urges adoption of "mutual acceptance" by the EC and Japan of each other's standards. The report includes a 29-page tabular comparison of Japanese standards, IFRSs, and US GAAP. Currently, around 250 Japanese companies list their shares or bonds on EU exchanges. Most prepare their financial statements under Japanese accounting rules. Around 10 companies from IFRS countries are listed in Japan.

Click to Download the Study Group Report titled Report on the Internationalization of Business Accounting in Japan (PDF 1,012k).

Every other month, the Accounting Standards Board of Japan (ASBJ) publishing an English language newsletter primarily for the purpose of providing a brief explanation of ASBJ activities. Click for ASBJ Webpage of its English Newsletters.

Deloitte Touche Tohmatsu LLC (Japan) has created a website with a range of IFRS resources in Japanese. The link is: www.deloitte.com/view/ja_JP/jp/knowledge/ifrs/index.htm. The site includes an IFRS Publications Page with Japanese language publications including a Japanese version of Deloitte's iGAAP Financial Instruments, with information about how to obtain the publications.

Deloitte's IFRS Centre of Excellence in Japan publishes Japanese translations of the IFRS in Focus newsletters. English editions of these newsletters can be found Here.

In addition:

• Japanese translations of our IASB Project Insights are available on our Project Insights page
• Japanese translations of our Insurance Accounting Newsletter are available on our Insurance project page.

Deloitte's IFRS Centre of Excellence in Japan publishes Japanese translations of the IFRIC review newsletters. English editions of these newsletters can be found Here.

Deloitte Japan webcast on December IASB meeting

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the December meeting of the IASB. The 25 minute webcast is available for viewing until the end of May 2012.

Click for access to the webcast (in Japanese).
 

Japanese translation of publication on the consequences of the revenue recognition proposals in the software industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The Revenue Recognition Project — An update for the software industry (Japanese, PDF 309k). The original English document can be found Here (PDF 88k).
 

Japanese translation of publication on the consequences of the revenue recognition proposals in the telecommunications industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: Accounting for revenue in the telecommunications industry (Japanese, PDF 431k). The original English document can be found here (PDF 470k).
 

Business Accounting Council of Japan continued its discussion over IFRS

Following on from the meeting on 10 November 2011, the Business Accounting Council of Japan (BAC) met on 22 December to continue discussions on IFRS.

• 10 November — The deliberation centered around relationship between a consolidated financial statement and a separate financial statement such as the use of potentially different accounting standards for each of them. The discussions also included relationship between the accounting standards and other related matters such as corporate laws and taxation. Majority appears to have supported a weak or no link between consolidated and separate financial statements, while some preferred consistency between two statements.
• 22 December — The main topic was “accounting that contributes to economic activities”, which is the third item of 11 “specific aspects” proposed in August. Other topics touched on during the session included the comment letter by the ASBJ on IASB’s three-yearly agenda consultation and recent developments in the U.S. such as issuance of two SEC staff papers for the workplan (issued in November) and a speech by the SEC staff at the AICPA annual conference in earlier December. Related materials (in Japanese) are expected to be posted to the FSA’s website.

At both sessions, divergent views were expressed by members and no formal decision was made. In addition, during the one in December, a question was asked with regard future deliberation schedule at the BAC. The FSA responded that 1) remaining 8 items among 11 “specific aspects” are to be discussed, and 2) it is still possible that the decision be made in 2012; however, depending on the progress of future deliberations, a conclusion may not be reached within 2012.
 

The date of the next meeting, where the BAC is expected to review results of research visits to North America, Europe and Asia conducted during November to December, is yet to be announced.

• November Meeting handout (in Japanese, link to FSA website)
• December Meeting handout (in Japanese, link to FSA website)
• Official minutes of the meeting in November (in Japanese, link to FSA website)

Deloitte Japan webcast on November IASB meeting

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the November meeting of the IASB. The 25 minute webcast is available for viewing until the end of April 2012.

Click for access to the webcast (in Japanese).
 

Standard setters from China, Japan and Korea meet

Standard setters from China, Japan and the Republic of Korea met in Xiamen, China on 26 October 2011. Representatives were present from the China Accounting Standard Committee (CASC), Accounting Standards Board of Japan (ASBJ), Korea Accounting Standards Board (KASB), International Accounting Standards Board (IASB), along with other delegates from the three countries and Hong Kong and Macau.

The meeting discussed the process of convergence of accounting standards, the IASB's projects and its future agenda and the prospective efforts of the Asian-Oceanian Standard Setters Group (AOSSG).

The delegates agreed to maintain communication between the countries (on projects, convergence and issues), to coordinate perspectives on the IASB's projects, and to enhance regional communication and cooperation in Asia-Oceania. Full support was expressed for the IASB's Asia-Oceanian regional liaison office to be established in Tokyo in October 2012.

The next meeting will be held in Korea in 2012. Click for press release (link to ASBJ website).
 

Deloitte Japan webcast on October IASB meeting

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the October meetings of the IASB. The 25 minute webcast is available for viewing until the end of March 2012.

Click for access to the webcast (in Japanese).
 

Discussions at the joint IASB-ASBJ meeting

IASB and ASBJ discussed the following topics:

• IFRS - US GAAP convergence,
• convergence of Japanese GAAP and IFRSs,
• interpretation and practical issues relating to the voluntary application of IFRSs in Japan,
• the IASB Agenda Consultation 2011, and
• major projects on the IASB's agenda including Financial instruments: impairment, Revenue recognition, Leases, and the exemption from consolidation for investment entities.

The IASB has posted to its website a press release with a summary of the discussions.
 

Japanese translation of publication on the consequences of the new consolidations standard in the financial services industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The new consolidation standard — insights for the financial services industry (Japanese, PDF 387k). The original English document can be found here (PDF 116k).
 

Business Accounting Council of Japan continued its discussion over IFRS

Following on from the meeting on 25 August 2011, the Business Accounting Council of Japan (BAC) met on 17 October for the third time to move discussions on IFRS forward. During his opening remarks, the Japanese Minister for Financial Services mentioned his meeting with the chairman of the IASB from early October and requested BAC members to continue discussions around 11 specific items presented at the previous meeting (see our earlier story). Among these items, JFSA presented a discussion paper on 1) overall design of accounting standards/disclosure system in Japan and 2) analysis of foreign situations/diplomatic policy and international demand. The six-page paper included an analysis as well as six discussion points such as a) consideration points for future deliberation in light of changing financial/economic environment after the financial crisis, b) need for a strategic deliberation with diverse options in mind, watching situations in other countries, c) past and future approach/strategy with regard to the IASB activities and positioning of Japan, d) roles of multiple stakeholders in Japan to implement national strategy, e) matters to be covered in the planned research visit to foreign countries, and f) other matters such as international developments to be considered. Members expressed their views around topics individually. The discussions on this topic would be carried forward to the next meeting. The next meeting is expected to take place in November, it will also cover the second discussion paper distributed by the JFSA focusing on relationship between consolidated financial statement reporting regime to separate financial statement reporting system in light of local laws and regulations as well as Japan’s past experience of permitting US GAAP and IFRS only in the consolidated financial statement.

The next session of the BAC has not been formally scheduled. Research visits by certain BAC members are planned later in 2011.

Click for:

• Meeting handout (in Japanese, link to FSA website)
• Official minutes of the previous meeting in August (in Japanese, link to FSA website)

Deloitte Japan webcast on September IASB meetings

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the September meetings of the IASB. The 30 minute webcast is available for viewing until the end of February 2012.

Click for access to the webcast (in Japanese).
 

Japanese translation of publication on the consequences of the new joint arrangements standard in the real estate industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The new joint arrangements standard — insights for the real estate industry (Japanese, PDF 387k). The original English document can be found here (PDF 115k).
 

Japanese standard setters reflect on 10 years of achievement, and the future

July 2011 marked the tenth anniversary of the establishment of the the Japanese Financial Accounting Standards Foundation (FASF) and the Accounting Standards Board of Japan (ASBJ). The President of the FASF (Toshitaka Hagiwara) and Chairman of the ASBJ (Ikuo Nishikawa) have both written articles to commemorate the anniversary, in which they provide an assessment of the past achievements of the organisations, and commentary on the challenges going forward, including Japan's possible adoption of IFRSs.

The retrospectives discuss Japan's convergence projects, the 'Tokyo Agreement' with the AASB, liaison with the IASB and FASB, role in establishing the Asian-Oceanian Standard-Setters Group (AOSSG), and other topics.

Toshitaka Hagiwara (FASF President) made the following remarks (ASBJ translation):

Ikuo Nishikawa (ASBJ Chairman) commented as follows (ASBJ translation):

Click for:

• Full text of comments by the FASF President (link to ASBJ website)
• Full text of comments by the ASBJ Chairman (link to ASBJ website).
   

Japanese translation of publication on the consequences of the leases project in the consumer business industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The Leases Project — An update for the consumer business industry (Issue 2) (Japanese, PDF 274k). The original English document can be found here (PDF 94k).
 

Japanese translation of publication on the consequences of the new consolidation standard in the investment management industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The new consolidation standard — insights for the real estate industry (Japanese, PDF 320k). The original English document can be found here (PDF 101k).
 

Japan finalises regulation amendments to retain US GAAP option

The Financial Services Authority of Japan (FSA) has announced the finalisation of the removal of time limit for the use of United States Generally Accepted Accounting Principles (US GAAP) by certain Japanese entities (see our earlier story).

As proposed, the finalised revised regulations revert back to the situation before a revision made in December 2009, which introduced a prohibition on the use of US GAAP with effect from fiscal years ending after 31 March 2016. Accordingly, under the revised regulations, in principle:

• United States Securities Exchange Commission (SEC) registrants are permitted to also use US GAAP for domestic Japanese filing purposes
• Non-registrant current US GAAP users (typically companies which started using US GAAP for Japanese domestic purposes before 1977) are permitted to continue using US GAAP for domestic Japanese filing purposes. This option remains in place for an unspecified period, but may not be permanent.

