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Thursday, January 23, 2014

J-GAAP: IFRS in Japan

In August 2007, the International Accounting Standards Board (IASB) and the Accounting Standards Board of Japan (ASBJ) agreed that major differences between IFRS and Japanese GAAP should be eliminated by 2008, and that other minor differences should be eliminated by 2011. Since then, the ASBJ actively worked on projects for eliminating those differences, and as a result, Japanese GAAP has become more compatible with IFRS.

In June 2009, the Business Accounting Council (BAC), an advisory body to the Financial Services Agency (FSA), issued a tentative statement, "An Opinion on How to Treat IFRS in Japan." In this statement, it provides a roadmap for voluntary and mandatory adoption of IFRS.

As for voluntary adoption, certain qualified companies are allowed to prepare their consolidated financial statements in accordance with the "designated IFRS." A qualified company should meet certain conditions:
  • It must operate international financing and business activities.
  • It must be a listed company.
  • It must be equipped with .

Each IFRS should be designated by the FSA through a public due process.
As for mandatory adoption, the BAC's statement set forth a deadline for decision making by end of 2012, and will be implemented for 2015 or 2016 financial reporting.

Since March 2010 financial reporting, the qualified companies are allowed to prepare consolidated financial statements in accordance with the designated IFRS. The number of companies that actually utilize IFRS is 20 as of May 2013, and is increasing.

On June 2011, the Minister of Financial Services issued a statement that postpones the mandatory adoption, which must not be implemented until 2016. Based on his instruction, the BAC resumed its deliberation on the mandatory adoption of IFRS since then.

On June 2013, the BAC issues another statement, "Tentative Policy on How to Cope with IFRS." In this statement, it proposes:

  • To relax the conditions for qualified companies that are allowed to use IFRS.
  • To allow a use of another set of IFRS, which is endorsed by the FSA with certain possible modifications.


Within 2013, the conditions for qualified companies are relaxed by the FSA. As a result, they just have to be equipped with an an appropriate system that assures fairness of consolidated financial statements in accordance with IFRS (i.e., they do not have to be an multinational enterprise or a listed company). The procedure for endorsement of IFRS is currently (January 2014) discussed by a working group, which is formed in the ASBJ.

In summary, a qualified Japanese listed companies would have several options in preparing consolidated financial statements:

  • Japanese GAAP
  • U.S. GAAP, for SEC registrants.
  • Designated IFRS, for (relaxed) qualified companies
  • Endorsed IFRS with certain possible modifications. (under development)

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