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Japan

Financial reporting framework in Japan

Development of accounting standards

Japanese Accounting Standards ('Japanese GAAP') are developed by the Accounting Standards Board of Japan (ASBJ), which was established in 2001. Under an agreement between the ASBJ and the International Accounting Standards Board (IASB) entered into in August 2007, known as the Tokyo Agreement, the ASBJ had been working towards converging the requirements of Japanese Accounting Standards with International Financial Reporting Standards (IFRSs). The achievements under the agreement were jointly announced in June 2011 by the ASBJ and the IASB.

Japanese GAAP is not identical to IFRSs but have been found to be equivalent to IFRSs as adopted by the European Union (EU) by the EU since 2008.

Voluntary adoption of IFRSs by public companies

Since 2010, eligible listed companies in Japan have been permitted to use IFRSs as designated by the Financial Services Agency of Japan (FSA) in their consolidated financial statements, in lieu of Japanese GAAP. As the FSA has designated all IFRSs as issued by the IASB before the effective date without an exception, the designated IFRSs are identical IFRSs as issued by the IASB.

Based on the most recent ordinances that govern eligibility requirements, Japanese listed companies or those applying for a listing to use designated IFRSs in their consolidated financial statements on a voluntary basis must establish internal processes to ensure appropriate reporting under designated IFRSs, with officers or employees who have sufficient knowledge of the subject being in place. There are filing requirements for eligible entities to disclose the fact designated IFRS have been used, and the basis of eligibility.

IFRSs are not permitted to be used in statutory separate financial statements in Japan.

Possible mandatory adoption of IFRSs in Japan

While Japan has considered the possible mandatory adoption of IFRS by public companies for some time, a decision to that effect is yet to be made. Currently, Japan is promoting greater use of IFRSs on a basis of voluntary adoption as explained above.

On 20 June 2013, the Japanese Business Accounting Council (BAC) released its final report titled "The Present Policy on the Application of International Financial Reporting Standards (IFRS)". The report recommended a number of measures to contribute to greater, but not mandatory, use of IFRSs in Japan. Among others, the key recommendations in the final BAC report were:

  1. Increase the number of companies that can adopt designated IFRSs on a voluntary basis by eliminating certain eligibility requirements (already implemented in October 2013)
  2. The introduction of endorsement process and 'endorsed IFRSs' in Japan, which may include limited amendments to IFRSs based on specific criteria. The 'endorsed IFRS' would be promulgated by the Accounting Standards Board of Japan (ASBJ) and to be approved by the FSA. The ‘endorsed IFRS’ would be available for voluntary adoption by Japanese companies
  3. Simplification of disclosure requirements in separate financial statements under Japanese GAAP

If the second recommendation from the BAC report is fully implemented, Japanese public companies may be able to use one of four sets of accounting standards in their consolidated financial statements (subject to certain eligibility requirements), namely:

  • designated IFRSs
  • endorsed IFRSs
  • Japanese GAAP, or
  • US GAAP.

The ASBJ is in the process of developing endorsed IFRSs, targeting completion during 2014, but has not made a formal decision. The ASBJ plans to consider IFRSs as issued by the IASB on or before the end of 2012 in initially developing 'endorsed IFRSs', and the ASBJ will then adopt an on-going process to cover standards issued in or after 2013.

IFRS website and resources in Japanese

Deloitte Touche Tohmatsu LLC (Japan) has created a website with a range of IFRS resources in Japanese. 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.

Related news

  • FASB and ASBJ hold biannual meeting

  • Apr 02, 2014

  • The sixteenth meeting between representatives of the Financial Accounting Standards Board (FASB) and the Accounting Standards Board of Japan (ASBJ) was held in Norwalk earlier this week. The meeting saw updates on each board's respective standard-setting activities and an exchange of views on technical topics that are of interest to both boards.

  • Speech by Hans Hoogervorst on Profit or Loss and OCI

  • Feb 05, 2014

  • At an Accounting Standards Board of Japan (ASBJ) seminar in Tokyo IASB Chairman Hans Hoogervorst gave a speech entitled 'Defining Profit or Loss and OCI... can it be done?' in which he detailed some of the main topics in the IASB's review of the conceptual framework.

  • Japan proposes simplifying disclosure requirements

  • Jan 14, 2014

  • The Financial Services Agency (FSA) of Japan has issued for public comment a proposal to simplify presentation and disclosure requirements in separate financial statement prepared under Japanese GAAP. The proposal was developed based on recommendations in the June 2013 report issued by the Japanese Business Accounting Council “The Present Policy on the Application of the International Financial Reporting Standards (IFRS)” (the "BAC report”).

  • Japan 'designates' additional IFRSs

  • Dec 30, 2013

  • On 27 December 2013, the Financial Services Agency (FSA) of Japan announced that additional IFRSs were designated for use by companies voluntarily applying IFRSs in Japan. The announcement effectively includes all IASB pronouncements issued up to 31 October 2013.

  • IFRS taxonomy 2013 in Japanese

  • Dec 20, 2013

  • The IFRS Foundation has published a Japanese translation of the IFRS (International Financial Reporting Standards) Taxonomy 2013.