Click for access to the announcement by FSA including the revised ordinances (link to FSA website, in Japanese).
 

ASBJ and FASB meet to discuss convergence

Representatives of the Accounting Standards Board of Japan (ASBJ) and the Financial Accounting Standards Board (FASB) met on 18-19 August 2011, in Tokyo, Japan. This meeting was the eleventh in a series of discussions between the ASBJ and the FASB.

At this meeting, the ASBJ and the FASB updated each other with the recent developments in their respective convergence projects with the IASB. Furthermore, the ASBJ and the FASB exchanged views on the financial instruments, revenue recognition, leases and insurance contracts projects being undertaken by the FASB and the IASB.

The next joint meeting is planned in the first quarter of 2012 in Norwalk, Connecticut. Click for:

• ASBJ press release (link to ASBJ website)
• FASB press release (link to the FASB website).
   

Business Accounting Council of Japan meets a second time to discuss IFRS

Following on from an earlier meeting on 30 June 2011, the Business Accounting Council of Japan (BAC) met on 25 August for the second time to continue discussions on IFRS in the presence of the Japanese Minister for Financial Services. The meeting did not result in any clear consensus or decisions.

During the meeting, a two-page discussion paper proposing an approach for future consideration at the BAC was presented. The paper included general aspects of the approach as well as 11 specific items as primary items that warrant consideration:

• General aspects: 1) wider implications of accounting are to be considered, 2) consideration should be careful and sufficient time be spent, incorporating hearing from the wider constituency and an analysis of the foreign situation, and 3) development of strategic thinking and overall design from the perspective of the Japanese national interest
• Specific aspects: 11 primary items for future consideration, which may change during the course of consideration, are 1) overall design of accounting standards/disclosure system in Japan, 2) analysis of foreign situations/diplomatic policy and international demand, 3) accounting that contributes to economic activities, 4) impact of principle-based accounting standards, 5) impact on regulatory environment (industry regulation, public procurement), legal/contract environment, etc., 6) nonpublic and medium to small companies, 7) investor-issuer communication, 8) impact on auditors, 9) voluntary early adoption, 10) national accounting standards setter (ASBJ), and 11) governance over the IASB.

Members of the Council responded to the proposal with divergent comments.

The next session of the BACis yet to be scheduled. Click for:

• Access to meeting materials (link to Japanese Financial Services Agency, mostly in Japanese)
• American Chamber of Commerce in Japan (ACCJ) commentary submitted to the meeting (link to Japanese Financial Services Agency, in both Japanese and English)
• Our earlier story on the meeting held on 30 June 2011.
   

Japanese translation of publication on the consequences of the new consolidation standard in the investment management industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The new consolidation standard — insights for the investment management industry (Japanese, PDF 345k). The original English document can be found here (PDF 503k).
 

Deloitte Japan webcast on July IASB meetings

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the July meetings of the IASB. The 30 minute webcast is available for viewing until 31 December 2011.

Click for access to the webcast (in Japanese).
 

Japan proposes to remove time limit for US accounting rules

In line with recent developments and following an announcement of the Japanese Minister for Financial Services made in June 2011, the Financial Services Authority of Japan (FSA) yesterday proposed a draft regulation on the use of US GAAP in Japan that would extend the current option to use US GAAP beyond 2016.

In December 2009, the FSA adopted Cabinet Ordinances allowing the voluntary application of IFRS starting from the fiscal year ending 31 March 2010 and prohibiting the use of US GAAP starting from fiscal years ending after 31 March 2016. The draft regulation proposed yesterday would revoke the part of the December 2009 Cabinet Ordinances that prohibit the use of US GAAP after 2016.

Comments on the draft regulation close on 16 August 2011. Please click for FSA press release (Japanese only, link to FSA website).

Deloitte Japan webcast on revised IAS 19

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the revised IAS 19 Employee Benefits. The 20 minute webcast is available for viewing until 31 December 2011.

Click for access to the webcast (in Japanese).
 

Deloitte Japan webcast on June IASB meetings

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the June meetings of the IASB. The 30 minute webcast is available for viewing until 30 November 2011.

Click for access to the webcast (in Japanese).
 

Japanese translation of publication on the consequences of the revenue project in the consumer business industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The Revenue Recognition Project — An update for the consumer business industry (Japanese, PDF 90k). The original English document can be found Here (PDF 83k).
 

Japanese translation of publication on joint arrangements in the energy and resources industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: Joint Arrangements in the Energy and Resources Industry (Japanese, PDF 323k). The original English document can be found Here (PDF 116k).
 

Japanese translation of publication on the consequences of the revenue project in the telecommunications industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The Revenue Recognition Project — An update for the telecommunications industry (Japanese, PDF 300k). The original English document can be found Here (PDF 93k).
 

Business Accounting Council of Japan discusses IFRS

Following on from remarks made by the Minister for Financial Services of Japan in June (see our earlier story), the Business Accounting Council of Japan (BAC) has resumed discussions on the possible adoption of IFRSs in Japan. In a two-hour meeting held on 30 June 2011, neither a clear consensus or a definite future plan were established.

In his opening remarks, the Minister mentioned the following points, supplementing what he stated previously on 21 June:

• The importance of internationalisation of accounting standards should not be denied. The Japanese Financial Services Agency (FSA) continues maximum effort toward harmonising accounting standards internationally
• On the other hand, such harmonisation is not necessarily the only goal and should not slow down the economy. International requirements and activating the economy are both important.

He also repeated his earlier statements, including confirming: 1) a five to seven year transition period will be provided if mandatory adoption of IFRSs is decided, and 2) the existing statutory limit on the use of U.S. GAAP (currently March 2016) will be removed.

The Minister also touched on a future process and matters to be considered by the BAC:

• It is necessary to develop and execute a comprehensive work plan as well as roundtable sessions on the subject
• The interim report issued by the BAC in June 2009 (see our previous story) is to be reconsidered fully in light of recent developments in and outside of Japan, in particular:
• matters listed up as "Issues Concerning the Application of IFRS" in the report
• the direction of convergence, which is being discussed at the BAC, rather than by the Accounting Standards Board of Japan (ASBJ)
• the relationship between consolidated financial statements and separate financial statements
• institutional matters, including a vision with regard to a variety of capital markets and the abolition of separate financial statements from Japan’s disclosure system.

After the remarks, newly expanded members of the BAC, consisted of approximately 40 people, expressed their views, in the presence of the Minister. Fairly diverse views were presented on many different subjects such as IFRS itself and its use in Japan, due process to be followed in deliberation/decision, a necessary period of conversion, and perception of this process by other countries and constituents of the IASB.

The next session of the BAC and the agenda is yet to be scheduled. Click for a transcript of the opening remarks by the Minister (link to the FSA site, in Japanese only).
 

Japan defers any IFRS adoption, reinstates US-GAAP option

The Japanese Minister for Financial Services, Shozaburo Jimi, has outlined a number of changes in relation to the possible adoption of International Financial Reporting Standards (IFRSs) in Japan.

Japan has not yet made a decision on whether or not to mandatory adopt IFRSs, although voluntary adoption already started in 2010. The Business Accounting Council of Japan, with expanded members, will commence deliberation on the adoption question in later in June 2011.

The key changes announced by the Minister include:

• Mandatory application of IFRS will not take place from the business year ending March 2015, at the very least, and a sufficient time period of five to seven years will be permitted for preparation if and after mandatory application of IFRSs is decided
• The currently legislated expiry date of the ability to use US GAAP for disclosure purposes, namely up to the business year ending on or before 31 March 2016, will be removed so that the firms will be able to continue their use of US GAAP beyond that date.

As background to this change, the paper released by the FSA referred to various changes in the environment both in and out of Japan that have taken place since the issuance of the Interim Report in June 2009, including the release of the SEC work plan (February 2010), the announcement of a delay in the convergence program by the IASB and FASB (April 2011), the US SEC staff report on the so-called 'condorsement' approach to the adoption of IFRS in the United States (May 2011), and domestic Japanese events such as the Great East Japan Earthquake and tsunami.

Click for more information (link to the Japanese Financial Services Agency, also available in Japanese).
 

Deloitte Japan webcast on the 'package of five' standards on consolidation, joint arrangements and disclosure

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the "package of five" new and revised standards addressing the accounting for consolidation, involvements in joint arrangements and disclosure of involvements with other entities. The 40 minute webcast is available for viewing until 31 December 2011.

Click for Overview of the 'package of five' standards on consolidation, joint ventures and disclosure of interests in entities (in Japanese).
 

Deloitte Japan webcast on May IASB meetings

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the May meetings of the IASB. The 40 minute webcast is available for viewing until 31 October 2011.

Click for access to the webcast (in Japanese).
 

IASB and ASBJ report on convergence

The IASB and the Accounting Standards Board of Japan (ASBJ) have announced their achievements under their August 2007 Memorandum of Understanding (MoU), known as the Tokyo Agreement, to improve International Financial Reporting Standards (IFRSs) and Japanese generally accepted accounting principles (GAAP) and to bring about their convergence. The announcement results from a meeting between the IASB and ASBJ held in Tokyo on 6-7 June 2011.

Under the Tokyo Agreement, both boards agreed to seek to eliminate by 2008 major differences between Japanese GAAP and IFRSs, with the remaining differences to be removed on or before 30 June 2011. Whilst the target date of 2011 does not apply to any major new IFRSs now being developed that will become effective after 2011, both boards have agreed to work closely to ensure the acceptance of the international approach in Japan when the new standards become effective.

The report discusses the progress made by the IASB and ASBJ in both short-term and other convergence projects. The convergence of IFRS with Japanese GAAP is seen by both boards as an important step on the path towards Japan's possible adoption of IFRSs, with a decision on adoption likely in 2012.

