Update: IFRS developments in Japan.

• Author: Yorihiro, Keisuke
• Position: FINANCIAL REPORTING - International Financial Reporting Standards

In late February, when FEI President and CEO Marie Hollein traveled to Tokyo (as reported in Financial Executive, April 2011), she was surprised to see so many books about International Financial Reporting Standards sold at a bookstore in Marunouchi.

Since July 2009, when many financial executives first responded with great interest to a detailed impact analysis published by one of Japan's major business magazines, publishers, audit and advisory service firms and information technology vendors alike began to emphasize--through a variety of communications channels--the impact of IFRS on everything from reporting, business, systems and processes to people.

Indeed, Japan has fully committed to improving its accounting standards since the late 1990s, when Japan started to reform its accounting standards to align more closely with U.S. generally accepted accounting principles (GAAP) and/or International Accounting Standards (IAS).

Then in 2005, the Accounting Standards Board of Japan (ASBJ) and International Accounting Standards Board (IASB) agreed on a best-efforts basis to a plan to achieve closer convergence between Japanese GAAP and IFRS. They reached the 'Tokyo Agreement" in 2007, under which 26 major differences between Japanese GAAP and IFRS would be eliminated by the end of 2008, with the remaining differences being removed by 2011. ASBJ and IASB announced their achievements under the agreement in June.

As a result of these efforts, the European Commission determined in late 2008 that Japanese GAAP is "equivalent" to IFRS as adopted by the European Union.

Following the U. S. Securities and Exchange Commission's draft IFRS roadmap issued in November 2008, Japan's Financial Services Agency (FSA) released in June 2009 its Opinion on the IFRS in Japan (Interim Report), a Japanese IFRS roadmap. FSA then revised regulations to permit listed companies operating internationally to adopt IFRS effective with the fiscal year ended March 31, 2010. Also, FSA decided to not allow nearly 30 preparers of U.S. GAAP-based financials to use U.S. GAAP after March 31, 2016 (although this prohibition has now been indefinitely delayed--see below).

To date, Nihon Dempa Kogyo, HOYA Corp. and Sumitomo Corp. have adopted IFRS in their filings. The financial section in the Securities Report for Sumitomo was expanded by 26 pages to 133 pages, including explanation of transition to IFRS from U.S. GAAP. The size of HOYA's report doubled, including an explanation of...