  • Agenda for the November 2013 AOSSG meeting

  • Nov 25, 2013

  • An agenda has been released for the fifth meeting of the Asian-Oceanian Standards Setters Group (AOSSG), which is being held in Colombo, Sri Lanka on 27-28 November 2013. Representatives from many of the 26 countries which are currently members of AOSSG will attend the meeting, as will representatives from the International Accounting Standards Board (IASB). The meeting will include discussion on a number of IASB projects, consider the results of a survey conducted by the AOSSG on accounting and Islamic finance in the Middle East and North Africa, receive feedback on the IFRS implementation efforts and regional capacity building, and consider ongoing membership and process requirements.

  • New Japanese share price index refers to adoption or scheduled adoption of IFRS

  • Nov 07, 2013

  • The Japan Exchange Group, the Tokyo Stock Exchange and the Nikkei have announced that they will start to calculate a new index "JPX-Nikkei Index 400" from 6 January 6 2014. Among the qualitative factors for screening entities to be covered by the index is 'adoption or scheduled adoption of IFRS (pure IFRS)'.

  • Finalised ordinances allow wider voluntary use of IFRS in Japan

  • Oct 29, 2013

  • The Financial Services Agency of Japan (FSA) has released revised ordinances that increase the number of Japanese companies that can voluntarily adopt International Financial Reporting Standards (IFRSs) as designated by the FSA, which is currently identical to the effective IFRSs as issued by the IASB. The ordinances are effective immediately and permit Japanese listed companies and those applying for a listing to use designated IFRSs in their consolidated financial statements on a voluntary basis, if they establish internal processes to ensure appropriate reporting under designated IFRSs, with officers or employees who have sufficient knowledge of the subject being in place.

  • FASB and ASBJ hold biannual meeting

  • Oct 18, 2013

  • The fifteenth meeting between representatives of the Financial Accounting Standards Board (FASB) and the Accounting Standards Board of Japan (ASBJ) was held in Tokyo, Japan, on 15-16 October 2013. The meeting saw updates on each board's respective standard-setting activities and an exchange of views concerning the development of high-quality global accounting standards.

  • Development of endorsed IFRS in Japan

  • Sep 30, 2013

  • The Accounting Standards Board of Japan (ASBJ) has posted to its website the English language translation of a message from the ASBJ's Chairman Ikuo Nishikawa regarding the 'Development of endorsed IFRS'.

  • Japanese proposals to permit wider voluntary IFRS adoption

  • Aug 27, 2013

  • The Financial Services Agency of Japan (FSA) has released proposals to amend applicable ordinances to allow the wider voluntary application of International Financial Reporting Standards (IFRS) in consolidated financial statements by Japanese companies. The proposals would implement earlier policy recommendations from Japan's Business Accounting Council (BAC) to ease the eligibility criteria for voluntary IFRS adoption in Japan.

  • JPX and Nikkei outline new index

  • Aug 01, 2013

  • The Japan Exchange Group (JPX), along with the Nikkei, has issued an outline for a new jointly developed stock price index in Japan. The outline provides preliminary information on the index’s positioning, selection method, number of constituents, and calculation. Additional information will be provided in the future with the goal of commencing calculation by the end of the year.

  • BAC report recommending greater use of IFRS in Japan now available in English translation

  • Jul 01, 2013

  • On 20 June 2013, Japan’s Business Accounting Council (BAC) issued its final report on the use of International Financial Reporting Standards (IFRSs) in Japan. The report recommends a number of measures, and may result in four possible sets of accounting standards that could be used by Japanese public companies, including greater, but not mandatory, use of IFRSs or IFRS-based standards.

  • BAC report recommends greater use of IFRS in Japan

  • Jun 21, 2013

  • Japan’s Business Accounting Council (BAC) met on 19 June 2013 to finalise its deliberations about the use of International Financial Reporting Standards (IFRSs) in Japan. Subsequent to the meeting, on 20 June, the BAC issued its final report, based on a series of BAC discussions. The report recommends a number of measures, and may result in four possible sets of accounting standards that could be used by Japanese public companies, including greater, but not mandatory, use of IFRSs or IFRS-based standards.

  • G8 stress the need for transparency in the use of natural resources

  • Jun 19, 2013

  • Meeting in Lough Erne in Northern Ireland on 17-18 June 2013, the Group of Eight (G8) finance ministers discussed the themes of 'Tax, Trade and Transparency' and agreed to make sure the world’s poorest people benefit from the natural resources of their various countries by improving the transparency of their extractive industries and land rights.

  • Japan's Business Accounting Council continues discussions on IFRS

  • Jun 13, 2013

  • Japan’s Business Accounting Council (BAC) met on 12 June 2013 to continue its deliberations about the use of International Financial Reporting Standards (IFRSs) in Japan. Although it was previously suggested that this meeting would be the final one to conclude this round of debates, the BAC continued discussions around further details of three specific initiatives to further promote use of IFRSs in Japan. As such, no decisions as to its report were made during the meeting.

  • Japan's Business Accounting Council meets to resume discussions on IFRS

  • Mar 26, 2013

  • Japan’s Business Accounting Council (BAC) met on 26 March 2013 to resume its deliberations about the use of International Financial Reporting Standards (IFRSs) in Japan. The meeting was the first to address IFRSs since Japan’s December 2012 general election, with a renewed composition of the BAC (approximately 10 out of 30 council members have been changed). There was no consensus at the meeting, and the BAC is expected to continue deliberations at future meetings.

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