A summary of progress as outlined in the report is reproduced below:
 

Short-term convergence projects

Other convergence projects

Possible differences arising from the current IASB’s major projects

The Boards are planning to meet again in the fourth quarter of 2011. Click for:

• IASB press release (link to IASB website).
• ASBJ press release (link to ASBJ website).
   

New Japanese industry-specific publications

Deloitte's IFRS Center of Excellence in Japan has released the following publications:

• IFRS Industry Insights: The Revenue Recognition Project — An update for the consumer business industry (Japanese, PDF 279k). The original English document can be found Here (PDF 93k)
• IFRS Industry Insights: The Leases Project — An update for the shipping industry (Japanese, PDF 265k). The original English document can be found Here (PDF 70k)
• IFRS Industry Insights: The Revenue Recognition Project — An update for the manufacturing industry (Japanese, PDF 277k). The original English document can be found Here (PDF 484k)
• An article about the potential impacts of the IASB's leasing proposals on the real estate industry (Japanese, link to Deloitte Japan website).
   

Japanese translation of publication of consequences of the leases project in the energy and resources industries

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The Leases Project — An update for the energy and resources industry (Japanese, PDF 278k). The original English document can be found Here (PDF 94k).
 

Japanese translation of publication of consequences of the leases project in the financial services industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The Leases Project — An update for the financial services industry (Japanese, PDF 256k). The original English document can be found Here (PDF 95k).
 

Deloitte Japan webcast on April IASB meetings

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the April meetings of the IASB. The 40 minute webcast is available for viewing until 30 September 2011.

Click for access to the webcast (in Japanese).
 

Japanese translation of publication of consequences of the leases project in the manufacturing industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of IFRS Industry Insights: The Leases Project — An update for the manufacturing industry (Japanese, PDF 265k). The original English document can be found Here (PDF 98k).
 

Japanese translation of publication of consequences of the revenue project on the telecommunications industry

Deloitte's IFRS Center of Excellence in Japan has published a Japanese translation of Accounting in the Telecommunications industry – A new view of revenue emerges (Japanese, PDF 324k). The original English document can be found Here (PDF 75k).
 

Japanese summary of IASB-FASB progress report on convergence

On 21 April 2011, the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) published a progress report on improvements to International Financial Reporting Standards and US generally accepted accounting practices and their convergence.

Deloitte's IFRS Centre of Excellence in Japan has released a summary (in Japanese) of the IASB-FASB progress report on convergence (PDF 253k).
 

Deloitte Japan webcast on March IASB meetings

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the March meetings of the IASB. The 40 minute webcast is available for viewing until 31 August 2011.

Click for access to the webcast (in Japanese).
 

Japan 'designates' additional IFRSs

On 6 April 2011, the Financial Services Agency (FSA) of Japan announced additional IFRSs designated for use by companies voluntarily applying IFRSs in Japan.

On 11 December 2009, the Commissioner of the FSA designated the entire IFRSs including IFRIC Interpretations issued by the IASB on or before 30 June 2009. During 2010, the FSA updated the list of IFRSs designated for use for all IFRSs released through 30 June 2010.

This announcement adds the following IFRSs released between 1 July and 31 December 2010 to the list of 'designated IFRSs':

• IFRS 1 First-time Adoption of International Financial Reporting Standards (amendment)
• IFRS 7 Financial Instruments: Disclosures (amendment)
• IFRS 9 Financial Instruments (amendment)
• IAS 12 Income Taxes (amendment).

Click for FSA announcement (link to the FSA website, in Japanese).
 

Deloitte Japan webcast on February IASB meeting

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the February meeting of the IASB. The 40 minute webcast is available for viewing until late July 2011.

Click for access to the webcast (in Japanese).
 

Accounting Standards Board of Japan updates its work plan

The Accounting Standards Board of Japan (ASBJ) has released its latest summary of standards development and its project plan.

The project plan discusses items related to the remaining differences between existing Japanese GAAP and IFRSs, projects being addressed in the Memorandum of Understanding (MoU) between the IASB and FASB and other projects. A number of controversial global developments are discussed, including the proposals in the IASB's post-employment benefits project regarding remeasurement, which the plan states "may become a difficult obstacle for convergence in Japan". The need for convergence between the IASB and FASB in relation to financial instruments is also cited as "an area of the greatest need for their convergence".

The project plan notes the following:

Click for ASBJ project plan (link to ASBJ website).
 

Updated e-learning resources in Japanese

Deloitte's Japanese IFRS Center of Excellence has released updated IFRS e-learning resources in Japanese. The e-learning consists of 36 modules, based on accounting standards applicable at 31 December 2010, and is available free of charge.

The Japanese e-learning modules can be accessed Here.
 

China, Japan and Korean standard setters sign Memorandum of Understanding

On 25 January 2011, a meeting between the leaders of the standard setters of China, Japan and the Republic of Korea resulted in the signing of a Memorandum of Understanding (MoU), which seeks to strengthen and reinforce the communication and cooperation between the standard setters over the next several years.

Under the MoU, the three parties have agreed to:

• continue communicating with one another on accounting standards development
• exchange views and experience of convergence work with IFRSs and related implementation, and share their experience with other jurisdictions
• continue to work together to play an important role in the Asian-Oceanian Standard Setters Group (AOSSG)
• cooperate on the governance and strategy review of the IFRS Foundation, and work jointly to achieve high quality financial reporting in the Asian-Oceanian region and the development of IFRSs
• strengthen communication of technical issues on IFRSs, endeavour to reach consensus in comments on the IASB's major projects.

Click for Memorandum of Understanding (MoU) of High-level Meeting of Accounting Standards Setters among China, Japan and Republic of Korea (PDF 365k, link to Accounting Standards Board of Japan website).
 

Deloitte Japan webcast on January IASB meeting

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the January meeting of the IASB. The 30 minute webcast is available for viewing until 30 June 2011.

Click for access to the webcast (in Japanese).
 

United States and Japan discuss convergence

Representatives of the Accounting Standards Board of Japan (ASBJ) and the Financial Accounting Standards Board (FASB) met on February 7 and 8, 2011, in Norwalk, Connecticut, in the latest a series of discussions between the ASBJ and the FASB designed to enhance dialogue between the two Boards in their shared pursuit of global convergence of accounting standards.

With the decisions connected with the use of IFRSs expected to be made during 2011 for the United States and in or around 2012 for Japan, the ASBJ and the FASB updated each other with the recent developments in their respective convergence projects with the IASB and exchanged views on the a number of IASB projects.

Click for FASB press release (link to FASB website).
 

Japanese IFRS conference

Deloitte (Japan) is hosting its annual IFRS conference on Wednesday 2 March 2011. The theme of the conference is the current and future directions of IFRS how Japanese companies should respond. The conference will be held in Tokyo, with live streaming to additional sites in Nagoya, Osaka and Fukuoka. Speakers include Tatsumi Yamada (IASB board member) and Joel Osnoss (Deloitte Global Managing Director – IFRS Clients and Markets). A panel discussion will also be held.

Click for more information (link to Deloitte (Japan) website, in Japanese).
 

Deloitte Japan webcasts

Deloitte's IFRS Centre of Excellence in Japan has released the following recorded webcasts:

• Introduction to the IASB hedge accounting proposals (in Japanese) - available for viewing until 30 June 2011
• An overview of International Financial Reporting Standards (in Japanese) - available for viewing until 30 September 2011
   

Deloitte Japan webcast on December IASB meeting

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the December meeting of the IASB. The 35 minute webcast is available for viewing until 30 April 2011.

Click for access to the webcast (in Japanese).
 

IFRS XBRL taxonomy in Japanese

The IFRS Foundation has published a Japanese translation of the IFRS (International Financial Reporting Standards) Taxonomy 2010. The taxonomy is an official IFRS Foundation translation of the complete 2010 taxonomy label linkbases into Japanese, created using official terminology.

Click for IFRS Foundation press release (link to IFRS Foundation website).
 

Deloitte Japan webcast on November IASB meeting

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the November meeting of the IASB. The 30 minute webcast is available for viewing until 30 April 2011.

Click for access to the webcast (in Japanese).
 

Deloitte Japan webcast on October IASB meeting

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the October meeting of the IASB. The 30 minute webcast is available for viewing until 31 March 2011.

Click for access to the webcast (in Japanese).
 

Deloitte Japan webcast on IASB lease proposals

Deloitte's IFRS Centre of Excellence in Japan has released a recorded webcast on the IASB's exposure draft ED/2010/9 Leases. Click for access to the webcast (in Japanese).
 

Establishment of a panel on non-consolidated financial statements

Updated project plan for Accounting Standards Board of Japan (ASBJ)

The Accounting Standards Board of Japan (ASBJ) has announced its updated project plan through to 2011. In addition to tracking the various IASB projects, the ASBJ intends to deal with business combinations, goodwill and intangibles, consolidation of SPEs, quarterly reporting and subsequent events.

Click for ASBJ press release (PDF 77k).

Japanese edition of iGAAP 2010

Deloitte (Japan) has published a Japanese translation of the global edition of iGAAP 2010. This three-volume set, in Japanese, includes all the content of the English edition of iGAAP 2010. The Japanese version covers the following topics: Volume 1. Framework, financial statements, accounting policies, inventory, fixed assets, impairment of assets, leases, borrowing costs, provisions, revenue, construction contracts, share-based payments Volume 2. Employee benefits, income taxes, consolidated and separate financial statements, business combinations, investments in associates, joint ventures, foreign currency, statement of cash flows, subsequent events, related party disclosures, operating segments, earnings per share, interim financial reporting, government grants, hyperinflation, agriculture, insurance, mineral exploration and evaluation, first-time adoption Volume 3. Financial instruments - financial assets, financial liabilities and equity, derivatives, embedded derivatives, measurement, recognition and derecognition, hedge accounting, disclosure, first-time adoption. The publication can be purchased through Lexis-Nexus online at http://lexisbookstore.jp/.

