Japan becomes the newest IFRS country

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11 Dec 2009

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.

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. The IASB has issued a welcoming Press Release (PDF 101k).

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.
A company that chooses to apply Designated IFRSs will be required to disclose in the initial fiscal year of such application:
  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.
In subsequent fiscal years, the company will be required to disclose only the information set out in (2) above. Japan intends to consider, around 2012, whether to make IFRSs mandatory for all public companies starting around 2015 or 2016.
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