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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

As a consequence of the second recommendation from the BAC report, the ASBJ issued "Japan’s Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications" in June 2015. JMIS are standards and interpretations issued by the International Accounting Standards Board (IASB) with certain 'deletions or modifications' where considered necessary. The current list of JMIS contains standards issued by the IASB as at 31 December 2012. During the endorsement process it was determined that several standards should be modified with respect to guidance related to the accounting of goodwill and other comprehensive income. To this end, two ASBJ Modification Accounting Standards were also published:

  • ASBJ Modification Accounting Standard No. 1 Accounting for Goodwill contains modifications to IFRS 3 Business Combinations and IAS 28 Investments in Associates and Joint Ventures.
  • ASBJ Modification Accounting Standard No. 2 Accounting for Other Comprehensive Income
    contains modifications to IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments (2010), IAS 1 Presentation of Financial Statements, and IAS 19 Employee Benefits.
Including the newly issued JMIS Japanese companies can now use one of four sets of accounting standards in their consolidated financial statements (subject to certain eligibility requirements), namely:
  • designated IFRSs
  • JMIS
  • Japanese GAAP, or
  • US GAAP.

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.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.