Japanese regulator proposes wider IFRS reporting, approves IASB amendments

The Financial Services Agency (FSA) of Japan has proposed to extend IFRS reporting in Japan to optionally include consolidated financial statements of non-public subsidiaries of domestic IFRS issuers. The proposals were issued on 4 August 2010 and comments on the proposals close on 3 September 2010.

The FSA has also approved the following IFRSs and related Interpretation, issued by the IASB in the first half of 2010, for use in Japan:

• Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters – amendment to IFRS 1 (Jan 2010)
• Improvements to IFRSs (May 2010), including amendments to IFRIC 13

Click for:

• FSA proposal to expand the scope of IFRS reporting (from the FSA website, in Japanese)
• FSA announcement on IFRS endorsements (from the FSA website, in Japanese).

India-Japan Joint Working Group on IFRS

Various government and accounting organisations from India and Japan have formed the India-Japan Joint Working Group as a common platform between the two countries to discuss IFRS-related matters. The first meeting of the Joint Working Group was held in Tokyo, Japan from 26-28 July 2010.

At the meeting, a Memorandum of Understanding was signed which primarily focuses on:

• An exchange of views on legal and regulatory and other issues arising out of application of or convergence with IFRSs and exploring the possibilities of mutual cooperation
• Addressing critical issues relating to application of, or convergence with, IFRSs and reaching consensus through a process of consultation mutually agreed to
• Fostering a strong and cohesive profession by providing leadership on emerging issues, coordinating with global, other regional, intra-regional organisations, member bodies and associates to achieve appropriate strategic objectives.

The next meeting of the group will be held in India in 2011. Click for Accounting Standards Board of Japan (ASBJ) press release Inauguration of India-Japan Dialogue (PDF 41k).

Japan 'designates' additional IFRSs

In our News Story of 31 Jan 2010, we reported that the Financial Services Agency (FSA) of Japan proposed to update the list of IFRSs designated for use by companies voluntarily applying IFRSs in Japan to include the following IFRSs:

• IFRS 1 First-time Adoption of International Financial Reporting Standards (amendment)
• IAS 32 Financial Instruments: Presentation (amendment)
• IAS 24 Related Party Disclosures (amendment)
• IFRS 9 Financial Instruments
• IFRIC 14 IAS 19–The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (amendment)
• IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

Japan moves toward full IFRS adoption

In our News Story of 10 February 2010 we reported on a conference on international developments in accounting and auditing that was hosted by the European Commission in Brussels on 8 February 2010. One of the presenters at that conference was made by Mr Masamichi Kono, Deputy Director General of the Supervisory Bureau of the Financial Services Agency of Japan. He explained the Japanese step-by-step roadmap toward the full adoption of IFRS by 2015 or 2016, including the voluntary early adoption that has already started from 1 April 2009. Click to Download Mr Kono's Presentation (PDF 145k).

Japan proposes to 'designate' addititional IFRSs

The Financial Services Agency (FSA) of Japan has proposed to update the list of IFRSs designated for use by companies voluntarily applying IFRSs in Japan. This proposal is an extension of the Ordinances that FSA adopted on 11 December 2009 (see Our Earlier News Story). Those Ordinances allow Japanese listed companies that meet certain requirements to apply voluntarily, starting in financial years ending on or after 31 March 2010, IFRSs designated by the Commissioner of the FSA through public notice. On 11 December 2009, the Commissioner of the FSA designated the entire IFRSs including IFRIC Interpretations issued by the IASB on or before 30 June 2009. This new proposal would add the following IFRSs and IFRIC interpretations released between 1 July and 31 December 2009 to the list of 'designated IFRSs':

• IFRS 1 First-time Adoption of International Financial Reporting Standards (amendment)
• IAS 32 Financial Instruments: Presentation (amendment)
• IAS 24 Related Party Disclosures (amendment)
• IFRS 9 Financial Instruments
• IFRIC 14 IAS19–The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (amendment)
• IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

Japan becomes the newest IFRS country by allowing some companies to use IFRSs

The Financial Services Authority of Japan (FSA) has Published on its Website, in Japanese, final Cabinet Office Ordinances that allow some Japanese public companies voluntarily to start using IFRSs designated by the Commissioner of the FSA ('Designated IFRSs') in their consolidated financial statements starting from the fiscal year ending 31 March 2010. Concurrently, the Commissioner published the Designated IFRSs as of 11 December 2009 (PDF 21k). Basically, the list includes all IFRSs and Interpretations issued on or before 30 June 2009. Therefore, the list does not include, for example, IFRS 9, IFRIC 19, or the 2009 revisions to IFRS 1, IFRS 2, IAS 24, IAS 32, and IFRIC 14 (some of which become mandatory for annual periods beginning 1 January 2010). The revised Ordinances also discontinue a provision of the current law that allows some Japanese listed companies domestically to submit their consolidated financial statements using US GAAP. About 35 Japanese companies take advantage of this provision. Use of US GAAP will be prohibited starting in fiscal years ending after 31 March 2016. Click for Summary of the Ordinances (PDF 51k) from the FSA's website.

1. condensed consolidated financial statements reported in accordance with Japanese GAAP (for the current and previous fiscal years) and a description of material changes in converting to Designated IFRSs; and
2. a description of differences between main items prepared in accordance with Designated IFRSs and Japanese GAAP.

Japan plans to allow some companies to use IFRSs starting 31 March 2010

As we Reported in June 2009, on 30 June 2009, the Business Accounting Council (advisory body to the Financial Services Authority of Japan (FSA)) approved its Opinion on the Application of International Financial Reporting Standards (IFRS) in Japan (Interim Report) (PDF 130k). The FSA published an English translation of the 'Interim Report' on the FSA's Website. At the same time, the FSA published on their website for comment, only in Japanese, 13 Related Documents including Proposed Ordinances that would have to be adopted to implement the 'Interim Report'.

On 1 December 2009, the FSA announced that they will release the final IFRS Ordinances on 11 December 2009. Those Ordinances will be effective immediately on release. Click here for the Announcement and Near-final Draft Ordinances on the FSA's website in Japanese only. Among other things, the Ordinances would allow certain Japanese public companies voluntarily to start using IFRS in their consolidated financial statements starting from the fiscal year ending 31 March 2010. As a result of comments received on the proposed Ordinances, the FSA has significantly reduced the parallel reporting requirements under Japanese GAAP for those companies voluntarily electing early use of IFRSs. Japan intends to consider, around 2012, whether to make IFRSs mandatory for all public companies starting around 2015 or 2016.

To be eligible to voluntarily start using IFRSs in 2010, domestic companies should meet both of (1) and (2) below:

1. Basic Requirement – All of the following are satisfied:
   • Public company requirement (the entity's shares must be traded on the stock exchange)
   • Disclosure requirement (the entity's annual report includes a disclosure about the entity's policies to ensure proper presentation of the consolidated financial statements in conformity with IFRSs)
   • Human resource/control requirement (the entity has either a member of the board or an employee who is sufficiently knowledgeable about IFRS and has adopted an appropriate internal control framework over the preparation of consolidated financial statements in accordance with IFRSs)
2. International Financial or Business Criteria – Either of the reporting entity, its parent, or certain other affiliated entities meet one of the following:
   • IFRSs are required by foreign laws or regulations
   • IFRSs are required by foreign stock exchange regulations or rules
   • The entity has a listed subsidiary whose capital under the Company Law is over 2 billion yen

These criteria are consistent with the proposals in the Interim Report, which states:

Deloitte IFRS conference in Japan

On Tuesday 8 December 2009, Deloitte Touche Tohmatsu LLC will hold an annual seminar Towards the Adoption of International Financial Reporting Standards in Japan. Speakers at this predominantly Japanese-language event include:

• Mr. Atsushi Saito, President and CEO of Tokyo Stock Exchange Group, Inc
• Mr. Noriaki Shimazaki, IASC Foundation Trustee and Chairman of the Sub-Committee on Accounting, Nippon Keidanren (Japan Business Federation)
• Mr. Tatsumi Yamada (Member of IASB) and Mr. Wayne Upton (IASB Director of International Activities)
• Tohmatsu partners will discuss possible implications of the planned IFRS adoption for Japanese companies
• Deloitte member firms will participate, as panellists, in a discussion on the current status of the adoption of IFRSs by countries/areas around the globe, as well as matters that will require the first-time adopters in Japan to note

July 2009: Another step toward IFRSs in Japan

Four key Japanese accounting and business groups have jointly proposed to create an IFRS Council that would work to implement a plan for adopting IFRSs for listed companies in Japan. The plan was published in an Interim Report of the BAC. The four groups are the Accounting Standards Board of Japan and its oversight foundation; Japanese Institute of CPAs; Tokyo Stock Exchange; and Japan Business Federation (Nippon Keidanren). The IFRS Council would be responsible for identifying the various issues involved in implementation of IFRSs in Japan and for establishing overall policies and strategies. It would have the following committees:

• Strategic Committee for IASB Assuming that Japan moves towards IFRS adoption in the near future, this committee would deliberate upon a 'strategy and specific actions as to how best to influence developments of major accounting standards'.
• Education and Training Committee Establish and implement an education and training system for IFRSs mainly for accounting practitioners.
• Translation Committee Establish a system to promote an accurate Japanese translation of IFRSs.
• Committee for Separate Financial Statements Deliberate on how separate financial statements can be simplified, given the current focus on consolidated financial statements.
• Public Relations Committee Oversee communications to a wide range of stakeholders, including investors, company executives, analysts, and the media.

• Announcement of the IFRS Council in Japan (PDF 57k).
• Appendix with Details about the Committees (PDF 120k).

