| Extent of IFRS application | Status | Additional Information |
|---|---|---|
| IFRS Accounting Standards are required for domestic public companies | ||
| IFRS Accounting Standards are permitted but not required for domestic public companies | IFRS Standards are one of four permitted financial reporting frameworks. The others are Japanese GAAP, Japan’s Modified International Standards (JMIS), and US GAAP. | |
| IFRS Accounting Standards are required or permitted for listings by foreign companies | Permitted. | |
| The IFRS for SMEs Accounting Standard is required or permitted | No. | |
| The IFRS for SMEs Accounting Standard is under consideration | No. |
Profile last updated: 11 September 2020
RELEVANT JURISDICTIONAL AUTHORITY
The ASBJ is the private-sector Japanese accounting standard-setting body. All accounting standards set by the ASBJ are subject to endorsement by the Financial Services Agency (FSA), a Japanese government agency.
The ASBJ, a core organisation within the Financial Accounting Standards Foundation (FASF) in Japan, is directly responsible for the development and deliberation of accounting standards and the contributions to the development and improvement of international accounting standards.
The FASF was established in 2001 to contribute to the sound development of financial practices in Japan and sound capital markets by making recommendations and contributions to the international accounting system by studying, researching, and developing generally accepted accounting standards, and by studying and researching disclosure systems and various other practices pertinent to business finance systems.
The International Accounting Standards Board (Board) and the ASBJ have been working together to achieve convergence of IFRS Standards and Japanese Generally Accepted Accounting Principles (Japanese GAAP) since 2005. That work was formalised in 2007 with the Tokyo Agreement.
COMMITMENT TO GLOBAL FINANCIAL REPORTING STANDARDS
In October 2013, the FSA revised its Cabinet Office Ordinances to encourage further application of IFRS Standards in Japan. This revision eliminated two requirements that stipulated which companies are eligible to use IFRS Standards. As a result, the number of companies eligible to apply IFRS Standards was increased from 621 to 4,061 at that time, covering virtually all listed companies and unlisted companies preparing consolidated financial statements for listing purposes.
Under the current regulation, a company may voluntarily use IFRS Standards if it meets the following criteria:
- The company discloses, in its Annual Securities Report, information regarding specific efforts to ensure that the consolidated financial statements will be prepared in accordance with Designated IFRS [defined below]; and
- The company allocates executives or employees with ample knowledge about Designated IFRS, and puts in place a structure to ensure that the consolidated financial statements will be prepared properly in accordance with Designated IFRS.
(Source: Revised Cabinet Office Ordinances issued by the FSA on 28 October 2013.)
‘Designated IFRS’ is a set of IFRS Standards that have been designated by the Commissioner of the FSA. To date, all IFRS Standards have been so designated prior to their effective dates.
Reconciliation between the consolidated financial statements prepared in accordance with Designated IFRS and those prepared in accordance with Japanese GAAP is not required. At the transition to Designated IFRS, however, a company is required to disclose Japanese GAAP financial information for the current and immediately preceding year. In addition, supplemental disclosure is required relating to the major differences between IFRS Standards and Japanese GAAP for the current and immediately preceding years.
2007 Memorandum of Understanding (‘Tokyo Agreement’)
The Board and the ASBJ have been working together to achieve convergence of IFRS Standards and Japanese Generally Accepted Accounting Principles (GAAP) since 2005. This work was formalised in 2007 with the ‘Tokyo Agreement’. The MoU between the IASB and the ASBJ has been superseded by Japan's membership of the Accounting Standards Advisory Forum (ASAF).
EXTENT OF IFRS APPLICATION
For DOMESTIC companies whose debt or equity securities trade in a public market in the jurisdiction:
Some ─ those companies that meet certain criteria as described above.
On 30 June 2015, Japan inaugurated a new set of accounting standards to be known as Japan’s Modified International Standards, bringing to four the number different accounting frameworks that listed companies in Japan may use. The four frameworks are:
- IFRS Standards. Virtually all listed companies and unlisted companies preparing consolidated financial statements for listing purposes are permitted to use IFRS Standards. (This means IFRS as designated by the Commissioner of the FSA.)
- Japanese GAAP as issued by the ASBJ. Historically, most listed companies have used Japanese GAAP.
- Japan’s Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications. JMIS was developed based on IFRS Standards with deletions and modifications determined by the ASBJ. Concurrent with issuance of JMIS on 30 June 2015, the ASBJ published modifications relating to amortisation of goodwill and recycling of other comprehensive income.
- US GAAP. With the permission of the Commissioner of the FSA.
The Tokyo Stock Exchange (TSE) has announced that as of 30 June 2020, 234 companies (accounting for 42% of the TSE market capitalisation) have adopted or plan to adopt IFRS Standards. The 234 companies include 223 companies that have already adopted or are in the process of adopting IFRS Standards, and another 11 companies that have publicly stated that they plan to adopt IFRS Standards. The TSE has also announced that an additional 172 companies (12% of the TSE market capitalisation) have stated in their most recent financial statements that they are considering whether to move to IFRS Standards.
The above data is taken from an announcement by the Tokyo Stock Exchange, which may be accessed here. The announcement includes a link to a more detailed analysis of the use of IFRS Standards by TSE listed companies.
By comparison, in December 2012 only 10 Japanese companies were using IFRS Standards.
For FOREIGN companies whose debt or equity securities trade in a public market in the jurisdiction:
IFRS ENDORSEMENT
TRANSLATION OF IFRS ACCOUNTING STANDARDS
A review committee appointed by the IFRS Foundation approves the Japanese translation of the IFRS Standards and related material contained in the Japanese version of the Red Book.
The Japanese translation is published by the FASF with the permission of the IFRS Foundation. The Japanese translation is the copyright of the IFRS Foundation. The above process ensures an ongoing translation of the continuous updates to the standards.
