'International accounting standards essential for growth'

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23 May 2014

The Japanese IASB member Takatsugu Ochi has published an article in the 'Nikkei Asian Review' arguing that Japan would profit from adopting IFRSs.

Mr Ochi points to the fast-growing number of countries have incorporated IFRSs into their accounting systems (some of them just recently) because adoption of the internationally recognised Standards "deepens the understanding of financial information and enhances the possibility of comparing such information, thereby increasing business choices". As Japanese accounting standards are not widely understood in international markets Japanese companies are put at a competitive disadvantage and are left with low share prices - Mr Ochi calls this a 'Japanese standards discount'.

According to Mr Ochi, adopting IFRSs would free Japanese companies from these disadvantages and help them gain various options, such as cross-border fund procurement, capital tie-ups and business collaborations. He also points at standardised management processes and uniform control within multinational companies that would come with the adoption of IFRSs.

The fact that Japan tends to look to the United States and possible IFRS adoption there does not help, Mr Ochi claims. US-GAAP and IFRSs are already aligned in some important aspects (he especially mentions the forthcoming standard on revenue recognition) and common accounting practice is developing. A delay in adopting IFRSs does not only preclude Japan from partaking of the advantages that globally accepted accounting standards offer, it also prevents Japanese accountants from accumulating business experience and of being a part of developing common accounting practice. He states: "Once business practice is established, it would be impossible for auditors and corporations, and late-comer countries, to modify these with ease."

Mr Ochi admits that adopting a new accounting framework requires preparation time and costs money. However, he points out that this is a one-time only effect and the costs can be handled. Therefore he concludes that this one-time effect should be weighed carefully against the advantages that Japan might have from adopting IFRSs and the disadvantages it might have from not adopting - especially given that the positive effects of adopting IFRSs would be indispensable for Japan's medium- to long-term growth strategy. He concludes: "Japan cannot afford to waste any more time."

Please click for access to the full text of the article on the IASB website.

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