Business Accounting Council Interim Report

On 30 June 2009, the Business Accounting Council approved its Opinion on the Application of International Financial Reporting Standards (IFRS) in Japan (Interim Report) (PDF 130k). A committee of the BAC had approved a draft of this plan earlier in June (see news item below). The 'Interim Report' has also been published on the Website of the Japan Financial Services Agency. The FSA also published on their website for comment, only in Japanese, 13 Proposed Ordinances that would have to be adopted to implement the 'Interim Report'.

Japan moves toward requiring IFRSs for listed companies

On 11 June 2009, the Planning and Coordination Committee of the Business Accounting Council (BAC) held a meeting on the application of IFRSs in Japan. The BAC is an advisory body on accounting matters to the Financial Services Agency of Japan. At the meeting, the BAC Committee approved a draft 'roadmap' toward IFRSs in Japan: Application of International Financial Reporting Standards (IFRS) in Japan (Interim Report) (PDF 78k). Key conclusions in the interim report are:

• It is appropriate that the optional use of IFRSs as issued by the IASB should be permitted starting in the fiscal year ending in March 2010, in the consolidated financial statements of listed companies whose financial or operational activities are conducted internationally.
• A decision regarding the mandatory use of IFRSs in consolidated financial statements of all listed companies should be made around 2012, though the timing may be moved back or forward depending on various factors. It is important to ensure a sufficient preparation period of at least three years before the mandatory use starts. Mandatory use would most likely start from 2015 or 2016 if the decision is made in 2012.

• Story about the Draft Interim Report
• Press Release from IASB-ASBJ Meeting (PDF 109k)

Consultation on whether to require IFRSs for Japanese listed companies

The Japan Financial Services Agency (FSA – the securities regulator) has launched a public consultation on Application of International Financial Reporting Standards (IFRS) in Japan. The official consultation document – known as the Draft Interim Report of the Business Accounting Council – is, of course, in Japanese. However, the FSA has released a provisional and unofficial English Translation of the Draft Interim Report (PDF 100k). In the FSA Press Release (PDF 31k) announcing the consultation, the FSA said that the following are the key points of the Draft Interim Report:

• The use of IFRS on a voluntary basis could be permitted, for instance, from the fiscal year ending March 31, 2010, for the consolidated financial statements of certain listed companies. However, the decision needs to be made after assessing various factors.
• On the other hand, the decision regarding the mandatory use of IFRS could be made around, say, 2012. However, this timing could be moved either forward or back depending on various factors and the situation of the implementation of the use of IFRS on a voluntary basis.

On page 15, the Draft Interim Report states that Japan will consider 'carve-outs' from IFRSs:

ASBJ announcements on financial instruments

The Accounting Standards Board of Japan has issued two press releases regarding measurement of fair value and reclassification of debt securities:

• Accounting standards for fair value accounting and its measurements (PDF 49k)
• Deliberations regarding measurement of fair value and reclassification of debt securities (PDF 40k)

April 2008: Convergence meeting between IASB and ASBJ

The IASB met with representatives of the Accounting Standards Board of Japan (ASBJ) in Tokyo on 8 and 9 April 2008. This was their second meeting in Tokyo since the announcement of the initiative to accelerate convergence between Japanese GAAP and IFRSs in August 2007. Technical issues discussed included consolidation, revenue recognition, insurance contracts, liabilities and equity, and financial statement presentation. The groups also exchanged views on the recent international credit crisis.

Click for IASB News Release (PDF 52k).

Japan plans oversight of foreign audit firms

The Japanese Financial Services Agency (FSA) has invited comments on proposed regulations (known as Proposed Cabinet Orders and Cabinet Office Ordinances) that would implement revised Certified Public Accountants Laws that were passed by the Diet (Japanese parliament) in June 2007. The laws take effect in April 2008. The revised laws include measures (a) to enhance the quality control and governance of, and disclosures by, audit firms; (b) to reinforce the independence of auditors; and (c) to strengthen oversight on auditors. The revisions also include measures to introduce FSA oversight of foreign audit firms.

Because the regulations affect foreign firms, the FSA has prepared an English Translation of the Proposed Notification Requirement for Foreign Audit Firms (PDF 265k) and asks firms to comment by 29 October 2007. The entire proposed regulation is now on public consultation and available in Japanese on the FSA's Website.

October 2007: Convergence meeting between IASB and ASBJ

The IASB met with representatives of the Accounting Standards Board of Japan (ASBJ) in London on 27 and 28 September 2007 to discuss progress on convergence of Japanese GAAP and IFRSs. The discussions included a review of short-term convergence projects, where the goal is to eliminate major differences by the end of 2008, as well as other major projects including segment reporting, intangible assets, special purpose entities and business combinations where the goal is to eliminate major differences by June 2011. In addition, the representatives of the boards exchanged views on the current status of their work on consolidation, liabilities and equity, and revenue recognition.

Click for IASB News Release (PDF 48k).

August 2007: IASB convergence agreement with Japan

The Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) have jointly announced an agreement to accelerate convergence between Japanese GAAP and International Financial Reporting Standards (IFRSs), a process that was started in March 2005. As part of the agreement the two boards will seek to eliminate by 2008 major differences between Japanese GAAP and IFRSs (as defined by the July 2005 CESR Assessment of Equivalence), with the remaining differences being removed on or before 30 June 2011. Although the target date of 2011 does not apply to any major new IFRSs now being developed that will become effective after 2011, both boards will work closely to ensure the acceptance of the international approach in Japan when new standards become effective.

Click to Download the Press Release and Agreement (PDF 54k).

Standard for Implementation of Evaluation and Audit for Internal Control over Financial Reporting

On February 15, 2007, Internal Control Committee of BAC issued Exposure Draft of Standard for Implementation of Evaluation and Audit for Internal Control over Financial Reporting. The Draft is the status of the Guidance of the Standard issued by BAC on December 8, 2005, effective for fiscal years beginning on or after April 1, 2008.

The Standard and draft Guidance, so-called 'J-SOX Rule', require management of the company to examine and evaluate its own internal control over financial reporting, and auditors to audit the report of evaluation prepared by the management. The rule is implemented from fiscal years beginning on or after April 1, 2008.

ASB Standard No. 12, Accounting Standard for Quarterly Financial Statements

On March 14, 2007, ASBJ issued Accounting Standard for Quarterly Financial Statements. The Financial Instruments and Exchange Law of Japan requires listed companies to submit their quarterly financial statements from fiscal years beginning on or after April 1, 2008, which consist of a balance sheet, an income statement, a cash flow statement, and selected footnotes. The standard requires companies to adopt the same accounting policies and procedures as those for annual closing, except for certain items.

ASB Standard No. 13, Accounting Standard for Lease Transactions

On March 30 2007, ASBJ issued Accounting Standard for Lease Transactions. A Japanese company is currently allowed not to capitalise finance leases that do not transfer ownership of the leased property to the lessee if certain 'as if capitalized' information is disclosed in the footnote. The new standard requires that companies should recognise all finance leases on the balance sheet, except for lease arrangements that are either less than 3 million yen or less than one year. The rule is effective for fiscal years beginning on or after April 1, 2008. Early adoption is permitted.

ASBJ Project Plan Concerning the Development of Japanese Accounting Standards

On 12 October 2006, ASBJ published its project plan. The plan focuses on accounting standards development projects related to convergence and indicates the status of initiatives of the ASBJ in a clearer manner to various constituencies in Japan and abroad.

In the plan, ASBJ stated that primary emphasis was placed on:

• mapping out the work planned to be achieved through the end of 2007, and
• clarifying the prospects of convergence status as of the beginning of 2008 concerning the initiatives to be undertaken with respect to the 26 issues for which the remedies were proposed by the Committee of European Securities Regulators (CESR).

The project plan can be found on the ASBJ website www.asb.or.jp/ and also on the Japan country page on Deloitte's IAS Plus website.

ASB Standard No.11, Accounting Standard for Disclosure of Transaction with Related Parties

On 17 October 2006, ASBJ issued Accounting Standard and Implementation Guidance for Disclosure of Transaction with Related Parties. The Standard is a consequence of the convergence project with the IASB and relates to IAS 24 Related Party Disclosures. The Standard is effective for years beginning on or after 1 April 2008. Early adoption is permitted.

Exposure Draft of Standard for Implementation of Evaluation and Audit for Internal Control over Financial Reporting

On 21 November 2006, the Internal Control Committee of BAC issued Exposure Draft of Standard for Implementation of Evaluation and Audit for Internal Control over Financial Reporting. The Draft expands on the guidance issued by BAC on 8 December 2005, effective for years beginning on or after 1 April 2008.

The Standard and draft Guidance, sometimes referred to as the 'J-SOX Rule', require the management of an entity to examine and evaluate its own internal control over financial reporting, and auditors to audit the report of evaluation prepared by the management. The rule will be implemented from years beginning on or after 1 April 2008. Amendments to Implementation Guidance No. 10, Guidance for Accounting Standard for Business Combinations and Accounting

Standard for Business Divestitures

On 27 December 2006, ASBJ issued Amendments to Implementation Guidance No. 10, Guidance for Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures. The amendments resolve some inconsistencies between current accounting guidance issued by ASBJ and implementing regulations of the Company Law legislated by the Ministry of Justice, regarding accounting treatment of business combinations within consolidation group under common control.

Exposure Draft of Amendments to Accounting Standard for Lease Transactions and its Implementation Guidance

On 27 December 2006, ASBJ issued an Exposure Draft of Amendment to Accounting Standard for Lease Transactions. Based on a 'proposed draft' issued on 5 July 2006, this ED states that companies should recognise all finance leases on the balance sheet, except for lease arrangements that are either less than 3 million yen or less than one year. The proposed rule would be effective for years beginning on or after 1 April 2008. Early adoption will be permitted.

ASB Standard No. 9, Accounting Standard for Measurement of Inventories

The standard requires companies to measure all inventories at the lower of cost or net realisable value (NRV) when and if the profitability of those inventories declines. This Standard replaces the current standard which allows the use of either the cost method with consideration of impairment, or the lower of cost or NRV method.

The Standard also requires companies that hold commodities for trading (such as gold) to measure at mark-to-market. The difference between cost and fair value is recognised as profit or loss.

This amendment is one of the outcomes of the convergence project between the IASB and the ASBJ. It is effective from years beginning on or after 1 April 2008. Early adoption is permitted.

Exposure Draft of Proposed Amendments to Accounting Standard for Lease Transactions and its Implementation Guidance

Currently, Japanese GAAP allows companies to account for finance leases for which ownership does not transfer at the end of lease term as off-balance sheet items, with certain disclosures to show the potential effects on the balance sheet. The exposure draft would require companies to recognise all finance leases on the balance sheet, except for lease arrangements that are either less than 3 million yen or less than one year.

Toward the International Convergence of Accounting Standards

On 31 July 2006, the Planning and Coordination Committee of Business Accounting Council (BAC), an advisory panel of experts to the Financial Services Agency (FSA) of Japan, issued a statement, Toward the Convergence of Accounting Standards. The statement encourages continuous improvements of Japanese accounting standards towards the final equivalent assessment by the European Commission in early 2008.

PITF No.19, Tentative Treatment of Accounting for Deferred Assets

PITF 19 requires that;

• Costs of issuing new shares or the disposal of treasury shares may either be (1) expensed when incurred or (2) recognised as deferred assets and amortised within three years on a straight-line basis if it relates to an expansion of business or a business combination.
• Costs of issuing bonds may either be (1) expensed when incurred or (2) recognised as deferred assets and amortised within the bond redemption period by the interest method or the straight-line method.
• Costs for start-up may either be (1) expensed when incurred or (2) recognised as deferred assets and amortised within five years.
• Costs for development, except for those within the scope of accounting standards for Research and Development cost, may either be (1) expensed when incurred or (2) recognised as deferred assets and amortised within five years.

The above accounting treatments are similar to the current practices except that bond discounts or premiums are no longer recorded as assets or liabilities but be deducted from or added to the par value of the bonds under the amortised cost method.

The PITF is effective for both the annual and semi-annual periods ending on or after 11 August 2006.

Exposure Draft of Amendment of Implementation Guidance on Accounting Standard for Financial Instruments and related Q&&A

On September 8, 2006, the JICPA issued an Exposure Draft of Amendment of Implementation Guidance on Accounting Standard for Financial Instruments and related Q&A. The draft proposes that the issuers shall measure bonds at amortised cost, replacing the current treatment which requires measurement of bonds at par value, recognition of the discount on the bonds as assets, and amortisation of the asset on a straight-line basis.

PITF No.20, Practical Solution on Application of Control Criteria and Influence Criteria to Investment Association

PITF 20 is a response to recent accounting scandals in Japan concerning the abuse of investment associations. The PITF requires companies to consolidate an investment association to which companies have the majority of rights to perform operations, without consideration of who holds the majority ownership of the investment association. Even if a company does not have the majority of rights to perform operations, it shall consolidate an investment association when it has (1) more than 40% rights to perform operations and substantial control on the investment association, or (2) majority of rights to perform operation in the aggregate with closely related parties and those which agreed with the exercise of voting rights.

The PITF also requires companies to apply the equity method to an investment association in which they have significant influence.

The PITF is effective from the annual and semi-annual years ending on or after 8 September 2006.

October 2006: ASBJ Project Plan

In October 2006, the ASBJ released its Project Plan Concerning the Development of Japanese Accounting Standards (PDF 107k) to explain the status of its initiatives toward convergence with IFRSs. The plan has been developed, in part, in response to the June 2005 Report to the European Commission from the Committee of European Securities Regulators (CESR) (PDF 1,063k), which identified 26 matters for which 'remedies' should be required if the European Commission decides to continue to allow Japanese companies to trade on European securities markets using financial statements prepared in conformity with Japanese accounting standards. The ASBJ's plan outlines the work planned to be achieved through the end of 2007 and the anticipated convergence status as of the beginning of 2008 for each of the 26 issues identified by CESR. The ASBJ has also released a Table Summarising the Project Plan (PDF 62k) as an attachment to its overall project plan.

On 14 April 2006, ASBJ issued the Exposure Draft of Accounting Standards for Measurement of Inventories. The draft proposes that all inventories should be measured at the lower of cost or net realisable value, replacing the current standards which allow the use of either the cost method (with impairment) or the lower of cost or market method. This amendment was one of the outcomes of the convergence project between IASB and ASBJ. The final standard is expected to be issued in 2006, and become effective for fiscal years beginning on or after April 1, 2007. Early adoption is expected to be permitted.

PITF No.18, Tentative Treatment for the Unification of Accounting Policies of Foreign Subsidiaries in Preparing Consolidated Financial Statements

On 17 May, ASBJ issued PITF No.18, Tentative Treatment for the Unification of Accounting Policies of Foreign Subsidiaries in Preparing Consolidated Financial Statements.

Japanese GAAP requires companies to unify their accounting policies within the consolidation group. However, the current guidance allows companies to consolidate financial statements of foreign subsidiaries prepared on the local GAAP basis without unification of policies, if the policy itself is not obviously unreasonable. The new PITF replaces the current guidance and requires companies:

• to unify its accounting policies to Japanese GAAP within the group; or
• to tentatively accept financial statements of foreign subsidiaries that are prepared under either IFRS or US GAAP, to be incorporated in the consolidated financial statements under the conditions set below.

The PITF requires at least six adjustments to be made to financial statements of foreign subsidiaries prepared under IFRS or US GAAP for consolidation, in order to maintain consistency with the current Japanese GAAP. The six required adjustments are set forth below;

• 1. Amortisation of goodwill;
• 2. Scheduled amortisation of actuarial gain or loss of pensions that have been directly recorded in the equity;
• 3. Expensing capitalised development costs of R&D;
• 4. Cancellation of the fair value model accounting for property, plant, and equipment and investment properties and incorporation of the cost model accounting;
• 5. Recording the prior years' effects of changes in accounting policies in the income statements where retrospective adjustments to financial statements have been incorporated; and
• 6. Exclusion of minority interests from net income, if contained.

The PITF is effective for fiscal years beginning on or after 1 April 2008. Early adoption is permitted.

Exposure Draft of Accounting Standards (and Guidance) for Disclosure of Related Parties

On 6 June 2006, ASBJ issued Exposure Draft of Accounting Standards (and Guidance) for Disclosure of Related Parties. The draft is one of the outcomes of the convergence project between IASB and ASBJ. Although most of current requirements under Japanese Regulation are retained, the draft newly requires the disclosure of summarised financial information of affiliated companies, including the aggregated amounts of assets, liabilities, revenues and profit or loss.

The final standard is expected to be issued in 2006 and become effective for fiscal years beginning on or after 1 April 2008. Early adoption is expected to be permitted.

Financial Instruments and Exchange Law

On 14 June 2006, the Financial Instruments and Exchange Law was promulgated after the passage of the bills in the National Diet. The new Law replaces the Securities and Exchange Law and is expected to be enforced in order within 18 months from the promulgation. The main features of the new Law were described in the Japan update in the IAS Plus April 2006 newsletter.

Ministry Ordinance of the new Corporate Law

On 7 February 2006, the Ministry of Justice issued the Ministry Ordinance of the new Corporate Law (the 'Corporate Law'), to be effective 1 May 2006. The Ministry Ordinance provides three regulations under the Corporate Law which are;

• 1. Regulations for implementation of the Corporate Law;
• 2. Regulations for corporate accounting; and
• 3. Regulations for electronic publication.

Under these new regulations, current practices are to be changed as follows;

• The Statement of Changes in Shareholders' Equity is to be a component of the statutory financial statements, replacing the current Statement of Changes in Surplus (or Statement of Appropriation of Surplus).
• Dividends can be paid to shareholders at any time on resolution at the shareholders' meeting. Currently, dividends can be paid only once a year on resolution at the annual shareholders' meeting other than one-time interim dividends paid on resolution of the Board of Directors.
• Directors' bonus is to be expensed under the new regulations, replacing the current accounting treatment of appropriation of surplus.
• Definition of a subsidiary is to be determined on the existence of control (consistent with current Japanese GAAP), replacing the current definition which requires majority ownership.
• The company shall state the outline of its internal control systems in its Business Report.
• The company shall state its prevention measures for a potential takeover on its Business Report.

These regulations are consistent with Accounting Standards that were published by the Accounting Standards Board of Japan during the fourth quarter in 2005.

Draft Amendment to the Securities and Exchange Law

On 13 March 2006, the Financial Services Agency (FSA) submitted to the National Diet (Parliament) the Draft Amendment to the Securities and Exchange Law. The Law will be referred to as the 'Financial Instruments and Exchange Law (Investment and Service Law)', expanding the scope of the existing Law in order to cover financial instruments having the natures of an investment. Main features of the draft amendment are as follows;

• To introduce a quarterly reporting system from the fiscal years beginning on or after 1 April 2008. Listed companies shall publish its quarterly financial information within 45 days after quarter end.
• To strengthen the reporting requirements concerning the Internal Control System from the fiscal years beginning on or after 1 April 2008. Management of listed companies shall submit annually to the Prime Minister a report stating the accuracy of its internal control system, together with its annual report. The report is to be audited by CPAs or Auditing firms.
• To require the submission to the Prime Minister a certification by management. Management of listed companies is to submit together with its annual report, a letter certifying the accuracy of its annual report.
• To expand disclosure rules for new shares issued for reorganisation purposes.
• To expand the scope of financial instruments which require certain disclosures.

IASB and Japan Continue Convergence Discussions

Representatives of the Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) held their third joint convergence meeting on 1 and 2 March 2006 in Tokyo. The aim of these ongoing discussions is to achieve convergence of Japanese GAAP and International Financial Reporting Standards (IFRSs). The IASB was represented by four Board members, including Chairman Sir David Tweedie, and staff. The ASBJ was represented by four Board members, including Chairman Professor Shizuki Saito, and staff. Click for:

• IASB Press Release (PDF 63k)
• ASBJ Press Release (PDF 60k)

ASBJ statement on progress toward convergence

On 31 January 2006, the ASBJ released a Statement on Japan's Progress Toward Convergence between Japanese GAAP and IFRSs. In the statement, the ASBJ describes its recent progress toward convergence on asset retirement obligations, construction contracts, and disclosure of financial instruments at fair value. The ASBJ also describes its plans to address the issues that the Committee of European Securities Regulators (CESR) identified in the technical advice on equivalence of third country GAAP in July 2005. Click for:

• ASBJ Statement on Progress Toward Convergence (PDF 160k)
• ASBJ Convergence Press Release (PDF 52k)
• CESR Technical Advice to the EC (PDF 1,063k)

New Standards and Proposals

The following accounting and auditing standards and related publications were issued in Japan during the fourth quarter of 2005:

Revised Auditing Standards and Interim Auditing Standards, and Standards for Quality Control of Audit

On October 28, 2005, the Committee on Audit of the Business Accounting Council (BAC) issued the Revised Audit Standards and Interim Audit Standards, and Standards for Quality Control of Audit. These amend the current audit standards to clarify the risk approach and establish quality control rules in auditing firms.

These revised standards are effective from the fiscal year ending March 31, 2007. Early adoption is permitted.

Exposure Draft of Ministry Ordinance of New Company Law

On November 29, 2005, The Ministry of Justice issued an exposure draft of Ministry Ordinance of New Company Law, which is expected to be enacted in May 2006. The Ministry Ordinance will provide for guidance on the New Company Law, including statutory accounting and auditing systems. The final ordinance is expected to be issued in January 2006. In line with the publication of the new Company Law, ASB issued several Standards during the 4th quarter in 2005 as amendments of current accounting practices.

ASB Accounting Standard No. 5, Accounting Standard for Presentation of Net Assets on the Balance Sheet

On December 9, 2005, Accounting Standards Board of Japan (ASBJ) issued the Accounting Standard for Presentation of Net Assets and related guidance. The new standard requires companies to present Net Assets as a separate heading on the face of the balance sheet, which is composed of line items that present the following amounts:

• (a) Shareholders' equity;
• (b) Valuation gains and losses (arising from equity and debt securities, hedging instruments etc.) and Translation adjustments;
• (c) Stock acquisition rights; and
• (d) Minority interests.

The new standard and guidance will be effective in line with the enforcement of the new company law, from the fiscal year ending after May 2006.

ASB Accounting Standard No. 6, Accounting Standard for the Statement of Changes in Shareholders' Equity

On December 27, 2005, ASBJ issued Accounting Standard for the Statement of Changes in Shareholders' Equity and related guidance. The new standard requires companies to prepare the statement of changes in shareholders' equity as a basic component of both consolidated and non-consolidated financial statements. In current practice, a company is only required to prepare the Statement of Surplus as a basic component of consolidated financial statements.

The new standard and guidance will be effective in line with the enforcement of the new company law, from the fiscal year ending after May 2006.

ASB Accounting Standard No. 7, Accounting Standard for Separation of Business

On December 27, 2005, ASB issued Accounting Standard for Separation of Business and related guidance, together with the guidance on Accounting Standard for Business Combinations. The standard requires companies which receive cash or assets other than shares as consideration for the separation of its business should recognise in profit or loss the difference between the fair value of assets received as consideration and the net carrying amounts of the separated business.

The guidance, at the same time, deals with the accounting for acquisitions, uniting (pooling) of interests, transactions under common control, the formation of jointly controlled entities, and the spin-off of a business. The new standard and guidance will be effective in line with the enforcement of the new company law, from the fiscal year beginning April 1, 2006.

ASB Accounting Standard No. 8, Accounting Standard for Stock Options

On December 27, 2005, ASBJ issued Accounting Standard for Stock Options and related guidance. The standard requires companies to recognise a compensation expense for stock options granted to employees based on grant-date fair value, and to spread the expense over the vesting period as consideration for receiving good or services. The standard also requires companies to account for their grant of stock options to non-employees based on the fair value of either the stock options or the goods or services acquired. In the balance sheet, stock options are presented as stock acquisition rights under the heading of Net Assets until exercised. The standard covers equity-settled share-based payment transactions but does not cover cash-settled share-based payment transactions. In addition, the standard allows unlisted companies to measure options at their intrinsic value if they cannot reliably estimate fair value.

The new standard and guidance will be effective in line with the enforcement of the new company law, for stock options newly granted after May 2006.

Convergence with IFRS

The following accounting and auditing standards and related publications were issued in Japan during the third quarter of 2005:

Exposure Draft of Assessment and Audit Standard for Internal Control of Financial Reporting

On 13 July 2005, the Committee on Internal Control of the Business Accounting Council (BAC) issued the exposure draft of Assessment and Audit Standard for Internal Control of Financial Reporting. In Japan, consistently with international trends, a new rule for internal control of financial reporting will be introduced for all listed companies. The draft new rule, informally called the 'J-SOX rule', is based on Sarbanes- Oxley Act rules in the United States. However, to avoid excess work and costs, it does not require auditors' direct reporting on internal control of financial reporting. Instead, the auditor's opinion is made for management's assessment on its own internal control of the company. The final standard will be approved during the 4th quarter in 2005, and the effective date will be announced.

New Company Law

The new Company Law, as successor of the current Commercial Code, was published on 26 July 2005. The New Company Law, which consists of 979 articles in total, enables an entity to choose the formation and capital structure more flexibly. The new Company Law will be enacted within a year and half from the publication date, during the 2nd quarter in 2006. In line with the publication of the new Company Law, ASBJ issued certain Exposure Drafts during the 3rd quarter in 2005 (listed in the above chart) for the relevant amendments of current accounting practices.

Exposure Draft of Revised Audit Standards and Interim Audit Standards, and of Standards for Quality Control of Audit

On 20 July 2005, the Committee on Audit of the Business Accounting Council (BAC) issued an exposure draft of Revised Audit Standards and Interim Audit Standards, and of Standards for Quality Control of Audit. The draft amends the current audit standards to clarify the risk approach and establishes quality control rules in audit firms.

The final standard will be approved during the 4th quarter in 2005 and is expected to be effective from the fiscal year ending 31 March 2007.

Accounting Guidance for Small and Medium Entities

On 3 August 2005, JICPA, Japanese Tax Accountants Association, Japan Chamber of Commerce and Industry, and ASBJ jointly issued the Accounting Guidance for Small and Medium Entities. The Guidance applies to unlisted companies for which CPA audits are not required under the Commercial Code. The Guidance generally sets the same recognition and measurement rules as those for listed companies, but some complex accounting rules are simplified, including accounting for retirement benefits, valuation allowances for income taxes, and impairment of fixed assets.

Convergence with IFRS

On 9 and 10 March 2005, representatives of the Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) held an initial meeting in Tokyo to discuss their convergence project between Japanese GAAP and IFRSs. The two boards agreed on five topics as agenda items in the first phase of the project. For details please see separate section of this webpage on the Convergence Project (scroll up).

Amendment of Accounting Standards for Retirement Benefits

On 16 March 2005, ASBJ issued Accounting Standard No. 3, Amendment of Accounting Standards for Retirement Benefits, and Related Guidance. Before that amendment, Japanese standards prohibited the recognition of the excess of fair value of plan assets over the present value of pension obligations as an asset. Such an excess can occur either by an excess of actual gains over expected gains on the plan assets or by the reduction of retirement benefits. The Amendment Standard No. 3 withdraws the prohibition and requires an entity to treat the excess as past service liabilities or actuarial differences. The Amendment Standard is effective for financial years beginning on 1 April 2005. Early adoption is permitted.

Discussion Paper-Business Combinations and Business Separations

On 28 January 2005, ASBJ issued a Discussion Paper on Accounting Standards for Business Separations and Guidance on Accounting Standards for both Business Combinations and Separations. The discussion paper includes accounting guidance for business combinations and separations, such as acquisitions and unitings (poolings) of interest, transactions under common control, the formation of jointly controlled entities, and separation and split-off of a business. The new standards and guidance will be issued by early 2006 and effective for financial years beginning on 1 April 2006.

New Company Law

The legislative council, a consultative body of the Ministry of Justice, wrapped up the final draft of a comprehensive amendment of the Commercial Code. The draft of the New Company Law, as successor of the current Commercial Code, enables an entity to choose its formation and capital structure more flexibly. The draft also enables an entity to structure business combinations more flexibly. However, application of articles relating to the acquisition by foreign companies using their own shares as consideration will be postponed for a year, as related articles will be added after later discussions. The final draft is expected to be approved by the National Diet during the first half in 2005 and expected to be effective for financial years beginning on 1 April 2006.

In January 2005, the IASB and the Accounting Standards Board of Japan (ASBJ) launched a joint project to reduce differences between IFRSs and Japanese accounting standards. Specific elements of the agreement, as noted in the Press Release (PDF 17k) include:

An earlier Press Release (PDF 16k) had initially announced discussions about the project.

Outcome of March 2005 IASB-ASBJ convergence meeting

The Accounting Standards Board of Japan released a Summary of the March 2005 Convergence Meeting (PDF 57k) between the ASBJ and the IASB in Tokyo. The summary indicates that the two boards agreed to pursue convergence issues in the following five standards in the first phase of the project:

• Measurement of inventories (IAS 2)
• Segment reporting (IAS 14)
• Related party disclosures (IAS 24)
• Unification of accounting policies applied to foreign subsidiaries (IAS 27)
• Investment property (IAS 40)

Statement of Opinion, Conceptual Framework for Assurance Services with respect to Financial Information and Other (Exposure Draft)

The Business Accounting Council issued this exposure draft in June 2004. At present, there is no standard with respect to assurance services such as review work, which gives less assurance than an audit in Japan. This exposure draft was announced as giving a basis for future implementation of standards for various assurance services, especially for review work of quarterly financial information, which listed companies have been required to disclose since 2003, though an accountants review report is not presently required in Japan.

ASBJ PITF No.13 Accounting Treatment for Bonuses to Directors and Corporate Auditors

Under the present accounting practices in Japan, bonuses to directors and corporate auditors are accounted for as a reduction of retained earnings after approval of appropriation of retained earnings at the general shareholders meeting that is held subsequent to the fiscal year-end, while remunerations to directors and corporate auditors are recorded as expenses in income statement when paid. The new PITF prescribes:

• Bonuses to directors and corporate auditors should be charged to income as expenses on an accrual basis because such bonuses are considered as having similar nature to remunerations to directors and corporate auditors; but
• The present accounting practice of such bonuses being accounted for as a reduction of retained earnings after approval of appropriation of retained earnings is still permitted for the time being, except for companies that have implemented three committees, that is "nomination", "remuneration" and "audit" committees, under the Japanese Commercial Code.

ASB Guidance No.6, Guidance for Accounting Standard for Impairment of Fixed Assets

Accounting Standards Board of Japan (ASB) issued ASB Guidance No.6, Guidance for Accounting Standard for Impairment of Fixed Assets, on 31 October 2003 with minor wording changes from the exposure draft announced on 1 August 2003. Business Accounting Council (BAC) had originally published a Statements of Opinion, Accounting for Impairment of Fixed Assets, in August 2002. This guidance prescribes in more detail the accounting treatment for impairment of fixed assets. It is expected to have a big impact on Japanese companies due to the significant decline in the fair value of land in recent years. The effective date of this guidance is in line with the original Statement of Opinion, that is, for financial years beginning on or after 1 April 2005, and early adoption is permitted for financial years ending on or after 31 March 2004.

BAC Statement of Opinion, Accounting for Business Combinations

The Business Accounting Council (BAC) issued a Statement of Opinion, Accounting for Business Combinations, on October 31, 2003 with minor terminological changes from the exposure draft announced on 1 August 2003. This statement requires entities to adopt the pooling of interests method of accounting if certain specific criteria are met, and thereby the business combination is regarded as a uniting of interests.

The specific criteria consist of three conditions:

• consideration for business combination is shares with voting rights,
• ratio of ownership by voting rights after business combination is nearly 50% / 50%, and
• there is no fact that indicates relationship of control other than by means of voting rights.

A business combination that does not meet the uniting-of-interests criteria is regarded as an acquisition, and the purchase method of accounting would be required. Also this statement establishes standards for combinations of entities under common control and for joint ventures. Goodwill, including negative goodwill, is to be systematically amortised over 20 years or less and is also subject to an impairment test. The effective date of this statement is for fiscal years beginning on or after 1 April 2006.

Exposure Draft of ASB Guidance No. 6, Guidance for Accounting Standard for Impairment of Fixed Assets

Accounting Standards Board of Japan (ASBJ) announced an exposure draft of ASB Guidance No.6, Guidance for Accounting Standard for Impairment of Fixed Assets, on 1 August 2003. Business Accounting Council (BAC) had originally published a Statement of Opinion, Accounting for Impairment of Fixed Assets, in August 2002. ED 6 prescribes in more detail the accounting treatment for impairment of fixed assets. ED 6 is expected to have a big impact on Japanese companies due to the significant decline in the fair value of land in recent years. The expected effective date of ED 6 is for fiscal years beginning on or after 1 April 2005, and early adoption is permitted for years ending on or after March 31, 2004.

Exposure Draft of BAC Statement of Opinion, Accounting for Business Combinations

The Business Accounting Council (BAC) announced an exposure draft of a Statement of Opinion, Accounting for Business Combinations, on 1 August 2003. This exposure draft requires entities to adopt the pooling of interests method of accounting if certain specific criteria are met, and thereby the business combination is regarded as a uniting of interests. For business combinations that do not meet the uniting-of-interests criteria, the business combination is regarded as an acquisition, and the purchase method of accounting would be required. Also this exposure draft would establish standards for combinations of entities under common control and for joint ventures. Goodwill, including negative goodwill, is to be systematically amortised over 20 years or less and is also subject to an impairment test. The expected effective date is for the fiscal years beginning on or after 1 April 2006.

In the 30 years since the original list of companies included in the "special regulation " was adopted, a number of additional Japanese companies have raised capital in the United States and registered with the US SEC. Because these additional companies were not covered by the original special regulation, they have been required to prepare two sets of consolidated financial statements, one for the SEC (US GAAP) and another for MOF (Japanese GAAP). Those companies recently asked MOF to eliminate their dual reporting requirement in the interest of time and cost. In April 2002, the old special regulation was eliminated and a new regulation was announced under which any Japanese company that submits a Form 20-F to the US SEC can use its US GAAP consolidated financial statements for Japanese reporting.

Currently, about 30 companies prepare SEC Form 20-F and, therefore, can use US GAAP consolidated financial statements. Other Japanese companies are still required to prepared consolidate financial statements under Japanese GAAP. The regulation does not allow IAS consolidated financial statements to substitute for Japanese GAAP statements -- only US GAAP.

ASB's role is to develop standards and implementation guidance. The ASB has 13 members of whom three serve full time.

The FASF has 13 directors and 16 trustees. The Board of Directors is responsible for fund raising, personnel matters, and general operations of the FASF. The Trustees are responsible for the selection of Directors and Auditors and for giving advice on significant matters such as business plans and budgets of the FASF. While there is a basic capital fund of 100 million yen at inception, the plan is that FASF will adopt a membership system that strongly encourages participation from a wide range of interested parties. It is expected that membership fees will cover the operating expenditures of the FASF.

In addition, an Advisory Council will be formed to consider the selection of ASB's agenda items. For each agenda project, a Technical Sub-Committee will be set up as a working group.

Stated Objectives

The objectives of the FASF are to promote progress of corporate finance disclosure and soundness of the capital markets in Japan by developing generally accepted accounting standards. The FASF will also contribute to the development of a high quality set of internationally accepted accounting standards.

The Sponsoring Organisations

• Keidanren (Japan Federation of Economic Organizations)
• The Japanese Institute of Certified Public Accountants
• Tokyo Stock Exchanges
• Japan Securities Dealers Association
• Japanese Bankers Association
• The Life Insurance Association of Japan
• The Marine & Fire Insurance Association of Japan, Inc.
• The Japan Chamber of Commerce & Industry
• The Security Analysts Association of Japan
• Corporation Finance Research Institute, Japan

Members of the ASB

• Shizuki Saito, Chairman
• Ikuo Nishikawa, Vice Chairman (full-time)
• Shinichiro Ito
• Katsunori Inoguchi
• Atsushi Kato
• Hideki Kanda
• Satoshi Komiyama
• Shigeo Sakase
• Matsuo Tsuji
• Eiko Tsujiyama
• Masaji Miyako (full-time)
• Shinichi Yamada (full-time)
• Mitsuru Yoshikawa

Contact Details

Accounting Standards Board
No.9 Kowa Building
8-10, Akasaka 1-chome
Minato-ku
Tokyo 107-8790
Japan
Telephone: +81-3-5561-9618

Click here for:

• Japan Accounting Standards Board Website
• Backgrounds of Japan Accounting Standards Board Members
• List of Directors and Trustees of the Japan Financial Accounting Standards Foundation

The new standard setter will have the following four separate organisations:

1. Trustees: Around 15 members (non-full-time)

• Responsible for nominating the members of the board of governors

2.Board of Governors: Around 15 members (1 full-time, others non-full-time)

• Responsible for funding and nomination of Accounting Standards Board members

3. Accounting Standards Board: 15 members, including 5 full-time members)

• Responsible for standard setting including the selection of topics
• 5 full-time members include a chairperson, and the other four shall come from preparers, auditors, users, and others including academics
• Will have technical subcommittees for each agenda item. Subcommittees will have several technical part-time members.
• Approximately 15 professional staff.

4. Theme Advisory Council: 18 members (non-full-time)

• Will make suggestions about the selection of agenda projects

Funding:

• ¥700 million per year total for Board members and technical and general staff and related operating expenses.
• Core funding from industry. Balance from public accounting. No government funding.

The legislation relating to the governmental restructure had already been enacted, and the FSA released their technically revised regulations and ordinances, including those related to corporate disclosures.

The Business Accounting Deliberation Council continues to be an advisory body to the FSA but will be ruled by the Cabinet Orders and Cabinet Office Regulations. At the same time, a new category of "technical members", who are appointed on a project-by-project basis, have been introduced into the BADC. As a result, the BADC now comprises voting members, temporary members, technical members, and assistant members.

The Financial Services Agency's Website.

For 31 March 2000 year-ends, the following new accounting standards came into effect:

• For consolidation policies and procedures
• Consolidated statement of cash flows
• Interperiod tax allocations
• Research and development costs.

• Pensions
• Financial instruments
• Introduction of semi-annual consolidated financial statements (interim reporting).

Furthermore, new standards on the following are currently under discussion. There are currently no specific accounting standards in these areas in Japan:

• Impairment of long-lived assets
• Securitisation of real estate
• Business combinations.

As mentioned above, accounting standards are currently issued by BADC. However, the Japanese Institute of Certified Public Accountants and the Japan Federation of Economic Organization (Keidanren) jointly announced that a new private sector standard-setting body will be established in the near future in line with the restructuring of the IASC organization planned in 2001. The standard-setting body is expected to independently issue accounting standards on a timely basis.